Defying naysayers, Iridium finds a business model

Left for dead by many observers in the IT and telecommunications worlds just seven years ago, the reborn Iridium Satellite, which provides satellite-based communications services, is showing new signs of life.

In an announcement Friday, the company said it's signed up 44,000 new subscribers since June of 2006 -- an increase of 27.7 percent to a new total of 203,000 -- while increasing its revenue to US$66.7 million in the second quarter ended June 30, up 24.4 percent from the same period one year ago.

And while that's nowhere near the revenue and customer numbers posted by huge wireless telecommunications companies such as Verizon Wireless and AT&T, it's definite progress for a company that was brought out of bankruptcy in 2000 and remolded with a new focus and direction.

Originally built in 1998 by the former Iridium of Reston, Virginia, and named for early system designs calling for 77 satellites (77 is the atomic number of the element iridium), the company was in bankruptcy proceedings by 2000 and faced the decommissioning of its satellite network, which had been built by Motorola and others. The company was then purchased by a consortium of buyers for US$25 million -- quite a deal for a satellite system that cost US$5 billion when it was built.

The first Iridium marketed itself as a consumer satellite telephone service, but its original phone was too bulky and its service too expensive for general adoption. And there were some service quirks consumers wouldn't accept -- for instance, the need for line-of-sight connection to a satellite, which precluded using the phones indoors. That problem has been solved in recent years through the installation of special antennas that can be placed in buildings where Iridium users work. There are still limitations -- service doesn't always work in dense, skyscraper-filled urban areas or below tree canopies -- but users can regain service if they move to areas where they can get direct sightlines to the sky.

After the buyout, the company recreated itself in 2001, marketing itself as a telecommunications provider that could offer reliable service in remote areas where cellular phones and landlines won't work, such as barren deserts, the Earth's poles, deep wilderness, disaster areas and other isolated and harsh environments around the planet.

"Originally Iridium was focused on the wrong business, on the mass-market consumer business selling directly to customers," said Matt Desch, the company's CEO and chairman. But since its rebirth in 2001, the company has worked with more than 150 partner companies to find new business uses and niches for Iridium service in industries from mining to manufacturing to oil and gas exploration to forestry to emergency response needs. "We've developed an ecosystem around ourselves," Desch said. "That's a big difference."

The company also announced that it has signed up eight new partner companies to help bring its service to a wider range of customers.

Not all of Iridium's service is provided using handsets. An increasing part of its business is in machine-to-machine communications, using a sensor device about the size of a deck of playing cards that is attached to a ship, truck, container or similar item. The device can send and receive short bursts of communications data to a satellite wherever it is on Earth. Some of these sensors are even located on buoys in the ocean, where weather agencies can monitor wave heights, winds and other storm data in real time to provide warnings for onrushing storms. "That's the real fast part of our growth," Desch said of the short-burst data communications segment.

"We're obviously hitting our stride," he said. "We're a lifeline where no other device can be used."

Two users said the Iridium service provides them with valuable tools for their work.

Jay Ladd, CEO of AirDAT, a business that collects and sells weather data to clients, uses Iridium's short-burst services to collect real-time weather data from special sensors attached to commercial airplanes as they fly through the atmosphere. AirDAT needed a way to collect the weather data without interrupting the flight communications systems on the aircraft, so Iridium sensors were chosen to communicate with the Iridium satellite network almost three years ago, he said. "With this, the planes can fly anywhere" and the data can be collected. "Iridium has worked very well for us."

Scott Mileur, who runs Mileur's Guide Service in Palmer, Alaska, guiding big game hunters in the wilds of the Alaskan wilderness, uses his Iridium phone to communicate in places where no cell phone coverage exists and where portable radio communications systems are too bulky to carry, he said. He's used his Iridium phone when he has been 150 miles northwest of Palmer, deep in the Alaska Range, as well as on hunting expeditions on Kodiak Island.

"They work any place you're going to be," he said. Because the service costs about $1.25 a minute even with a 500-minute package, "you don't get on and just chit-chat," he said. "You get on it, you talk and then you get off the phone." He's never needed it in an emergency in the wild during the six or so years that he's had it, but he has used it to arrange air transportation for a successful hunter and his catch deep in the wild instead of having to drag the quarry out to a distant hunting camp. "I carry it in my backpack wherever I go," Mileur said. "Safetywise, you jump way up on safety by having it with you [in remote Alaska]."

Max Engel, an analyst with Frost & Sullivan, said that while the original Iridium idea of being a satellite phone service for the masses "was an obvious example of stupid failure," the change in business plan raises the service's prospects.

"What the new management did when they bought it was it took the assets that originally cost billions, but were now freed of those expectations," Engel said. "They then asked, 'what can we do with this' and enlisted many partners" to create a more workable business model.

"Yes, they're very nichy, but as long as you've got bunches of niches, who cares?" Engel said. "They've redesigned their business to suit their assets instead of creating an asset to do business."

Patti Reali, a research analyst with Gartner, said the revamped company has "done a good job marketing their satellite data products" and "has real momentum when it comes to other vertical markets." Iridium also has the benefit of long-term contracts with the U.S. Department of Defense, so they have a "strong anchor tenant," she said.

The Iridium satellite network is currently made up of 66 low-earth orbiting, cross-linked satellites and another nine in-orbit spares, according to the company. The satellites will be replaced with new units between 2013 and 2016 as part of a normal maintenance regimen.

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