IRIDIUM’S INFANCY YEARS
By 1992, the Iridium Project attracted such stalwart companies as General Electric,
Lockheed, and Raytheon. Some companies wanted to be involved to be part of the satellite
technology revolution, while others were afraid of falling behind the technology curve. In
any event, Iridium was lining up strategic partners, but slowly.The Iridium Plan, submitted to the FCC in August, 1992, called for a constellation of
66 satellites, expected to be in operation by 1998, and more powerful than originally proposed,
thus keeping the project’s cost at the previously estimated $3.37 billion. But the
Iridium Project, while based up lofty forecasts of available customers, was now attracting
other companies competing for FCCapproval on similar satellite systems including Loral
Corp., TRW Inc., and Hughes Aircraft Co., a unit of General Motors Corp. There were at
least nine companies competing for the potential billions of dollars in untapped revenue
possible from satellite communications.
Even with the increased competition, Motorola was signing up partners. Motorola had
set an internal deadline of December 15, 1992,to find the necessary funding for Iridium.
Signed letters of intent were received from the Brazilian government and United
Communications Co., of Bangkok, Thailand, to buy 5 percent stakes in the project, each
now valued at about $80 million. The terms of the agreement implied that the Iridium consortium
would finance the project with roughly 50 percent equity and 50 percent debt.
When theDecember 15th deadline arrived, Motorola was relatively silent on the signing
of funding partners, fueling speculation that it was having trouble. Motorola did admit
that the process was time consuming because some investors required government approval
before proceeding. Motorola was expected to announce at some point, perhaps in the first
half of 1993, whether it was ready to proceed with thenext step, namely receiving enough
cash from its investors, securing loans, and ordering satellite and group equipment.
As the competition increased, so did the optimism about the potential size of the
“We’re talking about a business generating billions of dollars in revenue,” says
John F. Mitchell, Vice Chairman at Motorola. “Do a simple income extrapolation,” adds
Edward J.Nowacki, a general manager at TRW’s Space & Electronics Group, Redondo
Beach, Calif., which plans a $1.3 billion, 12-satellite system called Odyssey. “You conclude
that even a tiny fraction of the people around the world who can afford our services will
make them successful.” Mr. Mitchell says that if just 1 % to 1.5 % of the expected 100 million
cellular users in the year 2000 becomeregular users at $3 a minute, Iridium will breakeven.
How does he know this? “Marketing studies,” which he won’t share. TRW’s Mr. Nowacki
says Odyssey will blanket the Earth with two-way voice communication service priced at
“only a slight premium” to cellular. “With two million subscribers we can get a substantial
return on our investment,” he says. “Loral Qualcomm Satellite Services, Inc. aims tobe the
‘friendly’ satellite by letting phone-company partners use and run its system’s ground
stations,” says Executive Vice President Anthony Navarra. “By the year 2000 there will be
15 million unserved cellular customers in the world,” he says.15
But while Motorola and other competitors were trying to justify their investment with
“inflated market projections” and a desire from thepublic for faster and clearer reception,
financial market analysts were not so benevolent. First, market analysts questioned the size
of the customer base that would be willing to pay $3000 or more for a satellite phone in addition to $3–$7 per minute for a call. Second, the system required a line-of-sight transmission,
which meant that the system would not work in buildings or in cars. If a...