Iridium Inc.Washington, D.C.

Wireless worldwide telecommunications system

Imagine yourself as vice president of sales. You need to immediately reach your 400-person sales force scattered around the globe but you don't know their exact locations or their telephone numbers. Or imagine that you are in a foreign airport and the pay telephone doesn't work, or there's a long line of people waiting to use the phone, or you don't have the correct foreign coins. Perhaps you don't speak the language or have the necessary telephone credit card, and you need to quickly call the home office or be reached by a traveling business colleague continents away. Or picture yourself as an international business traveler who needs to make a home-office connection from the middle of Russia, where a population of 250 million shares only 10 million telephones. Then, really use your imagination: As a high-end business traveler or top corporate executive, you can reach your office (or be reached by your office) no matter where you are -- on a remote oil platform, in a major city without compatible cellular infrastructure, or somewhere in the sky. As a traveling business person, a call from Tel Aviv, Bombay, or Rio de Janeiro can be as simple as making a call from home to the office. In less than four years, that fantasy could become reality. Starting roughly in October 1998, business executives who aren't ruffled by paying $2,500 to $3,000 for a dual-purpose portable telephone handset and $2 to $3 a minute in phone charges will be able to make a call from literally any spot on the globe to any other spot on the globe. What will make it possible is a project conceived in 1987 by engineers at Motorola Inc.'s Satellite Communications Div. in Chandler, Ariz. Working quietly, Motorola and its industrial partners spent more than $150 million on research and development and in 1990 filed a request with the Federal Communications Commission for a license to construct and launch satellites for the first-ever wireless worldwide telecommunications system. Iridium Inc. -- a Washington-based company formed by Motorola in 1990 -- intends to launch 66 small satellites and build a $3.4 billion global wireless telephone network to allow people to talk over pocket-sized telephones anywhere in the world. (Iridium Inc. is an international consortium of telecommunications and industrial companies funding the development of the global wireless system.) Iridium also has signed a $2.8 billion contract with Motorola for operation and maintenance of the system for five years, beginning in 1998. In turn, Motorola has signed a $700 million contract with Lockheed Missiles & Space Co. Inc., Sunnyvale, Calif., for development of key elements of the spacecraft. The first satellite launch is scheduled for January 1997, with wireless global telephone service to follow in late 1998. The Iridium wireless personal communications network is designed to permit any type of telephone transmission -- voice, data, fax, paging -- to reach any point on earth, at any time. Its champions say it brings a new dimension of capability to the commercial, rural, and mobile telecommunications sectors by providing a universal dial-tone and portable service. Moreover, the Iridium technology piggybacks onto current cellular systems by extending them beyond their terrestrial limitations and overcoming anarchy among 20 national and international cellular standards. Subscribers will use a wireless, pocket-sized Iridium telephone, transmitting through digital facilities, to communicate with any other telephone in the world. Unlike conventional telecommunications networks, the low-orbit (420 nautical miles above the earth) satellite system will track the location of the telephone handset, and provide global transmission even if the subscriber's location is unknown. In areas where compatible cellular service is available, the dual-mode phone will provide the option of transmitting a call via the land-based cellular system at a less-expensive calling rate. Intersatellite transmissions and transmissions to ground gateway locations will take place in the Ka-band frequencies. Communications between satellites and Iridium subscriber units, pagers, or solar-powered phone booths will use L-band frequencies. From the time the iridium system was unveiled in 1990 until Iridium Inc. completed the $1.57 billion in necessary equity financing in September 1994, the project had legions of skeptics. They doubted Motorola's ability to attract both the equity and debt capital, and they doubted the size of the market opportunity. "The main reason that Iridium is a success [and other would-be competitors haven't been] is because of Motorola's invention, interest, and participation," says Robert W. Kinzie, chairman and CEO of Iridium Inc. "When they put their name on a worldwide project like this, no matter how futuristic it is, people around the world want to share in that system. The key has been Motorola's involvement." While critics sneered, Mr. Kinzie and key members of management visited more than 30 countries searching for equity partners during the last three years. It was as much an educational effort as it was a drive for equity funding. "In some countries, when we talked about profit, competition, customer choice, and wireless, they didn't know what we were talking about," confides Mr. Kinzie. Naysayers, ranging from financial analysts to telecommunication experts, listed a whole host of hurdles and pitfalls in their litany against the Iridium project -- so named because the original system called for 77 satellites circling the globe and the element Iridium has the atomic number 77. (No, the name won't be changed to Dysprosium -- element number 66.) "People said, 'They'll never get the financing, they'll never get operators, they'll never get licensed, they'll never get this, they'll never get that,'" relates Mr. Kinzie. "We're getting them. You can sit around and talk yourself into doing nothing, but the point of Iridium is that there is no downside, there are no negatives. "Why wouldn't you want Iridium in your country?" queries Mr. Kinzie. "It's such a brilliant service, and it is an elegantly simple design that takes the 'place' out of the communications market. It's upside-down cellular. Instead of driving through the 'cellular towers,' they pass over you and hand you off as each one [satellite] passes overhead." The high-end international business traveler is expected to account for 75% of Iridium's market niche. Other applications include service for developing nations that lack telecommunications infrastructure, communications for rescue and supply efforts during natural disasters, and personal use. Today, there are roughly 20 million cellular-phone users in the U.S. alone, and the market grows by 17,000 subscribers daily. Worldwide, the U.S. Dept. of Commerce estimates there will be 150 million cellular-telephone users by the year 2000. Iridium's business plan foresees 1 million voice users and 600,000 pager users subscribing to its system worldwide by 2002. Of the projected 150 million global cellular users, Iridium needs "less than 1% [of the market] to be extremely profitable. Or put another way, we need around 2 million subscribers to be wildly ecstatic," laughs Mr. Kinzie. More than 4,000 people are working on elements of the Iridium system. They are building or designing launch vehicles, main mission antennas, ground-control infrastructure, subscriber equipment, and systems-management software. McDonnell Douglas Corp., St. Louis, will launch the majority of the satellites on its Delta 2 launch vehicle. Each satellite will be relatively small, weighing only about 1,500 pounds, and simply constructed so the units can be built, launched, and replaced economically. The lifespan of the first generation likely will be five years, although the entire system can be upgraded in three years to increase capacity and technical sophistication. "We don't want 15-year-old technology up in the sky, because wireless technology is changing so rapidly and the next generation of our satellites will need to be more spectrally efficient and capable," foresees Mr. Kinzie. Excluding Motorola's $440 million investment, Iridium's next biggest investment comes from Japan, where DDI Corp., Japan's second-largest telephone company, is the dominant partner in a consortium of 17 Japanese companies that have invested $235 million. Others include Sony Corp., Mitsubishi Corp., and Mitsui & Co. Other key owners: Iridium Canada Inc., China Great Wall Industry Corp., Iridium Africa Corp., Iridium SudAmerica of Venezuela, Iridium India Ltd., Iridium Middle East Corp., Khrunichev Space Center of the Russian Federation, Lockheed Corp., Motorola Inc., Nippon Iridium Corp. of Japan, Raytheon Co., Sprint Corp., STET-Societa Finanziaria Telefonica per Azioni of Italy, Pacific Iridium Telecommunications Co. of Taiwan, Thai Satellite Telecommunications Co. Ltd., VEBACOM of Germany, and Korea Mobile Telecommunications Co .

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