“The brilliance of the technology cannot take precedence over the market case. At the end of the day, if you’re spending $5 billion on the technology, there better be a market for it. And if there isn’t, there will be great humiliation.”
- Herschel Shosteck, a Wheaton-based wireless analyst, in March 2000.
“Iridium failed to match its system to its mission which caused too much pressure on the company to get customers quickly.”
- Leslie Taylor, a consultant for the satellite industry in Washington, in March 2000.
In August 1999, Iridium LLC (Iridium), the world’s largest provider of global mobile satellite voice and data solutions, filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court. The news did not come as a major surprise to the global telecommunications industry since the company’s financial trouble was well known. It had defaulted on US $1.55 billion in bank loans.
Considering the company’s investment loss of US $5 billion, the bankruptcy court imposed a deadline of March 15th 2000 to either bring forth a purchaser or to close its operations. In response, Iridium promised that if it couldn’t attract a buyer by 5 p.m. that day, it would proceed with plans to liquidate. Despite the company’s best efforts, it was not able to convince any party to support its business and it was forced to file for bankruptcy. Following this, many executives in the top management cadre resigned and its satellite services covering an estimated 20,000 subscribers were stopped.
Commenting on the debacle, COO Randy Brouckman said, “I am deeply saddened by this outcome. I particularly regret the impact this will have on our customers. Iridium achieved significant milestones, and I want to thank the more than 160 countries that licensed the service and the distribution partners around the world who helped market Iridium.”
A spokesman for Globestar, one of Iridium’s major competitors said, “We think Iridium could very well have succeeded. There’s nothing wrong with the concept, but with their execution.” Industry analysts commented that Iridium’s chances of coming out of this crisis were very bleak. Many of them even stated that Iridium had all the features of a potential failure right from its inception.
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 gateways 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) 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...