Iridium and the Market for Satellite Phones
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 and Technology Group (S&T) needed to reinvent itself. The Cold War era had ended and Washington was spending less and less on the lucrative defense contracts that had been the life-blood of S&T. Three Motorola engineers, Ray Leopold, Barry Bertiger, and Ken Peterson, approached the S&T Group’s General Manager Durrell Hillis with a suggestion that Motorola develop a commercial satellite-based mobile communication system. As noted above, in August 1988 the team presented their plan to Motorola CEO Bob Galvin, and the initial funding for the project was approved.
Satellite communication was already a growing worldwide business in the late 80’s. Communication satellite were placed in geo-synchronous orbit (GEO), meaning that the speed of the satellite matched the rotation of the earth so that the satellite was always in the same relative position to the earth-bound gateways that communicated with them. GEO satellites would not work for the type of system that the Motorola engineers needed to design. GEO satellites were too far away from the earth for the weak one-watt signals transmitted by hand-held mobile phones. Higher wattage phones could not be used because increasing the power could damage human tissue. A satellite phone system required low earth orbiting satellites (LEO), which would both provide higher quality service and accommodate the
one-watt requirement. But LEO systems created another problem. Since they orbited much lower than the GEO satellites, they “saw” only a small portion of the earth’s surface before the horizon interfered with signals. Many more satellites were required for total global coverage. The LEO system also created another technical challenge: calls would have to be switched from satellite to satellite as the users of satellite phones traveled. This required that the satellites communicate with each other as well as with users on the earth. The development team agreed that 77 satellites would be required for total coverage of the earth – from...
Bibliography: Armstrong, Gary and Kotler, Philip, Principles of Marketing, Ninth Edition. Prentice Hall,
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,
Lynn. Barry. “Live, Via Satellite Phone,” American Way Magazine, July 15, 2002.
Nee, Eric. “Iridium’s Folly,” Fortune, March 20, 2000.
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