Iridium and the Market for Satellite Phones
Iridium and the Market for Satellite Phones
Introduction:
In August 1988 Motorola CEO Bob Galvin approved initial funding for a global satellite telephone system developed by Motorola’s Space and Technology Group. Two years later, in
June 1990, Motorola formally announced the Iridium project in simultaneous press conferences in
New York, London, Melbourne, and Beijing. Motorola was the lead investor in a separate corporate entity that managed the entire Iridium project. It took $5 billion in cash investment before Iridium launched its first five satellites in May 1997. The first call on an Iridium system was made on September 9, 1998 when Al Gore placed a call from the White House to Alexander
Graham Bell’s great grandson in Virginia. (One does wonder why anyone would need a satellite phone to call from D.C. to northern Virginia, but given what happened to Iridium soon after its launch, that question is surely beside the point). Software problems uncovered in beta test delayed the launch of commercial services until November 1, 1998.
In late 1998 Iridium’s management announced that they expected 600,000 subscribers to
Iridium’s satellite telephone service by the end of 1999. They were wildly optimistic. By the third quarter of 1999 Iridium announced that its subscriber growth (and therefore its revenue) would not enable it to service its huge debt. On August 13, 1999 Iridium filed for Chapter 11 bankruptcy. In June 2000 trading in the stock was suspended when the stock price reached 81 cents – the stock had reached its all time high of $68 per share in April 1998. On August 31,
2000 Iridium pulled the plug on its satellite phone system.
Iridium’s CEO John Richardson commented on August 31: “We’re a classic MBA case study in how not to introduce a product. First, we created a marvelous technological achievement. Then we asked the question of how to sell it and make money on it.”
The Technology and the Idea:
In the late 1980’s Motorola’s Space
Introduction:
In August 1988 Motorola CEO Bob Galvin approved initial funding for a global satellite telephone system developed by Motorola’s Space and Technology Group. Two years later, in
June 1990, Motorola formally announced the Iridium project in simultaneous press conferences in
New York, London, Melbourne, and Beijing. Motorola was the lead investor in a separate corporate entity that managed the entire Iridium project. It took $5 billion in cash investment before Iridium launched its first five satellites in May 1997. The first call on an Iridium system was made on September 9, 1998 when Al Gore placed a call from the White House to Alexander
Graham Bell’s great grandson in Virginia. (One does wonder why anyone would need a satellite phone to call from D.C. to northern Virginia, but given what happened to Iridium soon after its launch, that question is surely beside the point). Software problems uncovered in beta test delayed the launch of commercial services until November 1, 1998.
In late 1998 Iridium’s management announced that they expected 600,000 subscribers to
Iridium’s satellite telephone service by the end of 1999. They were wildly optimistic. By the third quarter of 1999 Iridium announced that its subscriber growth (and therefore its revenue) would not enable it to service its huge debt. On August 13, 1999 Iridium filed for Chapter 11 bankruptcy. In June 2000 trading in the stock was suspended when the stock price reached 81 cents – the stock had reached its all time high of $68 per share in April 1998. On August 31,
2000 Iridium pulled the plug on its satellite phone system.
Iridium’s CEO John Richardson commented on August 31: “We’re a classic MBA case study in how not to introduce a product. First, we created a marvelous technological achievement. Then we asked the question of how to sell it and make money on it.”
The Technology and the Idea:
In the late 1980’s Motorola’s Space
Bibliography: Armstrong, Gary and Kotler, Philip, Principles of Marketing, Ninth Edition. Prentice Hall, 2001. Chen, Christine Y. “Iridium: From Punch Line to Profit,” Fortune, September 2, 2002. Herman, Kerry. “The Rise and Fall of Iridium,’ Harvard Business School # 9-601-040, November 2001. Lynn. Barry. “Live, Via Satellite Phone,” American Way Magazine, July 15, 2002. Nee, Eric. “Iridium’s Folly,” Fortune, March 20, 2000. 7