When launched in November 1998, Iridium L.L.C. hoped the glare from its low-earth-orbit satellites would catch the attention of earthbound eyes and cause a stir.
It soon will succeed in ways it never imagined.
The company Friday shut down its 66-satellite constellation and began the process of directing the satellites to re-enter the earth’s atmosphere over non-populated areas of the globe, causing them to burn apart.
The sky is falling, literally.
Despite receiving several offers from potential bidders, none met the financial criteria established by the bankruptcy court to save Iridium from liquidation. Motorola Inc., Iridium’s largest equity investor, ceased its maintenance and operations activities in support of the network at 11: 59 p.m. EST Friday, March 17, terminating service after less than two years of commercial operation.
Iridium asked the court to free $8.3 million in financial assets to pay for the shutdown and de-orbiting process. It also left behind $150 million in assets for creditors to fight over, with no plan on its exact distribution.
Officials from Motorola and Iridium were not available for comment by RCR press time.
The action marked the humiliating end of an idea that was born more than 10 years ago, sparked by a the wife of a Motorola executive complaining that her cell phone wouldn’t work while on a boat in the Carribean. That idea has resulted in the most spectacular, and expensive, business failure in recent memory. The company spent $5.8 billion building a network that was in commercial operation for only 503 days-that’s $11.5 million spent for each day the system was active.
Iridium’s fate has been the topic of much debate since the company filed for bankruptcy last August, having failed to reach subscriber and revenue figures necessary for continued financing. The countdown to termination began when Craig McCaw’s Eagle River Investments L.L.C. withdrew its proposal to buy Iridium’s assets for $600 million. Few felt anyone would second-guess McCaw.
While the debris from the destroyed satellites is not expected to affect any human populations, the fallout from Iridium’s destruction is widespread.
Motorola Inc., Iridium’s largest equity investor, network operator and primary evangelist, suffered a significant black eye. The company must now spend the next six months destroying the satellite constellation it built and operated and maintained under a five-year, $2.8 billion contract it never saw one penny from. It also paid off $743 million in guaranteed debt for Iridium and faces a $3.5 billion lawsuit from bondholders, who allege the company played a significant role in the Iridium failure.
Iridium partners worldwide also will lose their investments, and then some. Iridium’s Japanese arm, Nippon Iridium, told its subscribers it would buy back handsets after termination. DDI, which holds 50.5 percent interest in Nippon Iridium, expects to take a charge of $122 million as a result of the entire process.
Public investors, some of whom scrambled to buy Iridium stock for as high as $78 a share, and bondholders, who saw Iridium debt trading as low as 2 cents on the dollar, are left with next to nothing.
And then there’s the customers, which Iridium listed at 55,000. Some shelled out $3,000 for Iridium handsets that now will serve only as interesting conversation pieces at cocktail parties, or a maybe a some-day valuable collectors item, if they’re lucky. Despite some service complaints, most Iridium customers enjoyed and found value in the service. Unfortunately for them, not enough felt the same way.
Where these customers go is anyone’s guess. Motorola directed Iridium customers with questions to a Web site, which detailed the situation and offered a list of alternate satellite providers, including American Mobile Satellite Corp., Globalstar L.P., Inmarsat, Orbcomm Global L.P. and TMI Communications & Co. L.P.
Several of these providers have ramped up their marketing efforts to Iridium customers.
“Globalstar is actively marketing to Iridium customers a deal offering promotional rebates,” said Globalstar spokesman Mac Jeffery. In particular, the company is offering $500 rebate off a Globalstar phone when turning in an Iridium handset.
Scott Webster, chairman and chief executive officer of Orbcomm Global L.P., said a National Geographic expedition in Africa that used Iridium equipment has bought Orbcomm devices as replacements.
“We’ve already had several pickups on our leads desk,” he said. “They had a global paging service and we offer a similar application.”
Webster said those paying big bucks for Iridium service may now opt now for a cheaper, data-only satellite service.
But former Iridium competitors take little comfort in the few customers they will gain in the wake of Iridium’s demise. When Iridium launched commercial service Nov. 1, 1998, it became the self-proclaimed standard-bearer for the entire MSS industry. Now that it has fallen, surviving MSS operators must take up that tarnished flag and forge ahead into a still-uncertain future.
“We’re not delighted they’re going out of business, but the bad news has been out for a long time,” Jeffery said. “This is just the last step in a long trail. The big image hit to the industry took place in August when they declared bankruptcy. The best thing to do now is to get it behind us and move on.”
“We take no joy in the outcome,” said Orbcomm’s Webster. “It’s certainly a dark day for the industry.”
Perhaps summing up the situation best is a report that one bidder for Iridium assets offered only $25 million for the system, representing how one of the last century’s greatest technological achievements has been reduced to a joke, the punchline of which will be marked in the skies as a $5.8 billion dream goes down in flames.
