These are troubled times for satellite based communications networks. Last week ICO Global Communications saw one of its satellites crash to earth soon after launch, just as its troubled rival Iridium was preparing to shut its service completely.
On Monday, Iridium received two eleventh-hour bids from companies willing to buy its global satellite telephone network. A group of investors headed by internet developer and publisher hotJump confirmed the eleventh-hour bid, while indicating that internet publishing house Merit Studios had also entered the fray.
Despite all its troubles, Iridium seemed like a good idea when it was first launched. It took to the skies in November 1998, with a $180m (£114m) advertising campaign promoting voice calls from anywhere on earth.
However, the company filed for bankruptcy protection last August after defaulting on a loan of $800m. Mobile phone entrepreneur Craig McCaw considered an investment, but pulled out of negotiations earlier this month. Instead, he chose to invest in rival ICO, putting $1.2bn into the company with Indian media player, Subhash Chandra. This rescue package came at a crucial time for ICO, which was last year also forced to apply for bankruptcy protection.
Problems at the back-end
Part of Iridium's problems lie with its back-end technology, according to analysts. Keith Mallinson, senior vice president of Yankee Group Europe, said: "It took longer than expected to get going, so Iridium ended up with fairly costly technology that was obsolete by the time it got into service."
Senior Gartner analyst Gareth Owen, said bandwidth is a particular drawback as Iridium can only carry 2.4kbps. "People who buy satellite handsets will want the same sort of services they can get on cellular phones. They need to be able to connect to the internet and the company Lan, and 2.4kbps is not fast enough." Iridium's planned second generation of satellites would have coped with greater data throughput, he added.
The reliability of the satellites is also a problem. "A number of them failed, and a question mark for any potential buyer is that they have to maintain 66 satellites for the next three or four years," said Owen. "You would have to launch additional satellites, otherwise you'll get gaps in coverage. Motorola originally wanted $500m a year for maintaining the satellite network."
However, other aspects of Iridium are strong. It is the only network that covers the whole planet. Traffic only hits the ground to reach handsets or gateways, where traffic flows through terrestrial mobile phone systems, if available. "I don't understand why a military buyer or a government hasn't shown an interest," said Owen.
Despite this lack of interest, when Iridium launched it believed it would have three or four million users by 2002, be able to pay off $3bn of debts, and have enough left over to launch a second set of satellites. The company's financing depended on it meeting these ambitious targets.
But the launch service was patchy, with technical problems such as dropped calls due to the problems that Gartner identified. Additionally, there were no handsets available in the UK, no pager service, and the operator only received licences to operate in 120 countries, rather than the 200 required for a truly global operation.
However, despite these setbacks the advertising had heightened expectations. "Iridium stoked up demand for handsets, generating a million leads," said Mallinson. "Then it couldn't deal with them. The result was that people got cheesed off with Iridium but had seen the possibilities, so went elsewhere." This hiked demand for Inmarsat, an already operational network set up in 1979 to provide ship-to-shore calls.
The wrong marketing
In April 1999, Iridium's chief executive Edward Staiano, and chief financial officer Roy Grant, resigned just before disappointing financial results. Iridium had lost just over half a billion dollars in the first three months of the year - on an income of $1.4 million. Subscribers were thin on the ground - the company had 15,000 by mid-1999, somewhat less than the 50,000 it had initially hoped to add each month.
Iridium slashed prices - although, with its intercontinental calls tariff down from to $7 a minute to $3, and with handsets cut from $3000 to $1000 wholesale, it was still a lot pricier than a GSM phone with roaming agreements.
To prove its competence, a handset was successfully used to make a call from the summit of Mount Everest. However, most people - who were not on top of the world's highest mountain - decided to cut costs and use a tri-band mobile phone instead.
Notwithstanding these setbacks, analysts agree that there is a future for satellite based communications. Yankee Group thinks there could be several million users within a few years - provided the handsets cost less than $1000, and calls less than $1 a minute.
Gartner's Owen said Iridium got its marketing wrong. "It targeted business people, who want small handsets," he said. "It should have gone for vertical markets, like Inmarsat." It also launched before its systems were ready - a mistake that Globalstar, a rival system, is trying to avoid with a thorough round of testing currently taking place.
Learning from mistakes
Globalstar is learning Iridium's lessons in other ways. It has chosen to target vertical markets, such as shipping, oil and mining, and developing countries, with a fixed phone running on solar power for remote areas, avoiding the need for miles of cable.
Costs will be similar to Iridium's, with a top rate of $3 a minute. It will compete with ICO, which hopes to start operation by mid-2001, and Inmarsat. The latter covers most of the earth's land masses with a 64kbps service called Global Area Network.
It benefited from demand for emergency communications over the Y2K rollover period.
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