What began as an idea 11 years ago is a reality today as Iridium L.L.C. brought its constellation of 66 low-earth-orbit satellites online for commercial service Nov. 1, becoming the world’s first global wireless phone service provider.
“This is a very exciting week for Iridium,” said Edward Staiano, Iridium vice chairman and chief executive officer. “The system is ready for business … We are ready to sell and meet customer expectations. We know demand is there and look forward to opening our doors around the world.”
Iridium will begin by offering commercial worldwide satellite phone service, global cross roaming and its world calling card. Paging services will not be available until mid-November, as the company’s priority was readying the voice system for the service launch.
Iridium originally set a Sept. 23 deadline, but delayed it because several late satellite failures left the system untested prior to the expected launch. While it has followed through with the Nov. 1 extension, Staiano stressed in a conference call with reporters and analysts last week that the launch is by no means the end of the line for the company. The network still needs improvement and the company must secure further licensing in several regions, Staiano said.
“Commercial service availability is the first of many steps Iridium will take, as we strive to enhance and improve the technical performance of our network and add new services and advanced features, to collectively deliver what will be the most comprehensive wireless service the world has ever seen.”
At launch time, Iridium’s call drop rate was 10 percent, which Staiano said he hopes to get down to 5 percent in time. The satellite phone service drop rate may be higher in cities, where the system was not meant to function, Staiano commented. “Satellite systems by design are not meant to serve urban areas,” he said.
Cities have buildings that block the phone antenna’s line of sight to the satellite and that hurts call completion. Staiano said this is why the company is also offering a cross-roaming phone that functions on most any wireless transmission standard.
Iridium said it had 5,000 Motorola Inc. handsets ready by the launch date with commitments for another 70,000 by the end of year. Kyrocera, which had experienced delays in handset testing, has caught up and has reported call performance rates matching Motorola’s. The company plans to deliver 30,000 handsets by year’s end.
The handset cassettes needed to extend satellite transmission to otherwise roaming-only phones will not be available until mid-November, however.
Staiano said Iridium has generated more than 850,000 calls inquiring about the service and its distribution partners have received another 200,000. Of the more than 1 million calls, 100,000 have been identified as qualified leads, meaning the customers have been given all the necessary information and are still interested in becoming a customer.
Staiano said 40,000 subscribers by the end of the year “wouldn’t be unreasonable.”
The company also must contend with licensing issues. Iridium has 75 percent of its business plan in place with agreements secured in 120 countries to operate the satellite phone system. Staiano said he hopes to have agreements in 200 countries by year-end, which would represent 95 percent of the business plan. It also has made cross-roaming agreements in 150 countries, a figure touted to double by 1999. Iridium also boasts 270 distribution partners.
Iridium must now recruit additional financing to continue its plan, Staiano said. Iridium is looking to replace its interim bank facility with financing that can pay for its operations until it achieves free cash flow positive.
The company’s third-quarter results were below expectations, mainly because the company didn’t launch revenue generating service when it expected to on Sept. 23. The net loss totaled $364 million, or $2.59 a share.
Its ability to gain financing depends on whether the investment community believes Iridium can attract the necessary subscribers to pay off its rather hefty $5 billion tab.
Shrinking window
Research company Ovum Inc. said there is a shrinking window of opportunity in the global handset market. The company predicts a rather modest 11 million subscribers by 2007 for global phone service and up to 10 players competing for them.
“The Iridium system was mainly developed to enable international travelers to use a mobile phone anywhere in the world,” said Alex Nourouzi, senior analyst at Ovum. “In the late 1980’s, the idea was a good one. At the time, the mobile industry was plagued by more than 10 incompatible proprietary technologies making roaming difficult. But the originators of handheld MSS, Motorola, could not have foreseen the ensuing changes that have resulted in the development of (Global System for Mobile communications). We see GSM as the primary threat to the success of MSS.”
Given the range of roaming tariffs today, Ovum said Iridium’s pricing will mean the service will be cheaper only 14 percent of the time. This did not include the remote-area benefits of the satellite system.
“The Iridium project represents one of the biggest ever global service launches,” Nourouzi said. “It is significant because it is the first of potentially 10 MSS systems that are planning to launch over the next three or four years. If all systems launch, collectively around $20 billion will have been spent pursuing the market for mainly voice-based mobile satellite services.”
