Now focusing on providing services to companies working in remote locations that don’t have access to conventional wired or wireless phone services, the new Iridium Satellite LLC has abandoned its dreams of appealing to the mass market – the mistake made by the original Iridium that ultimately led to its downfall.
Narrowing its market focus to companies working in remote locations, the new Iridium purchased a satellite array that provides worldwide telephone coverage from the now-defunct Iridium for the staggeringly low price of US$25 million in 2000, although its estimated worth is about US$5 billion.
With 29 service partners (two in Canada), CEO of Iridium Satellite LLC, Gino Picasso said the new Iridium is focusing on companies in the heavy construction, defence and military, emergency services, maritime, mining, forestry, oil and gas and aviation industries.
“The original Iridium focused on the international traveller,” said Brad Sherrad, vice-president of business development at Mississauga, Ont.-based Roadpost Canada, one of Iridium’s Canadian service providers. “In late days before bankruptcy [they started trying to switch] into the vertical markets, but it was too late,” he said.
Launching its commercial service in 2001, Picasso credits Iridium’s newfound success to its refocused marketing strategy and its low cost structure, including the low cost of the array, and decreased operating costs – the operating costs of the new Iridium are one-tenth of that of the old Iridium. In addition, a huge contract with the U.S. Department of Defense, announced on the same day of its reconstitution, helped kick start Iridium’s jump back into the market.
The contract with the Department of Defense is for US$72 million with options to extend the deal through to 2007 at US$252 million. Iridium will provide mobile and paging services for 20,000 employees at the Defense Information Systems Agency.
In another cost-cutting measure, Iridium also changed the way they use the 12 gateways acquired from the old Iridium. The old Iridium used all 12 of these gateways to route calls to public switched networks. The new Iridium uses only three because it is employing a method that takes advantage of the satellites’ ability to communicate with each other, Picasso said.
One of the gateways is reserved for its commercial operations. Iridium has the capability to activate the others as traffic increases significantly over the array. Two other gateways are currently dedicated for usage by the Department of Defense.
Not only does Iridium offer worldwide telephone coverage, but through its service providers, it also offer global paging services, and two new data services not offered by the old Iridium – dialup data and direct Internet data.
The Dial-Up Data Service offers a data rate of about 2.4 Kbps and provides dial-up connectivity through an Iridium phone to another computer, a corporate network/LAN or an Internet Service Provider (ISP).
The Direct Internet Data service provides connectivity directly to the Internet through dedicated services at the Iridium gateway from a PC through an Iridium phone. Using transparent compression to achieve a data rate of 10 KBPS, this service uses a feature called spoofing that seamlessly disconnects and reconnects the user to the server to reduce airtime charge and conserve phone battery life.
Roadpost charges $2,395 for Iridium’s Motorola 9505 satellite phone handset; it is much smaller and lighter than the previous Motorola 9500 model and cheaper. The initial handset cost about US$3,000.
Mark Quigley, a research director at the Ottawa-based Yankee Group, said the 9500 handset model was heavier and larger in size than the 9505 model and joked that it had the appearance of half a baguette. Sherrard said the 9500 model weighed just over 4.5 kilograms; the 9505 model weighs just 375 grams.
Sherrard added that Roadpost had no hesitations about hopping back on the wagon with the new Iridium after its reconstitution. He said that a lot of their previous clients signed up again as well as new ones.
“They (old Iridium) had a business that overestimated the addressable market,” he said, adding that the new Iridium is focused on vertical markets that have a need for the satellite phone service Iridium offers.
Sherrard said Roadpost is seeing an increasing market for Iridium’s service and their satellite phone service accounts for about 20 to 25 per cent of their overall business. He added that a high percentage of the minutes traffic is taken up by the use of Iridium’s new data service capabilities.
Mark Quigley said there is definitely a market for Iridium’s services and believes the company is taking the right direction with their marketing strategy. Given the cost of Iridium’s services, its equipment and the relatively inexpensive wireless market, Iridium must focus on niche markets simply because in a mass market it would be competing against mobile giants such as Nokia and Ericsson, he said.
The satellite array itself consists of 66 satellites in six different low-earth polar orbits at an altitude of 780 kilometres; there are 11 in each orbit. Transmissions jump from satellite to satellite as the earth rotates. Communications move from satellite to satellite every eight minutes seamlessly; it is completely unnoticeable to the user, according to Iridium. Fourteen backup satellites have also been deployed to take over in case a satellite fails. The satellite array has a life span that extends to at least 2010. Picasso said recent estimates extended that to 2013.