Iridium owners optimistic about new satellite focus

Iridium, the world's first satellite phone service, failed in its attempt to create a global mobile phone service for mass-market consumers. High costs, poor demand and looming debt payments, among other setbacks, forced the company into bankruptcy.

But the $5 billion, 66-satellite system has new owners, who recently acquired the assets in a liquidation sale for about $25 million. On Tuesday they detailed the completion of the deal and their optimistic, yet more realistic, plan for the technology.

"These guys are going to try to make lemonade out of lemons," said Jeffrey Kagan, an independent telecommunications industry analyst. "But you don't have to do a whole lot to have success with a $25 million investment."

Iridium Satellite, a new company led by chairman Dan Colussy, believes it can retool what was considered by many experts to be a brilliant technology, but not necessarily one for which consumers would pay astronomical rates. Iridium's original bulky phones cost as much as $3,000, with airtime fees of up to $7 per minute.

Instead, Iridium Satellite plans to target industrial business markets, such as aviation and oil and gas exploration concerns, as well as government customers. The company last week signed a contract with the Pentagon to serve 20,000 U.S. Defense Department workers over two years, which cleared the way for completion of its acquisition of the old Iridium's assets.

One major advantage Iridium Satellite has over its predecessors is freedom from the huge debt payments necessary to fund the $5 billion system. Iridium Satellite estimates it will cost about $7 million per month--including advertising and its contract with Boeing to manage the satellites--to operate the system, executives said.

"We do have a fairly low break-even point, so we can offer very competitive rates," Colussy said on a conference call.

Iridium Satellite plans to relaunch service by the end of the first quarter of 2001.

The company will begin service with the ability to offer data rates of just 2.4 kilobits per second (kbps). The company plans to offer Internet access at 10 kbps within six months of relaunching the service, with "short burst" messaging by the end of 2001.

Executives expect wholesale costs of less than $1 per minute, which are likely to be sold at retail by wireless carrier partner companies for less than $1.50 per minute. The rates are far higher than most cellular and other wireless phone systems but comparable with those of satellite phone competitor Globalstar Telecommunications.

"We're not going to get into price wars," Colussy said. "Our system is the only system today that offers truly global service over both poles, all the seas, and every nook and cranny on Earth. We're going to take advantage of that competitive differentiator."

Company executives believe certain government agencies and businesses will be willing to pay higher rates than cellular for worldwide coverage, even in remote areas. Executives recognize, though, that the technology will never be embraced by the masses.

"We're going to be a niche player. We don't have to be huge," Colussy said. "We don't have to be a company like Iridium planned to be with 1 million customers. We think we can have a nice return on investment and support a (second-generation) system with much more modest goals."

The original Iridium, backed by Motorola, claimed about 63,000 customers at the time of its demise. Colussy said that his new company could break even "if we get in the vicinity of where Iridium was when it left off."

Executives believe about 30,000 people still own an Iridium phone and about 7,000 continue to use the service. Iridium Satellite, which plans to spend about $10 million in marketing, particularly in targeted business and government publications, over the next year, plans to offer incentives to former satellite phone customers. Iridium Satellite also plans to upgrade the software in existing handsets for free, enabling them to receive wireless data.

Although executives declined to give specifics, Colussy said Iridium Satellite already has investors and carrier partners signed up to serve the Latin American, Middle East, African and Southeast Asian regions.

Iridium Satellite plans to launch five satellites next June, with two more in March 2002.

Colussy expects to employ a staff of about 60--although none of them former senior executives from the original Iridium--and said that about 175 former Motorola employees have transferred to Boeing to oversee the operation of the satellite network.