Iridium: It's Back, Stronger And More Convincing Than Ever

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: slide show

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.

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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?

There is an interesting story behind every great idea and Iridium is no exception. As the story goes, if 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 and 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.

Greg Ewert, currently executive vice president of sales and marketing at Iridium Satellite, told TG Daily that this fresh start basically took the "industrial strength iron clad satellite network" and a revised business model that enabled the company to take huge steps towards profitability. "The approach to sell handsets to executive travelers was flawed," Ewert said. "The fact that these phones are relatively bulky and heavy and need a line of sight to satellites did not make them an attractive consumer product."

Additionally, Iridium's board of directors worked like a "dysfunctional United Nations", according to Ewert: 30 people from different nations around the world, representing different interests made it difficult to implement an economical roaming environment. "The underlying corporate structure was not well thought out," Ewert said. Today, Iridium is much leaner and focused on military, government, as well as industrial and science markets.

Colussy scrapped the old structure and kept the technology - for a bargain. Not only did he get the satellites for half a penny on the dollar, Motorola also assumed liability for all Iridium-related lawsuits - which have not been entirely resolved until today. While the company was able to retire an $825 million Puttable Reset Securities PURSSM in February 2003 and settle an $800 million suit brought against the company by Chase Manhattan Bank for $383 million in the following month, the company has still suits pending, claiming more than $4 billion in damages. The company's financial filings still carry a footnote cautioning about risks resulting from "unexpected liabilities or expenses, including unfavorable outcomes to any pending or future litigation, including without limitation any relating to the Iridium project." (However, the Wall Street Journal reported in September of last year that Motorola may be "largely off the hook")

A contract with the U.S. Department of Defense (DoD) contract allowed Colussy to take a huge step towards that breakeven point. He secured a deal for 20,000 government users on Iridium's network, which brought in enough revenues to keep all 66 satellites in the sky. Under the terms of that deal, Iridium received $72 million to provide secure voice communications for the Navy and other government users over a 2-year period. The original agreement included the option for the DoD to extend the contract through 2007 for $252 million. Talk about business brilliance.

The satellites are organized in a structure of six orbital planes with eleven units each. Each satellite is cross-linked to four other satellites - to two in its own plane and to two in the next. This feature basically enables the network to seamlessly transfer calls to other calls, if one satellite loses the line of sight to a calling device (each satellite covers a radius of 2209 km or 1373 miles and can remain connected to a device on the ground for a maximum of nine to ten minutes.) While satellite phone to satellite phone calls are completely handled via Iridium's network, the company also operates "gateways" on the ground (the commercial gateway is in Arizona) to route satellite calls into terrestrial voice and data networks.

The capability of the network to provide seamless mobile communication anywhere opens a wealth of applications areas. But while the idea of carrying such a phone to remote areas of this world and calling friends from a beach somewhere in the South Pacific sounds enticing, consumers do not represent the majority of Iridium's customer base. Besides the massive use of the network by the DoD, which uses satellite phone services in Afghanistan and in Iraq, especially the oil and gas and construction industries have adopted the service. Iridium is deeply involved in aeronautical and maritime applications as well.

Voice still makes up the majority of airtime for Iridium, but it is data that is showing the strongest growth. According to Ewert, the use of data was up 226% last year (he did not say how many voice and data minutes were used overall). The data functionality is integrated into a modem and antenna system (which can include GPS features as well) that can be attached to virtually any device for remote tracking purposes. For example, these systems can be used to track cargo and provide telemetry and diagnostics features for equipment on oil rigs.

Data transmission rates are somewhat secondary in these applications. Since Iridium was originally designed as a voice-only network, the basic data rate is only 2.4 kb/s. But often, a simple text message such as "I'm ok" is enough and is transmitted fast enough. And, Iridium provides actually pretty fast connection speeds, if they are required: The company is offering solutions that enable customers to boost the available bandwidth to up to 128 kb/s via multiple antenna systems. One of the most impressive demonstrations of Iridium's data capability so far has been a live video feed from the North Pole, using six parallel modems.

Of course, there are handset applications as well: The model 9505A, currently the only handset available, looks like a mid-90s Motorola handset with a huge antenna attached to it. The rugged device (it is water, shock and dust resistant) weighs 13.2 ounces or slightly more than a soda can, provides 30 hours of standby time and 3.6 hours of talk time. In fact, the look of satellite phones hasn't changed much over the past decade: They are still too large to enable a mass market adoption of the technology. But Ewert believes that multimode handsets, possibly in much smaller form factors, could become available within three to five years.

What has changed dramatically over the past ten years is the pricing of satellite phone calls. Customers are paying less than $2 per minute or even less than $1, depending on the subscription plan. Iridium prepaid calling cards start at about $145 for 75 minutes and go up to $4250 for 5000 minutes, which translates into per minute charges between $0.85 and $1.93 (calls to Iridium phone from landlines can be very expensive and exceed a cost of $10 per minute). Considering the extreme environments such a handset can be used in, some may consider these rates a bargain. Even if you are simply traveling to Germany and you would expect T-Mobile and its parent company Deutsche Telekom to provide reasonable calling rates, Iridium actually could be the more economical provider. In fairness, we have to mention that the 9505A phone is not subsidized and not really what you would call cheap in today's world: The device currently sells in the $1500 range.

