Iridium Satellite gets focused

Debt-free provider targets government, industrial users After officially acquiring the assets of Iridium last week, Iridium Satellite's Chairman Dan Colussy outlined plans to offer satellite communication service to industrial users and government agencies such as the Department of Defense, with which his company had signed a contract one day earlier.

Unlike its predecessor, Iridium Satellite operates without the weight of debt on its shoulders and is positioned to target only those that need to communicate in remote areas. With lower operating costs and more focus, this Iridium should last longer than 16 months.

In addition to its two-year, $72 million contract with the Defense Department, Iridium Satellite intends to begin servicing industrial customers toward the end of first quarter 2001.

"Our focus will be on those companies or customers that need service to remote areas. Based on our meetings, there is a need for remote communications services, and I don't see us interfering with cell phone service providers," Colussy said. "We will be a niche company, and we don't have to be what Iridium originally wanted to be."

With its Defense Department contract, Iridium Satellite now has to gain 40,000 additional private subscribers willing to pay about 80› per minute for phone service to break even. Without the government contract, the company would need about 60,000 customers to break even. By targeting the industrial segments and the government, the company and some industry observers express confidence that it will be easier to attract customers.

"There is great potential with what they are trying to do now, unlike what they were supposed to do when they started," said Anna Karampahtsis, an analyst for Allied Business Intelligence.

"We all know that Iridium failed because it targeted the consumer markets and that it did not expect to see terrestrial networks covering the same market. Now it has turned its focus onto businesses and government agencies, where there is more potential," she added.

In addition to the 66 Iridium satellites in orbit, the company will launch seven more in about a year, giving the constellation at least two spares in each orbit.

While its cost structure will be different, due to a lack of debt and lower operating costs, Iridium Satellite intends to stand apart in other ways. The company will begin offering data at 2.4 kb/s and plans eventually to take that to 10 kb/s. The company also wants to offer short burst messaging service in the near future, Colussy said.

For the first year, Iridium Satellite will provide special offers to those who already have Iridium phones. One plan calls for the company to take back the phones and upgrade them with software that supports data.

"They are trying to explore different areas because, when a company fails at something, they have to try something else," Karampahtsis said.

Though the company did not disclose any specific pricing information, it did speculate that different marketplaces could have specifically tailored pricing.

"With no debt and monthly operating charges of less than $7 million, I am confident pricing will be at or below other satellite operators on the market," Colussy said. "I can assure that pricing will be competitive.

"But our strongest force won't be pricing. Our system is the only one that can offer true global coverage over both poles, all oceans and to every nook and cranny of the Earth. We will take advantage of this strong competitive differential that we have."

The company will work exclusively through service providers and is in the process of signing agreements with major providers around the world, Colussy said. Boeing has agreed to work with the company, and Motorola is expected to provide subscriber equipment.

Iridium Satellite did not detail its investment backing, but officials said there is strong backing and solid capitalization.