Iridium makes plans for a next-generation service
By Stephen Pope / August 2006

The clock is ticking for Iridium, the global satellite communications service that has made its mark by providing voice and low-rate-data communication services for a growing list of customers around the world. The current network of cross-link, low-earth-orbit (LEO) satellites has only enough life left to last another eight years or so, the company says, leaving precious little time to figure out how to replace the constellation with a new generation of satellites.

There are a number of important questions engineers must grapple with as Iridium Satellite LLC, the company that owns the current constellation, prepares for the day it will need to replace the satellites in orbit now, ensuring the communications service will continue uninterrupted operations for many more years to come. Will the next version of Iridium include 66 satellites and 10 orbital spares, as it does now? Will these new satellites offer enhanced capabilities and clearer voice quality? Who will build and launch the satellites and, just as important, who will pay for them?

The Iridium constellation in its present form is thought to have enough longevity to last until 2014. After that the satellites will start
to fizzle out as power runs low and delicate components fail. To meet the challenge of keeping Iridium services up and operating
as that starts to happen, the company began a serious effort earlier this year to develop a number of possible satellite replacement strategies, according to Don Thoma, executive vice president for Iridium Satellite in Bethesda, Md.

At this point there are more questions than answers about Iridium, and they’re all on the minds of engineers not only at the company’s own headquarters, but also at those of several potential partners, where imaginations are working overtime. One thing at least is certain, Thoma said: there will be a next-generation Iridium.

“Since we have a constellation of satellites that operate as a mesh network in the sky, we’re fortunate in that we don’t have to replace the entire constellation in one fell swoop,” he said. Although the estimated cost to replace the Iridium constellation surpasses $1 billion, that can be spread out over perhaps as many as 10 years or more. Right now Iridium Satellite is focusing on determining the precise schedule for satellite replacements. Thoma assured that whatever course designers take, the company can fund the new constellation, either from its own coffers or by turning to outside investors.

Iridium is promising more information about the next-generation service later this year, but its public comments so far have been intriguing. Higher-speed data services will likely be among the network’s enhancements, although broadband-type connections may or may not be in the cards. Iridium is hoping to entice airlines with Acars messaging capability, global airborne safety services and limited passenger connectivity, such as for text messaging and e-mail access. Such services wouldn’t require a very wide data pipe, but Iridium has also said it is exploring ideas that would, such as for Internet-based tv, on-demand satellite radio and video links and even an “enhanced GPS” network.

While it is clearly an exciting time to be an executive or engineer at Iridium, it is also somewhat incredible to be an outside observer contemplating such rosy long-term future plans for the satellite service considering its tumultuous beginnings. The Iridium saga represents one of the biggest blunders in corporate history coupled with one of the greatest comeback stories of all time. The details of the rise and fall (and rise again) of Iridium are the stuff of business textbook legend, in spite of the story’s almost too-farfetched-to-be-believed premise. Here are the details in a nutshell.

The Iridium Story
Motorola spent more than $5 billion in the 1990s to build and deploy a complicated network of LEO satellites only to watch the business go up in smoke after customers en masse rejected the service and its unwieldy telephone handsets. The service was on the air for only nine months before a bankruptcy judge, in one of the greatest fire sales in corporate history, awarded ownership of Iridium’s assets to a small group of investors led by aviation industry veteran Dan Colussy. The group paid a mere $25 million for Iridium’s 76 satellites and valuable supporting infrastructure.

The new company that emerged, Iridium Satellite LLC, immediately commissioned Boeing to operate the satellite network and then set about shutting down all but two of the service’s 12 original ground earth gateways. Executives rewrote the business model to shift from the consumer market to defense, maritime and aviation, which offered the surest way of attracting ready buyers with cash in hand. Within four years of restarting the service, the new Iridium was reporting positive cash flow on the strength of more than 100,000 subscribers, a figure that has climbed to more than 150,000 and counting since then.

The original concept that evolved into the Iridium satellite network traces its genesis to the late 1980s, when Motorola executives and engineers began considering a business model for a global handheld cellular network that would use a large number of orbiting satellites rather than ground stations to receive and route calls. It was a radical idea for its time. The original target market for Iridium was the global business traveler, someone who needed to communicate outside his or her home cellular network, often in parts of the world where cellular infrastructure was lacking or simply didn’t exist.

By the late 1990s, however, when the Iridium constellation and supporting ground infrastructure were finally finished, few customers were interested in the service. By that time, personal cellphones small enough to slide into a shirt pocket were commonplace. By contrast, Iridium satphones were the size of a brick and nearly as heavy. Worse, the phones couldn’t be used indoors or in large cities, where buildings often blocked their view of the satellites. Iridium was in serious trouble right out of the gates and the company knew it.

Iridium’s debtors also quickly realized the service would never achieve the millions of subscribers Motorola originally envisioned, and less than a year after the much ballyhooed launch of commercial service in 1998 Iridium LLC entered Chapter 11 bankruptcy protection.

Rebuilding Iridium
As original Iridium executives faced the grim prospect of scrapping the network by intentionally de-orbiting the satellites and having them burn up in the atmosphere (the idea received serious consideration at one point), an investor group led by Colussy–who had served as president of Pan Am in the 1970s and is a holder of both a Harvard MBA and a commercial pilot certificate–stepped in with an offer to purchase the assets of Iridium free of any liability associated with the company’s debt or a flurry of investor lawsuits.

A key piece of the puzzle that allowed Colussy’s plan to succeed was the company’s entering into a long-term agreement with the Defense Department for communications services routed through a government-owned Iridium gateway station in Hawaii. That provided the new Iridium with immediate cash flow as it contracted with Boeing for operation of the satellite network, a deal that included bringing aboard roughly 200 Boeing employees, many of them from the old Iridium, to work at a Boeing-controlled satellite operations center in Leesburg, Va., and a technical support center across the country in Mesa, Ariz.

According to legend, Motorola’s troubles started when an engineer’s wife incredulously asked why she couldn’t place a cellphone call from the family’s vacation spot in the Bahamas–or anywhere else in the world, for that matter. Senior managers took the challenge seriously, and the rest is business textbook history.

It’s interesting to note that the $25 million Colussy and other investors paid for Iridium represents just one half of one cent of every dollar of original investment–assuming the $5 billion estimated cost for the Iridium network is accurate. Some say that by the time the dust settled the failed business had actually cost Motorola and its partners somewhere between $7 billion and $8 billion.

By contrast, the new Iridium spent about another $150 million on the business before it reached its current cash-flow-positive stage at the end of 2003 (it has turned a profit the last five quarters in a row), representing probably the biggest bargain in corporate history.

The Iridian Proposition

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