Motorola's Iridium: A Long Slog To The LaunchpadLois Therrien and Mark Lewyn
In June, 1990, Motorola Inc. unveiled a truly blue-sky vision: 77 communications satellites circling the globe like swarming bees, allowing travelers equipped with slim handheld phones to call anywhere on the planet. It dubbed the system Iridium, after the element with 77 electrons. Since then, the World Administrative Radio Conference has assigned a needed globe-spanning band of airwaves for use by such mobile satellite services. Motorola is now more gung ho than ever.
If only such optimism were universal. It has been two years since Iridium was announced, but Motorola has yet to name any investors who are willing to help cover the $3.4 billion development and launch costs. Potential investors are understandably nervous about joining a project that isn't expected to turn a profit until 2002, four years after startup. And it didn't help when Motorola was denied a shortcut to an airwave license in the U.S. Onetime potential partners are now planning rival systems, and critics question whether the technically complex system can get anywhere near the 1.8 million subscribers Motorola projects by 2002. Now, Iridium is nearing a moment of truth: It has set a Dec. 15 deadline for signing 15 to 20 investors. Its success may well determine if the satellites ever get off the ground.
The stakes are huge. Much of Motorola's prestige as a world-class telecommunications pacesetter is wrapped up in Iridium, the biggest, most complicated venture in its 64-year history. Motorola canceled one Iridium investment offering a year ago because it didn't have an airwave slot lined up. This year, the company has spent tens of millions of dollars to promote and develop Iridium. But Motorola wants to reduce its ownership--and risk--to just 15%, and Chairman George M. C. Fisher says Motorola will not go forward without partners.
As zero hour for raising $1.2 billion in equity nears, several rivals insist the Schaumburg (Ill.) giant will come up empty. Says Michael D. Saffell, CFO of satellite venture Ellipsat Corp.: "The word one gets is they have struck out, and there is nobody that will touch the project."
That may be too strong. Still, money is tight for the likeliest partners. European phone companies are investing heavily in their own deregulating markets, and other players are coping with the global recession. Motorola's fund-raising effort also suffered in August when the Federal Communications Commission declined to award Iridium a pioneer's preference, a way to circumvent the lengthy licensing process. The FCC said the satellite proposal was not novel enough to merit special treatment.
OVERSOLD? Plenty of potential partners have turned Iridium down. "I see better uses for our investment dollars right now," says MCI Communications Corp. Chairman Bert C. Roberts Jr. Canadian satellite operator Telesat Inc. and financially troubled British Aerospace also balked at the steep investment. "We thought the level of financing they were looking for was not in line with the risks," says Kevin Smyth, a Telesat corporate development officer.
Motorola, however, says it will meet its timetable for completing the private placement. "Frankly, we will be oversold," says Vice-Chairman John F. Mitchell. He says he has both written and verbal commitments from investors in Japan, Canada, and elsewhere, although he declines to name any because the offering stipulates that all will be named at once.
One individual whose spokesman says he is considering backing Iridium is Kazuo Inamori, chairman of Kyocera Corp. and DDI Corp., Motorola's cellular-phone partner in Japan. Japanese newspapers have reported Inamori may be assembling a group of companies, including DDI and Kyocera, to take a 15% stake.
Iridium's prospects would be more secure if Motorola had not ruffled the feathers of some potential allies. It antagonized the staff of the International Maritime Satellite Organization, a consortium that provides communications to ships and planes, by claiming that the consortium was a likely partner, although it had agreed only to consider the deal. Inmarsat's owners--a group of companies from 64 countries--can decide on their own about Iridium. But the staff is clearly inclined to recommend a rival system. Motorola wanted "to force Inmarsat to go to bed with Iridium before it was ready," asserts Jai Singh, general manager of a project to study Inmarsat's mobile satellite options.
Motorola didn't help itself last June, when former Chairman Robert W. Galvin wrote to then-Secretary of State James A. Baker III protesting a proposed Inmarsat system. Communications Satellite Corp., the U.S. company that owns 25% of Inmarsat, fired off a letter to Vice-President Dan Quayle in response, charging that "Motorola wants to coerce Inmarsat into an alliance."
Meanwhile, four other proponents besides Iridium have asked for FCC permission to launch so-called Big LEOS (low-earth-orbiting satellites) systems (table). Inmarsat may follow suit, although some experts say there's room for no more than two networks.
Securing financing would give Iridium a giant leg up in winning an FCC license to operate in the U.S. And an international team of investors would help it obtain licenses in other countries.
Some critics still question whether the market for satellite-based voice, data, and paging services, designed to complement existing terrestrial networks, can justify Iridium's stupendous startup cost. Even some who agree with Motorola that satellites make sense believe that fewer birds can do the job for a fraction of the cost. Some also claim that they can beat Iridium's 1998 launch by several years. Ellipsat, for one, says its proposed 12- to 24-satellite system would charge callers just 50 a minute, vs. $3 a minute for Iridium. Mary Ann Elliott, president of consultant Arrowhead Space & Telecommunications Inc., says Iridium is "a Rolls-Royce when a Chevy would do."
REWORKING. Motorola has already scaled down its original proposal. The redesigned network now calls for 66 satellites, down from 77--prompting wags to suggest renaming it Dysprosium, for the element with 66 electrons. Every satellite will send out 48 beams that can each handle about 230 calls. Rival LEOS setups plan to provide fewer beams per satellite and fewer satellites, limiting their capacity and geographic coverage.
Iridium's intersatellite links would also give it an unmatched ability to locate precisely the source of a call and complete the connection all within 10 seconds, says Motorola, by passing calls directly from satellite to satellite. The other proposals would bounce a call from a satellite to land and, if necessary, back to another satellite.
Iridium's setup would allow it to give a cut of each call's revenue to phone companies in the countries where the call is originated and completed and where the subscriber is based. Motorola says all of the major technical issues to make this work have been resolved. But some possible investors worry about the complicated system: "There's a lot of technological risk," warns a Deutsche Bundespost Telekom source.
In the end, says Mitchell, the matter boils down to one all-important difference: Iridium will provide subscribers with units that offer high-quality sound anywhere, including indoors. The others, he says, will have to be used outside. But long before Motorola can even think about putting its technological claims to the test, it must reel in some deep-pocketed, patient backers willing to pay for them. And the fishing season is drawing to a close.
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