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Putting Iridium back in orbit

After acquiring the remnants of this one-time high-tech flameout, Carlton Jennings believes the time is right for the satellite phone company to make a comeback.

It's safe to say that Carlton Jennings didn't have the best time during his recent visit to the United States.

For about a week, he had to talk to people about Iridium, generally considered one of the worst flameouts in high-tech history.

Talk about stigma. Every room he walked into contained people who knew the company's story. Motorola spent billions launching satellites, then poured even more cash into Iridium, which was supposed to sell the service. But the company failed to find any customers and was forced to file for bankruptcy. The whole network of satellites was finally sold for a relative pittance: $25 million.

But Iridium and satellite phones aren't going away. In a strange way, the events of Sept. 11 are helping the industry make a comeback. When the World Trade Center towers collapsed, so did major antennas servicing tens of thousands of cell phone users. Most other mobile networks were overburdened by calls.

Jennings is the chief executive of Quadrant Australia, one of four companies that purchased Iridium at auction a year ago. He said people have finally started understanding the message Iridium and others had been delivering for years: The world just might need another phone network to rely on. What's more out of reach from earthly disasters than outer space?

Iridium was quietly relaunched in the United States in May, and in July it introduced a new data service as well as service to the southern Pacific. Now the company is looking to expand.

It's a little more frugal and a lot quieter than it used to be. But will Iridium shake its stigma? Will satellite phone networks survive? Jennings recently talked to CNET News about these and other issues affecting the wireless industry.

Q: Who is using satellite phones nowadays?
A: It is becoming very competitive, most competitive in Australia, where you have Iridium, Globalstar and MobileSat. That's three services operating in that area. There's competition in Southeast Asia, Malaysia, Thailand, the Philippines, and in the maritime community all around the world.

It's not a panacea to move the satellite industry along. What it's done is to show the value of an alternative network. Why would someone use a satellite phone when there are nearly a billion cell phones on the planet right now?
It is a reliable system that has a long life span. Our satellite system now has a lifespan through at least 2010. We already do SMS (Short Messaging Service, which sends text messages to phone users), and we're looking at remote equipment monitoring. You take a small device and put it on a pipeline to monitor flow temperatures, then send it back via the Net to an operator. Don't take capacity away from voice services doing this. Take a refrigerated tractor-trailer, for instance. You need to know the temperature, need to know if it's hijacked; (it) costs you pennies per day to monitor. You can control the temperature.

The World Trade Center and Pentagon incidents have helped spike sales in cell phones, apparently. Has that been the same for satellite phones?
We saw a big upturn in not only the sales of Iridium services, but usage. While the sales have come down from the peak, we still see that usage is fairly high--not just in the region of the World Trade Center and the Pentagon. People have recognized the value of having an alternative network, so they continue to use it. We saw a lot of handset sales. One service provider provided 600 handsets the day after the terrorist attacks to the U.S. government, and they were activated within minutes. Everybody else in the satellite (industry) has seen the uptick. It's not a panacea to move the satellite industry along. What it's done is to show the value of an alternative network.

What is the panacea?
Data. As of the end of October, (we saw) data go from zero to 25 percent of our usage. That's a fairly large jump; it validates our view that a voice service combined with a data service will be the application everyone wants.

MobileStar and Ricochet are two wireless ISPs that have recently filed for bankruptcy and are starting to rise again. Iridium's travails are well documented. Is this how wireless ISPs work? Spend, go bankrupt, and then be relaunched? Why this pattern?
It's because there is a huge demand for it. It's just a matter of getting your services in line with demand. Take DirecTV, for example. When it first started, huge analog dishes 5 meters across (cost) $12,000--(all) so you could steal HBO? It was expensive, and they sold it. Those companies went bankrupt. It took a third generation to come out with a specialized satellite, which is digital. Essentially (the companies) gave away the equipment (and provided) free installation, (and) now people are happy to pay for service. That's second- and third-generation stuff. That's exactly what these wireless services are. You just need to align yourself with demand.

What happens to satellite phones when Verizon Wireless, for instance, flips on its new network?
The old Iridium was focused on being the No. 1 phone to global business travelers. That's not a market; it doesn't exist, except for perhaps in the GSM world. We will still have a market. What you will see is consolidation in the wireless industry. Many companies preceded Iridium and never made it into orbit, and we've seen some recent companies folding. The key is for Iridium to re-program itself to work with 2.5G and 3G networks--to cooperate with them. Then it becomes a service many will utilize.

Aren't you doing the same stuff that third-generation networks will offer?
But (third-generation networks are) all going to be essentially still tied to a post somewhere. We're everywhere. Go 20 miles outside of Denver, and you can't do anything. Look at OnStar: This is on a cellular-based service, so if your truck breaks down in an area without service, you can't reach OnStar. If you're able to couple that with Iridium, you have ubiquitous service.

What will it take for satellite phones to survive?
We need longer-term contracts with large carriers. That's where we're putting our focus: carriers who can offer us as a ubiquity. (We're also looking at) telematics for vehicles, when you can now put a device in a vehicle that can monitor engine performance (or) tell you when the airbag is deployed. Some 15 percent of all accidents in rural areas (account for) 90 percent of all fatalities. If you have a service that lets you know the airbag has deployed, you can get help immediately.

(Satellite-based) Internet service is pretty big. Most people are downloading corporate e-mails and PowerPoint presentations.

What are some of the lessons learned from the failure of the old Iridium?
The old Iridium was focused on being the No. 1 phone to global business travelers. That's not a market; it doesn't exist, except for perhaps in the GSM world. (GSM is the Global System for Mobile Communications, one of the leading digital cellular systems.)

The new Iridium is focused on where people need communications where they don't exist, are marginal, or are extraordinarily expensive--or they are able to use satellite-based phones. That puts us into forestry, maritime, exploration; it puts us into the government markets.

Why did Iridium fail?
Part of their problem was they had $5.5 billion in operating costs to overcome. Their service costs were $1 billion a year to run the network and provide debt service. We got it out of bankruptcy court for $25 million.