Iridium woes cast a shadow over satellite services

Emerging global satellite voice and data providers last week were scrambling to distance themselves from market pioneer, Iridium World Communications, after Iridium reported disastrous financial results and endured predictions of its eventual demise.

Iridium, a constellation of 66 satellites that provides global calling and paging using a single handset, announced a first-quarter loss of $US505 million on revenue of just $1.45 million. Even more ominous, the company said it had signed up 10,294 customers, a far cry from the 100,000 customers Iridium had promised lenders and investors it would have by now, and light-years from the 500,000 to 600,000 the company admits it needs to break even.

Iridium's results -- closely accompanied by the recent resignation of its CEO and chief financial officer and a class-action shareholder lawsuit -- called into question the whole market for low-earth orbit (LEO) satellite systems. Under these systems, providers launch groups of satellites into orbit 800 to 2400km above ground level, and the satellites hand off voice and data traffic to one another until one of the satellites sees the terminating party below.

Experts say Iridium has made two big mistakes. First, the company's service is costly -- the handsets cost around $US3000 and airtime is $3 to $7 a minute. Iridium marketing officials have tried to position the service to compete with expensive international toll calls, but analysts say users continue to view it as an alternative to cellular or personal communications services (PCS). "Despite Iridium's numerous protestations to the contrary, its service does in fact compete with the services offered by terrestrial wireless networks," says a report by Current Analysis, a US online service.

Second, Iridium has admitted that many of its distributors have been unable to gear up to sell the service.

Iridium's troubles provide an opening for LEO competitor Globalstar.

Globalstar -- which will begin service by September after 32 of its planned 48 satellites are launched and tested -- uses a handset that first attempts to complete a call using ordinary cellular or PCS, explains spokesman Mac Jeffery. It then rolls over to the satellite network if the party can't be reached.

Because Globalstar will be sold by experienced wireless providers, such as AirTouch and Vodafone, who also hold equity stakes in the venture, the service should be marketed effectively, Jeffery says. Globalstar is expected to carry a retail airtime rate of 85 cents to $1.25 a minute because of a simpler satellite design.

Many users will probably pass on these offers and wait for the arrival of Teledesic, a 288-satellite network that will focus on broadband Internet access rather than phone calls. A Teledesic spokesman rejects any connection between his project -- originally backed by Bill Gates and Craig McCaw -- and Iridium's woes.

"Teledesic's broadband service is the satellite equivalent of fibre-optic access, while Iridium is a narrowband voice service comparable to terrestrial cellular service," the spokesman says. Still, Teledesic has yet to launch any satellites and is not expected to be operational until 2003.

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