Iridium

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A07-00-0025

The Rise and Fall of Iridium
The Global Village just got a whole lot smaller. “After 11 years of hard work, we are proud to announce that we are open for business,” said Edward F. Staiano, Iridium LLC Vice Chairman and CEO. “Iridium will open up the world of business, commerce, disaster relief and humanitarian assistance with our first- of- its-kind global communicationsservice.... The potential uses of Iridium products is boundless,” continued Staiano. “Business people who travel the globe and want to stay in touch with home and office, industries that operate in remote areas, disaster and relief organizations that require instant communications in troubled areas—all will find Iridium to be the answer to their communications needs.” Using its constellation of 66low-earthorbit satellites, the Iridium system provides reliable communications from virtually any point on the globe. From ships at sea, to the highest mountains to remote locations, Iridium customers will be able to make and receive phone calls on their Iridium phone. For people travelling to urban areas in the developed world, Iridium offers a cellular roaming service featuring dualmode phones that canbe switched to operate with terrestrial wireless services. Excerpts from Iridium press release, November 1, 1998

On November 1, 1998, Iridium began commercial telephone service. Satellite paging service began two weeks later. To build the satellite network, Iridium spent $5 billion, which was raised from a combination of debt, an IPO, and equity investments by various corporate shareholders,including Motorola Inc (Motorola), Kyocera Corporation (Kyocera), and Sprint Corporation (Sprint). Motorola also served as the project’s prime contractor. The estimated number of subscribers needed for Iridium to break even was 400,000, and Iridium hoped to add 50,000 subscribers per month in 1999. However, a variety of problems plagued the company and by May 1999 Iridium had only 10,000subscribers. In August 1999 Iridium defaulted on its debt and filed for Chapter 11 bankruptcy protection. In March 2000, with only 50,000 subscribers, Iridium terminated its services and announced that it would soon finalize a deorbiting plan for the 66 satellites. Motorola announced that it was “extremely disappointed” that Iridium did not emerge from bankruptcy protection. Motorola’s estimated financialexposure to the bankruptcy of Iridium was $2.2 billion.

Satellite Communications
Various different systems could be utilized to provide mobile satellite services (MSS). The oldest technology utilized geostationary earth orbit designs. Geostationary satellites were positioned 22,300 miles above the earth’s surface and rotated with the earth in a geosynchronous orbit. From the earth’s surface, thesatellite appears to be fixed above a particular point and a global system using geostationary satellites can be built using as few as three such satellites. However, these satellites were expensive, costing approximately $100 million apiece to build and another $10 million each to launch. In addition, the
Copyright © 2000 Thunderbird, The American Graduate School of International Management.All rights reserved. This case was prepared by Professor Andrew Inkpen with research assistance from Meredith Martin and Ileana FasPacheco for the purpose of classroom discussion only, and not to indicate either effective or ineffective management.

distance from the earth’s surface to the satellite can cause a quarter of a second delay between sending and receiving, which can be annoying tocallers. Low-earth-orbit (the system utilized by Iridium) and medium-earth-orbit satellites did not have a time-delay problem and were much less expensive to produce and launch. However, instead of appearing stationary over a particular point on the earth’s surface, these satellites flew overhead at speeds of more than 15,000 miles per hour. Tracking them from the ground and handing off calls from...
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