And, just in case, you were hoping to use a satellite phone instead of a satellite phone in the near future, don't get your hopes up just yet: "We don't have to go into the commercial space to be successful," Ewert said. "The satellite phone is complementary to cellular applications. I don't see any limitations for our growth in this area yet." In other words: Commercial services aren't out of the question, but Iridium isn't really convinced that a mass market satellite phone is the right business strategy at this time.

The current Iridium network runs on the old Iridium network, which has been in development for some time when Motorola launched in 1998. Considering the fast-paced technology, this makes Iridium technology a very old network. According to Ewert, most of the satellite technology used was designed in the late 1980s and early 1990s. If you compare a PC you may have used 10 to 15 years ago to the one you have today, you get an impression how far behind the satellite technology is, despite the fact that there are admittedly longer product cycles.

The processing power of Iridium's current satellites (which were originally estimated to have an operational life of less than 10 years, are now expected to remain functional until the 2020s) is based on 200 MHz Motorola PowerPC 603e processors, which were praised because of their power efficiency at their introduction in late 1995. Some readers may remember this CPU as the heart of certain Apple computers, including Performa, PowerMac and PowerBook models that were sold between 1996 and 1998. The CPU was manufactured in a 500 nm process, carried 2.6 million transistors and scaled from 100 to 300 MHz.

Using an Internet Protocol-based architecture, Iridium hopes to take Internet functional from the ground to space, offer more flexibility and compatibility as well as new functions. Among other features, Iridium plans to integrate cameras into satellites; there will be an opportunity for "secondary payloads", which could include government and scientific instruments for weather monitoring, Iridium said. Also, the company plans to provide global navigation features as well other applications "beyond communications".

This article would not be fair if we did not mention Globalstar, one of Iridium's key rivals. In fact, Globalstar is larger than Iridium in terms of users (284,000 versus 234,000), but it has been growing slower than Iridium in recent quarters. While Iridium has posted a net gain of about 59,000 new customers for 2007, Globalstar saw its subscriber base grow by only 21,324 users (down from a net gain of 66,834 in 2006).

From a financial perspective, Globalstar sailed through rocky waters last year. The company posted revenues of $78.3 million (down from $92.0 million a year earlier), an operating loss of $24.6 million and EBITDA of $21.8 million. Iridium's 2007 revenues came in at $260.4 million (up from $212.4 million in 2006), with EBITDA of $73.6 million. The company did not comment on its operating and net income.

From a technology side, Globalstar also operates a LEO satellite network, which however consists of only 48 satellites, circling the earth at an altitude of 870 miles. From a user perspective, there are a few key differences between Iridium and Globalstar. Other than Iridium, Globalstar actually offers a national flat fee calling plan for $49.99 per month, which goes down to $39.99 in year two and down to $19.99 in year three. If you can live with the rugged phone look of the firm's Qualcomm devices, if you don't need camera and smartphone capabilities and you stay mainly in North America, this offer may actually make much more sense than what the Verizons, AT&Ts and T-Mobiles offer these days. Globalstar indicated in its 2007 financial report that it receives average revenues of $47.78 per user (ARPU), which is lower than the $50-$53 currently achieved by U.S. cellphone carriers.

The downside of Globalstar is world coverage. While North and South America, Europe, Western Asia and Australia are covered, the phones can only be used in Algeria and Morocco in Africa and will not work in large parts of Asia. International calls are also somewhat pricey with rates ranging from $0.99 to $1.99 per minute with a required pre-payment of $750 per year. Data plans are priced from $50 for 50 minutes per month to $6600 per year for a total of 800 hours of connections.

Sure, the current generation of satellite phones is bulky and you won't be able to fit such a device in your shirt pocket. Also, these phones do not offer features such as a fancy calendar, corporate email, MP3 playback or a camera. But imagine travelling to other countries without having to research if your phone will actually work at your destination. Add to that the thought that you don't have to worry about excessive roaming charges.

Satellite telephony is a capability that perfectly fits into a time of globalization. But realistically, few of us will actually be using a satellite phone in the foreseeable future: In a perfect world, we would see Globalstar-like phones and a national flat-fee calling plan on Iridium's network. But at least as it appears right now, there is little reason for satellite phone providers to offer commercial consumer products, which means that we won't get rid of those international cellphone roaming rates for many years to come.

Wolfgang Gruener is an experienced professional in digital strategy and content, specializing in web strategy, content architecture, user experience, and applying AI in content operations within the insurtech industry. His previous roles include Director, Digital Strategy and Content Experience at American Eagle, Managing Editor at TG Daily, and contributing to publications like Tom's Guide and Tom's Hardware.

2 Comments Comment from the forums

I think Iridiums are great. You just can't beat them for boating. They simply work ANYWHERE. Rock on Iridium!
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azxcvbnm321

Yes, the target audience for the first Iridium was all wrong. This is for business/military personnel who need to transmit data and information from remote places. They should try to make their network available to other carriers as well, the big advantage they have is the satellites are already in place and anyone else would have to launch their own to compete. Might as well start selling services to all the global carriers so that they can get "roaming" coverage on Mt. Everest for example.
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