Iridium losing steam

Recent reports that Iridium won't meet customer and revenue targets are yielding concern over the satellite provider's ability to fulfill financial obligations. The company issued a statement last week acknowledging that it will likely miss its first-quarter target numbers, but insisting that it will meet its debt payment. Iridium had 3000 customers at the end of 1998, two months after launch.

If Iridium defaults on loan payments, effects could be far-reaching. "If they fall too far behind, it could cause some serious problems for Motorola," said Tom Nolle, president of Cimi Corp. Motorola is responsible for some of Iridium's loans.

Iridium blames a delayed launch, phone shortages and the lack of fully trained salespeople for low subscriber numbers-not a lack of demand. Some analysts believe Iridium's original plan can't be realized in today's market. "The concept failed to take into account business and technology advances," Nolle said. "It was very short-sighted." The proliferation of terrestrial systems also has reduced the need for Iridium's service. "I wouldn't be surprised if something catastrophic happened to Iridium in the next year," Nolle added.

Other analysts are more hopeful. "If you invested in Iridium, you had to realize it is a long-term project," said Larry Swasey, senior wireless analyst for Allied Business Intelligence. He predicted a small subscriber base for the first year, while Iridium irons out the system technology and distribution processes. Also, nailing down the appropriate users and the most profitable segments takes time. "They have to find the appropriate price point and find niches that will pay," Swasey said. Iridium may ultimately have to decrease prices to attract more subscribers at the cost of profits.

Iridium could also seek out more effective partners worldwide, Swasey said, adding that he anticipates Iridium will launch another brand and marketing plan that could increase awareness and help to define lucrative niches.