The idea of Iridium was conceived in 1987 by three engineers-Ray Leopold, Ken Peterson and Bary Bertiger-who were working for the US-based electronics major Motorola. They pioneered the concept of a satellite-based, wireless personal communications network that could be accessed from anywhere on earth. In 1991, Motorola incorporated Iridium to develop and deploy the satellite network system. Besides Motorola, which held a 20.1% stake in the venture, some of the other major partners included Germany’s Vebacom with 10%, Korea Mobile Telecommunications-4.4%, Sprint Corporation-4.4% and Italy’s STET with-3.8% stakes respectively. Motorola was the prime contractor for supplying satellites, gateways and communication products for Iridium. By 1997, Iridium launched 49 of the proposed 66 satellites successfully into the orbit. The same year, the company entered into strategic agreements with Kyocera to develop and market its wireless phones and with AlliedSignal to develop wireless telecommunication products for aircraft passengers and the crew. In the same year, Iridium came out with its IPO (Initial Public Offering) of $240 million and obtained $800 million in debt financing. Iridium’s venture into the upcoming Mobile Satellite Services (MSS) market marked a new beginning in the field of personal communications. Soon, many players including Globalstar, Odyssey, and Inmarsat-P/ICO entered the MSS market seeing the strong growth potential. These companies employed different technologies like LEO, MEO and GeoSynchronous satellites to deliver MSS services to customers. Iridium had invested lot of money in R&D, building, deploying and maintenance of its satellite constellation. Though Motorola realized the fact that the venture would involve substantial time and cost outlays and was very risky, it was perturbed when the venture consumed more time and money than expected. By 1999, Iridium found itself in deep financial trouble with a huge amount of outstanding debt to be repaid to its bankers and creditors. Chase Manhattan, Iridium’s lenders had already given three extensions for repayment of loans by August 1999. Analysts remarked that the company’s troubles were not due to the concept of satellite telephones, but due to its faulty strategies. Iridium had to spend a couple of million dollars every month just to maintain its infrastructure. In addition to the 66 satellites being used, Iridium was incurring heavy expenditure to maintain the spare satellites as well (to be launched in case any of the 66 satellites failed). Moreover, the company planned to offer its services to a broad customer base so as to make the business viable. The company needed at least a million subscribers to get close to the break-even point. This necessitated the maintenance of a dozen gateways, making the infrastructure involved very complex. From the very beginning, Iridium faced problems in building up a sizeable subscriber base. Iridium targeted global business travelers and certain high-end customers. But this market was not large enough. Customers were not interested in using Iridium’s services for various reasons. First, Iridium’s subscribers’ had to essentially buy the specially designed Motorola handsets. Consumers were not happy with the bulky handsets that weighed almost a kg. Second, handsets were also priced on the higher side at about US $2500 to US $3000, which was as a major deterrent. To attract customers, Iridium reduced the price to $1000. In September 1999, Iridium’s main competitor, Globalstar launched its satellite telephone services with handsets initially priced at $1000 and later reduced to $700. This added to Iridium’s problems. Iridium’s initial service charges were $7 per minute, which was later reduced to $2 to $4 per minute depending on the location (depending on the country they were used in – for example, in Japan, users paid an initial fee of $77 and a monthly charge of $50, plus actual call charges that ranged from $2.67 per minute to $6.59 per minute). To address the criticisms of high service charges, Iridium slashed its call rates to $1.50 - 2.50 per minute for domestic phone calls, and $3 per minute for international calls in June 1999. Iridium faced another setback when it encountered technical problems during the launch of its services to customers. Moreover, customers could not get the services according to the schedules announced by the company. There were many technical glitches as well. The company’s phones did not work indoors, because they could not catch the signals relayed by the satellites. All the above factors landed the company into deep financial problems. In the fourth quarter of 1998, Iridium posted a loss of $ 440 million and in the first quarter of 1999, Iridium reported a higher net loss of $505 million on revenues of only $1.45 million. The company could signup only 10,294 customers as against a projection of 57,000, as stipulated in the terms of the $800 million loan taken by the company. The company’s sorry state of affairs prompted some of its major investors to file an involuntary Chapter 11 petition against it. Iridium’s strategic partners began discussions to work out a financial restructuring plan for the company. However, they were not able to reach a consensus. The company asked its key partners for investments but it did not get any positive replies. Even Motorola refused to invest more money into the failing company. However, it agreed to provide full operational support and a significant amount of technical, sales and marketing support. The company decided to file for Chapter 11 bankruptcy in August 1999. Things changed dramatically for Iridium in late 2000 when a pioneer in the cellular telephone industry Dan Colussy, came to the rescue of the company. He formed Iridium Satellite LLC (Iridium Satellite) and made a bid of $25 million, out of which $6.5 million was paid in cash, to acquire Iridium’s business. This included purchasing all of Iridium’s existing assets, its satellites and the satellite control network. In November 2000, the US Bankruptcy Court for the Southern District of New York approved Iridium Satellite’s bid to purchase Iridium’s operating assets. Following this, Colussy took many constructive steps towards positioning Iridium as the best mobile satellite service in the market. Iridium Satellite entered into a contract with aviation major Boeing to operate and maintain the 66-satellite constellation instead of Motorola, which now only provided subscriber equipment. He then introduced closely monitored plans to ensure a successful re-launch of Iridium’s services. Having learnt its lessons the hard way, Iridium Satellite was careful not to repeat its mistakes Iridium had committed earlier. Iridium Satellite decided to make its satellite communications services affordable to customers and refocused on its target customer base. It decided to target all those industry segments that had a particular need for satellite communications like the government, military, humanitarians, heavy industry, maritime, aviation and adventure. Along with voice communications, Iridium also launched a series of data services, Simple Messaging Service (SMS) and paging services for its customers. The company started offering several value-added features that include: • Flat rates for calls from/to anywhere in the world. • Unlike cellular services where customers had to use different phone numbers for different locations, Iridium proposed to give its customers the facility of using only one phone number worldwide. • Introduction of SIM cards and a host of other Internet-enabled features. In December 2000, Iridium Satellite got the much needed boost when the US Department of Defense (DoD), awarded a $72 million contract to the company for providing satellite communications services for the next two years. By the end of March 2001, Iridium Satellite had re-launched its commercial services. In late 2001, Iridium Satellite also changed the design of its handsets. The company launched handsets weighing less than 400 grams that were as light and small as regular cellular phones. The cost of calls had also become cheaper than that of calls made on GSM mobile phones. Iridium charged a flat rate of $1.50/minute to call any other phone in the world, without any constraint on the duration of the call made. Reportedly, Iridium also claimed to have attained the status of being able to provide 100% global coverage. The company also took steps to enhance its customer service and support by setting up 24/7-customer support call centers. This improved its acceptance in the market and enhanced its goodwill. With all these favorable developments, it seemed that Iridium was resurrected and was on the road to success. The company had come a long way into becoming the most advanced telephone and paging service till date.

1. What were the reasons for Iridium’s failure during the first phase of its launch despite substantial support from banks, creditors and suppliers? Explain in detail. 2. Dan Colussy revived Iridium, which had been written off as a bankrupt company with his turnaround strategy. What was the turnaround strategy adopted by Colussy? Which elements of the strategy in your opinion, were critical to the revival of the company and why?