TG Daily Feature – A decade ago, Iridium promised a nearly perfect scenario of global wireless connectivity based on satellite telephony. A flawed market strategy sent the company into Chapter 11 and Iridium disappeared from our radar a few months before the dotcom bubble blew up. Since 2001, a new Iridium has been flourishing into what could be considered the most fascinating global communications technology you never hear about. Join us for a closer look at the Iridium of yesterday, today and tomorrow: Is there a satellite phone in your future?  Extra: Image Gallery

Last month we stumbled across a rather ordinary financial press release note from Iridium stating that the service has reached a customer base of 234,000 users. A t first sight, there is nothing spectacular about a mobile communications firm with such a customer base, considering AT&T Wireless has more than 70 million subscribers. But if you are aware of the company’s history, and the fact that the company was not able to attract more than 15,000 customers during its hype, this number is simply astonishing.

Iridium was one of the big stories in the late 90s. However, the last time I followed the company closely, was when it came out of bankruptcy proceedings. I am probably not the only journalist who thought we wouldn’t hear from Iridium ever again. But Iridium managed to quietly grow under our radar and has made huge steps towards the global communications promise once made by its parent company Motorola: Motorola launched Iridium’s satellite phone service with much fanfare back in November of 1998 and the stock market drove the firm’s capitalization above $8 billion within months of its IPO in 1997.

I had high hopes for Iridium back in the late 90s, when national and international roaming rates from your cellphone provider were multiple times the rates we pay today, aside from the fact that true global wireless connectivity was more a theory than a reality. The news that Iridium is gaining strength was reason enough for me to catch up with Iridium executive Greg Ewert. How is today’s Iridium different from the original Iridium? Are satellite communications ready to become a mass market application? Can there be enough pressure for the traditional telecommunications industry as well as the large wireless carriers to accelerate their innovation efforts? 

  

The fall of the old Iridium LLC

There is an interesting story behind every great idea and Iridium is no exception. As the story goes, it was Karen Bertiger, who wasn’t comfortable going with her husband Bary on a honeymoon to Turtle Cay in the Bahamas, knowing that she wouldn’t have a mobile phone connection there. She kept asking Bary, an engineer at Motorola, to build such a phone and he eventually jumped on the idea and presented it at Motorola.

By 1987, Bertiger had developed a first concept, describing a system of 77 low-earth-orbiting (LEO) satellites. The name “Iridium” was derived from this concept, as the number of satellites was the same as the number of electrons in the element Iridium. Eventually, the number of satellites was reduced to 66 and in 1990, Motorola chairman Robert Gavin found the technology intriguing enough to approve the construction and deployment of the system for an estimated cost of $3.37 billion. The first 47 satellites were deployed in 1997. In 1998, the number grew to 66 satellites and six spares.

Few technologies received critical reviews and doubt during the dotcom boom. There was plenty of accessible venture capital and high flying stocks on Wall Street provided enough justification to pour money into projects that, from today’s view, seemed ill-fated from the very beginning. On the very low-end you had products such as 3Com’s ugly, battery-less dial-up webpad “Audrey”, which has become a symbol for the failure of this particular product category. On the high-end it was Iridium that showed all the characteristics to raise doubt among analysts, investors

and journalists alike, but the company was lucky enough to fall into the limitless optimism for virtually any technology at the time.

Analysts speculated back then that Iridium would need about 1 million customers to reach a break even. The estimated cost just to maintain the satellite network was about $540 million per year. Despite the hype, Iridium saw just a lukewarm feedback from customers: Just 3000 customers subscribed to the service in 1998. By the end of March, the customer base was just 10,300 and by the end of June just about 15,000. Still, especially market research firms fueled the hype around the company: Dataquest, for example, estimated in early 1999 that global satellite phone services would be able to attract about 10 million subscribers by 2003. Consider calling rates between $7 and $10 per minute and handset prices of more than $3000 and you can easily imagine that this was at least a $1 billion per month industry, if Dataquest was right. As we know today, they were wrong.

What was ignored at the time was the fact that Motorola had borrowed lots of money to build Iridium’s satellite network (the final price tag was reportedly more than $5 billion). The staggering cost to build and maintain the network as well as the failure to attract enough customers pushed Iridium’s quarterly losses above the half-a-billion-dollar mark by Q1 1999 and eventually forced the company to file for Chapter 11: Less than a year after the official launch of the service, Iridium defaulted on a $1.5 billion loan in August 1999.  

Motorola’s efforts to take Iridium out of Chapter 11 proceedings were unsuccessful and the company announced in March of 2000 that it would abandon the satellite network and liquidate Iridium’s assets to help pay for some of the firm’s debt. "Motorola is extremely disappointed that Iridium has not succeeded in its effort to emerge from voluntary bankruptcy," Motorola said in a statement on March 17, 2000. "Motorola and other Iridium investors have worked very hard to support Iridium's efforts to reorganize and continue operating the business. Unfortunately, that has not happened."

Bary Bertiger remained with Motorola as senior vice president, where he was in charge of Motorola’s Satellite Communications Group until 1999. After the failure of Iridium, he became senior vice president and general manager of the company’s Global Telecommunications Sector. He retired from that position in 2002 and is currently managing director at Grayhawk Capital and Co-CEO of GrayPeaks, a firm offering on-demand wireless solutions.



Read on the next page: The rise of the new Iridium LLC, Network feature set