Reviving Iridium



Themes: Turnaround Strategy
Period : 1999-2001
Organization : Iridium LLC
Pub Date : 2002
Countries : USA
Industry : Telecommunication

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Case Code : BSTR031
Case Length : 11 Pages
Price: Rs. 300;

Reviving Iridium| Case Study

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Background Note

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. The engineers worked hard to bring to life the concept of satellite telephones. They launched gateways3 in 1988 to facilitate the proposed Iridium satellites to communicate with the existing terrestrial telephone systems throughout the world.

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.

In 1992, the US Government Federal Communications Commission (FCC) issued an experimental licence to Iridium. In the same year, the World Administrative Radio Conference (WARC)4 decided to work towards establishing guidelines to regulate worldwide radio spectrum rights and facilitate the building of Iridium systems.

In 1992, Iridium also signed a US $3.37 billion contract with Motorola for construction, delivery and system development. This made Motorola the prime contractor for supplying satellites, gateways and communication products for Iridium. By the end of 1993, the company had raised US $800 million as equity.

After the second round of equity financing in 1994, Iridium's capital increased to US $1.6 billion. In 1995, the Federal Communication Department of the US government granted an operational license to Iridium. In 1996, Motorola launched the first Iridium satellite. In the same year, Iridium also entered into agreements with various mobile satellite service providers.

The agreements were expected to facilitate their cooperation in the company's efforts to secure global authorizations for the use of radio frequency spectrum5 through 'frequency-use plans.6' In the same year, it also managed to secure additional investment of US $315 million, bringing the total project capital to US $1.915 billion.

Meanwhile, it also arranged for a credit of US $750 million from BZW and Chase banks. The company appointed Edward F. Staiano as CEO and Vice Chairman. 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. In 1998, Iridium selected Sprint Telecenters7 to manage its global customer care centers. The company also obtained an additional US $350 million by issuing high yield bonds. All the 66 satellites were successfully launched by November 1998 and Iridium then launched its global satellite phone paging services.

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3] Gateways interconnect a satellite constellation with public switched telephone networks, thus facilitating communication with handheld phones and any other telephone in the world.
4] WARC was held in 1992 at Torremolinos, Spain, on behalf of the Committee on Radio Astronomy Frequencies (CRAF). CRAF works on behalf of the European Science foundation that is responsible for coordinating the use of frequency bands so as to keep the frequency bands used by astronomers free from interference. It also discusses issues related to the use of radio frequencies by different government organizations as well as corporations.
5] It is considered a national asset and a scarce resource that had to be used keeping in mind the best interests of all those organizations that use it.
6] The plan made for radio frequency bands and services in use or intended to be used in a particular frequency band.
7] Sprint is a global communications company, which provides outsourced call center services for many Fortune 500 companies and multinational firms. It is the leader in advanced data communications services and also one of the world's largest carriers of Internet traffic. Sprint entered into a long-term multi-million dollar contract with Iridium for managing the of 24-hour customer service centers named Iridium Global Customer Care Centers.