Rumours of Iridium’s Death Greatly Exaggerated

The ambitious but quickly bankrupt Iridium satellite network may have cost its investors billions after the $US8 billion network was recently snatched up for just $US25 million by new shell company Iridium Satellite, but the companies involved in its resurrection are confident the renewed system will find relevance in a number of Australian market niches.

After purchasing the ailing Motorola-backed 66-satellite communications network – which went into bankruptcy just over a year after its 1999 launch and was slated for destruction this year – Iridium Satellite quickly moved to redelegate responsibility for the network, with Boeing picking up the task of everyday network and operations management. A major 20,000-handset deal with the US military soon provided some revenue for the company, and a lower pricing structure is designed to make Iridium price-competitive against existing international roaming services.

A variety of distributors have been appointed to set up retail relationships that will target specific vertical niches, an approach that Michael Smith, Asia-Pacific vice president for Canada-based regional distributor Stratos Global Corporation, believes will help the new Iridium succeed where the old one could not.

“Iridium previously had the view that its market was a horizontal business traveler market,” says Smith. “The new owners have a more realistic view that it’s clearly defined vertical segments such as shipping, mining, oil and gas, government, media and so on. In the past a satellite communications device was a capital purchase for a ship, but it’s now at the point where it’s a personal purchase for ships’ masters.”

Calls will now be charged at a flat rate of $US1.50 per minute, or $US0.99 per minute between Iridium phones. For that, customers get a worldwide telephone service with no black spots.

“To have this certainty, and the comfort of knowing how much your calls back to Australia are going to be well in advance, is a very useful feature for people like shipping operators and mining companies working in remote areas,” says Smith. “Iridium will definitely be flying a year from now; the business plan is conservative and doesn’t need a great deal of customers.”

Stratos has already signed up 20 Australian distributors, picked specifically for their experience serving customers in a variety of vertical markets. Iridium Satellite has been working hard to match the capabilities of the network with those of existing alternatives, and to this end its resellers can offer benefits such as the new Motorola 9505 handset that’s smaller and lighter than the previous bulky Iridium model. The revamped network also offers a free Web-to-SMS service and is slated to begin offering 10Kbps data connections later this year.

With its lower cost structure and easier price structure, Smith is optimistic his regional operation can quickly pick up 10,000 of the 60,000 customers he says the new holding company needs to make Iridium pay for itself. This is a far sight more realistic than the million it was estimated the previous Iridium network would have needed to succeed; at its height, Iridium had just 66,000 customers worldwide.

This should make profitability a relatively easy target for the network, although it still faces competition from new entrants such as the Vodafone-Qualcomm Globalstar satellite network, who have revenues from their normal businesses to help cover the massive cost of network build-out and turn a profit on the service, launched last year.

Furthermore, Iridium’s financial woes have lost it the first-mover advantage that could have been a major selling point against coming competitors such as Alcatel’s SkyBridge network, due next year, and the McCaw and Bill Gates-backed Teledesic, which was initially expected next year but has been pushed back to 2005.

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