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New focus, new fears aid Iridium relaunch

The desire for more-reliable communications options helps the once-bankrupt satellite-phone service provider make a comeback. Though some analysts are not so optimistic.

The once-bankrupt Iridium Satellite is rising from the ashes, benefiting from the sudden interest in satellite phones after the telecommunications breakdown during the Sept. 11 terrorist attacks.

"We saw a big upturn in not only the sales of Iridium service but in use," said Carlton Jennings, chief executive of Quadrant Australia, one of the investors in Iridium. Quadrant Australia is part of a group of several investors that bought Iridium's assets, valued at $5.5 billion, for about $25 million.

"This is not just in the region of the World Trade Center and the Pentagon. People have recognized the (general) value of having an alternative network" as a backup, Jennings said.

Iridium uses a group of satellites as its network. Because the network floats above Earth, there is little to block the path of radio waves that carry the phone call from a phone to the satellite and on to the call's recipient.

Cell-phone networks rely on antennas placed on buildings, light poles or other structures. Coverage can be spotty in areas where there are no antennas or the cell phone does not have a clear line of sight to an antenna.

With its new owners, Iridium quietly relaunched the service this month in a huge area stretching from Pakistan in the east to the islands off the coast of Chile in the west.

Its first customer is the U.S. Department of Defense, which is paying Iridium $72 million so 20,000 of its employees can use the satellite phone system. The company is also going head-to-head with Qualcomm, which owns a satellite network, to grab clients in the airline industry. The airlines are looking to satellite networks as a tamperproof way to monitor what goes on inside of planes.

It is all part of the rehabilitation of Iridium, which as the world's first satellite-phone service grabbed $5 billion in funding from Motorola and other investors and built a 66-satellite system. But it failed in its efforts to create a global mobile-phone service for mass-market consumers after gaining less than 50,000 customers. High costs, poor demand and looming debt payments, among other setbacks, doomed the company.

Iridium was not alone in its woes. Several satellite-phone and Internet operators--facing poor sales--have filed for bankruptcy, been acquired or postponed their launch.

The new Iridium owners are honing the company's focus. Instead of selling to just anyone, the company is targeting specific industries, like oil and gas, or the maritime industry, one of Iridium's original customers.

"The old Iridium was focused on being one number, one phone to a global business traveler," Jennings said. "That's not a market. It doesn't exist."

The company has also cut costs and given its handsets a makeover. Costs have dropped from a whopping $7 to $13 per minute of use to about $1.50 per minute, with cellular service as low as 10 cents per minute. Instead of $3,000 handsets, the new ones cost $1,300 new and about $500 for what amounts to used Iridium phones.

Some analysts are not so optimistic about Iridium. Compared with cellular-phone network operators, Iridium is still expensive, and recent technological advances may be wiping out the advantages satellite phones have had vs. cell networks.

For example, Lucent Technologies is developing a way to connect cell phones on different types of networks and create the same type of global reach Iridium boasts of. Carriers have also been upgrading their networks to offer higher speeds, another of Iridium's claims. AT&T Wireless and Cingular Wireless have launched their higher-speed networks in Seattle, with plans for a bigger expansion during the next year.

"Unless they can provide something different than what traditional operators have, I'm not sure" of their prospects, said wireless-industry analyst Jane Zweig of The Shosteck Group. "I don't think people care if their service comes from a satellite, as long as it works and it's cheap."