The Rebirth Of Iridium

Iridium Satellite LLC said Wednesday that it's relaunching its satellite phone service, refocusing on delivering service to industrial clients, including maritime and petroleum companies.

The disclosure marks the rebirth of the troubled Iridium satellite system. Iridium LLC originally launched in 1998, the result of billions of dollars worth of investments in the company and a network of 73 satellites that promised to deliver phone service to even the most isolated corners of the globe. But the system proved unpopular, and customers said the service was too expensive. Nine months after launching, the company declared bankruptcy and began planning to ditch its satellites into the ocean. Then, last December, Iridium Satellite LLC salvaged the network by buying the original company's assets for $25 million.

In a statement, Iridium said it's gearing the new service toward industrial users who don't have access to terrestrial communications, such as maritime, aviation, oil, and mining companies. Iridium will sell Motorola handsets for less than $1,000, and airtime rates are expected to be less than $1.50 a minute. The company will offer data services, including Internet connectivity, in June and expects to offer short-burst messaging services later in the year.

Telechoice analyst Eric Rasmussen says Iridium's chances for success are far better this time, primarily because "it's a $25 million investment, as opposed to a multibillion-dollar one that needs to be recouped." He says Iridium has to go after small niche markets in order to succeed, and it's smart to focus on institutions rather than individuals. For every one petroleum company Iridium signs up, it may get a thousand users, he says, and if the company goes after individuals instead, it has a challenging task of "finding a thousand users who are nowhere near any type of communication device."

Farpoint Group analyst Craig Mathias agrees that a big factor in Iridium's favor is the reduced overhead, but he says that the low-orbit satellites used in the system will eventually need to be replaced. "I don't have the highest hopes for it, but I think it has a chance." He says Iridium's best chance for success is through targeted marketing and selling the service to specific industrial customers. "If I see an Iridium ad in any of the magazines I read, they're aiming at the wrong audience."