This is a deal for the ages. 01/08/06 ReleVents hed: Iridium is staying alive dek: This is a deal for the ages. by James Mathewson
Regular readers have followed the Iridium saga with us since Motorola–the company’s parent–defaulted on $7 billion worth of debt, leaving the satellite data company in grave peril and $6 billion worth of low-earth-orbit satellites in danger of flame-out. When last we updated you, a veteran entrepreneur–former UNC CEO Dan Colussy–had purchased the assets of the company for a paltry $25 million, of which $6.5 million was cash. I thought this was an incredible deal, giving Colussy the infrastructure for a global anytime, anywhere voice and data network for pennies on the dollar. There were challenges ahead, but none of them seemed insurmountable, especially since he did not need to assume the company’s massive debt load.
His first action was to hire Boeing to fly the 66 birds. According to a story in the August issue of Wired magazine (which I can’t link to because it’s not online), this cut the company’s burn rate from $80 million to $7 million per month. Then he signed the Department of Defense to a $72 million annual contract, further closing the profit gap. All he needs to do now is sign up 40,000 customers worldwide (not counting the U.S. government) and he’ll reach profitability. That shouldn’t be too hard considering that the company had 27,000 customers when he bought it, leaving only 13,000 sales calls to make.
Still, there are enough drawbacks to the current setup that it may be hard to sign up .0006 percent of the world’s population (.0002 percent, presuming that most of the regular customers re-up). The first drawback is the cost of using the service. The price of the service under Motorola’s leadership was an order of magnitude higher than conventional cell prices. This meant that only commercial fishing and shipping services and the super rich could justify the cost. Hence, it only had 27,000 customers. Colussy has already dropped the price to $1.50 per minute. This will make it much easier to sign up new customers.
The second challenge involves the handsets themselves. For some strange reason, the Motorola handset used to make calls and data links is half the size of a laptop. This is about a quarter of the size of a typical geosynchronous sat phone. But these low-earth-orbit birds are several times easier to connect to than geosynchronous satellites because they fly so much closer to users and are far more numerous. So you would think they could make a handset that is only slightly larger than current cell phones. The reason they didn’t was because it took so long to develop and launch all the satellites. By the time the birds were in the air, Motorola could not invest anything in the company, and customers were forced to use 1980s handset technology. A new handset, currently under development, will hang off the belt easily; it may even fit in the shirt pocket. It should be released this fall.
There are other technical challenges with data standards and such, but given the aggressive way in which Colussy has solved the more pressing problems facing the company, I don’t expect these to stand in the way. I expect the company to achieve profitability by the end of the year (just a year after acquisition). And once it is profitable, look out. No other company has this kind of pervasive infrastructure. It could possibly take the mobile communications market by storm. Considering the initial investment, Iridium was a steal.
James Mathewson is editorial director of ComputerUser magazine and ComputerUser.com.