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Satellite phone firm finds valuable link

Demand by the military and others in remote places has sent sales soaring at Iridium.

December 04, 2006|Peter Pae | Times Staff Writer

LEESBURG, VA. — If your question is, "Can you hear me now?" and you're trying to reach a loved one or business associate from, say, the summit of Mt. Everest, Iridium Satellite will readily connect the call.

For 170,000 users around the world, the provider of mobile phone and data services is an essential -- often the sole -- link to the rest of humanity.

Its 66 satellites provide 100% coverage of the globe, enabling callers to talk from high peaks or the middle of the high seas, and from practically anywhere in a largely unwired Third World.

Privately held Iridium, based in Bethesda, Md., faced its toughest challenge, and biggest marketing opportunity, last year when emergency workers and other customers sought satellite phone service after hurricanes Katrina and Rita knocked out land lines and cell towers.

For The Record
Los Angeles Times Saturday December 16, 2006 Home Edition Main News Part A Page 2 National Desk 1 inches; 37 words Type of Material: Correction
Satellite phone service: A Business section article on Dec. 4 about Iridium Satellite's profitability said the company's satellite-based phone service is banned in Poland. Although the service was banned there at one time, it is no longer.

More recently, Iridium joined with defense giant Boeing Co. in a winning bid to put up a "virtual" fence along the U.S.-Mexico border by means of cameras and sophisticated communication links, including satellite phone service.

"We're in that great harvest mode right now," said Greg Ewert, Iridium's executive vice president for sales, marketing and business development. And "we're only using about 20% of the capacity."

Iridium, which is nearing $200 million in annual revenue, has traveled a long way from 1999, when its business model suddenly came a cropper.

Original Iridium investor Motorola Inc. sought to revolutionize global communications with the world's first space-based phone service. Instead, it became one of corporate America's worst miscalculations.

Few customers could afford the $3,000 phone system, which had to be carried in a suitcase and rang up charges approaching $7 a minute.

At the same time, ground-based cellular telephones took off as they kept getting smaller and cheaper.

After signing up only a small fraction of the expected 3 million subscribers, Motorola and partners were ready to pull the plug on the $5-billion investment. It would have been quite a fire sale: The plan was to let the satellites descend toward Earth and burn up in the atmosphere.

But the system survived when a group of investment firms agreed to acquire Iridium, then operating under Chapter 11 bankruptcy protection, in December 2000. They bought the satellites and supporting operations for about $25 million -- or half a penny on the dollar.

Iridium, which has expanded steadily from 60,000 users in 2000, today is in the black, and company executives say there is plenty of room for growth.

"With seven consecutive quarters of profitability, Iridium is in a strong position to move forward with its next-generation constellation and service," Chairman and Chief Executive Matt Desch said.

The owners are even thinking about taking the company public, although executives say they don't yet need capital because they won't have to begin replacing the satellites until 2014.

"They have a new business model, a new market approach," said Patti Reali, research director for Gartner Dataquest, an information technology market research and consulting firm in Stamford, Conn. "They are really on a much better footing. It's a new world."

Ewert estimates that Iridium's subscriber base will grow about 25% annually as it continues to expand phone service to new markets such as border security, containerships and aviation communications. In addition to providing voice service, Iridium is marketing data communications for shipping companies that want to remotely monitor containers in transit.

With its crew of about 125 working out of a futuristic, NASA-style operations center in Washington suburb Leesburg, Va., Iridium enables customers including the Pentagon, other government agencies and businesses to communicate with just about anyone, anywhere.

It is the only system with every square inch of Earth covered, according to company executives, although for political reasons, Iridium service is banned in North Korea, Cuba and Poland.

The Defense Department helped keep the satellites aloft by agreeing to be the first customer. The Pentagon, which has employed Iridium extensively in the war theaters of Afghanistan and Iraq, remains Iridium's largest single user, with an annual contract of about $70 million.

Despite the popularity of Iridium phones among scientists, rescue workers and U.S. soldiers, the phones are still unlikely to gain the acceptance of everyday customers that Motorola first envisioned.

The phones don't work inside buildings -- they require direct line of sight with the satellites overhead. Although they have shrunk to about the size of a cordless handset, the devices are still bulky compared with cellphones. The cost has decreased as well, to about $1,500 for a hand-held phone, with usage charges of about $1 a minute. Customers may rent phones for about $35 a week.

"Iridium is not something you'll use when you're driving," Ewert said. "But we'll be the only one that can be used in remote and extreme environments."

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