June 5, 2012 / 3:00 PM / 8 years ago

In second coming, Iridium embraces cellphones

(Reuters) - Cellphones killed Iridium once, but in its second coming the satellite phone maker and owner of the biggest satellite fleet is relying on them to secure its future.

For all their seeming ubiquity, cellular services cover only about 8 percent of the globe, leaving large regions where the only way to communicate is to use a satphone made by Iridium Communications Inc or one of its smaller competitors.

“The need for communication devices and services where terrestrial can’t be there is rising, and as bandwidth needs increase it’s surely helping Iridium,” Macquarie Research analyst Amy Yong said.

Investors have taken notice, pushing up the stock of the company nearly 50 percent over the past eight months.

“It’s a different company, with a prudent and successful financial model,” Raymond James analyst Chris Quilty said.

“They’re growing, they have extraordinarily high barriers to entry and some of the end markets and applications they’re targeting are vast and untapped,” he said.

Unlike its competitors, Iridium’s satellite constellation covers the entire globe, including the poles, and its array of 66 satellites dwarfs the fleets of its rivals. Inmarsat Plc has 11; GlobalStar has eight and is aiming to have 32 in orbit by the year-end; Thuraya has three, with one planned.

One of Iridium’s major selling points is a WiFi-like device called AxcessPoint that allows users to make calls and send emails and instant messages from anywhere in the world with their mobile phones.

Those services will vastly improve once the company’s new satellites are sent aloft in the next few years.

“I remember a customer who said he had just arrived at the North Pole and said, ‘I’m standing around with some other people here and we’re all wishing we could use our BlackBerrys,’” Chief Executive Matt Desch said in an interview.

“The Iridium device will let you do just that,” said Desch, who is a member of President Barack Obama’s National Security Telecommunications Advisory Committee.


That’s not to say it’s bound to be clear sailing for Iridium, which was bought by a group of investors for a paltry $25 million in 2000. One big concern is whether the company’s satellites can last until its new ones take over.

“The one thing about Iridium that is somewhat surprising to me is that we designed the original satellite system to last five years. It’s going on 15 years now,” said Bary Bertiger, a former Motorola employee who designed Iridium’s original satellite system.

Iridium plans to completely replace its aging satellites by 2017 at a cost of $3 billion, Chief Financial Officer Tom Fitzpatrick told Reuters.

U.S. lawmakers have delayed approving technology export licenses to Thales Alenia Space, a France-based company making hardware for the new satellites, raising the prospect of launch delays - a common industry problem.

Some industry experts also note the potential for cost overruns. Iridium, which said it was not concerned about delays or overruns, has already raised about $2 billion for the new satellites, which will increase data speeds to 1 Mbps from the current 128 kbps and help bring in more customers.

The new satellites will also allow Iridium to offer new services such as hosted payloads, giving customers the opportunity to have their own dedicated space on a satellite.

Iridium, which is based in McLean, Virginia, is already in talks with air-traffic authorities including the U.S. Federal Aviation Agency to offer hosted payload services to track aircraft in real time, Fitzpatrick said.

Iridium, which reported a 2011 net profit of $39.7 million on revenue of $384.3 million, started selling satellite phones in 1998. But it went bankrupt a year later, largely because of the high prices it charged its small user base - about $7,000 for a phone and call charges of about $7 a minute - as well as the rapid growth of cellphone networks.

When Iridium went bankrupt, the satellites were its most valuable assets and part of the reason the company emerged so quickly from that mess. The Pentagon also brokered a deal to let the satellites stay in orbit.

“The investors who bought Iridium for a song, literally a song, were able to lower the maintenance cost substantially because they didn’t have any significant carrying costs,” Bertiger said.

This time around, Iridium is betting on the fast-growing machine-to-machine (M2M) data services market, which helps operators monitor remote assets such as oil platforms and track ships and vehicles.

The service was also recently certified for use on commercial aircraft to provide Internet and voice applications to airline passengers. Once that happens, airline passengers will no longer need to switch off their cellphones while flying.

Daily transactions are expected to increase to a capacity of six million this year and double to 12 million in 2013, said John Roddy, executive vice president of Iridium’s global operations and product development.

“When I joined in 2006, the system had a capacity to handle about 400,000 transactions per day,” Roddy said.

Iridium now gets about 10 percent of its revenue from M2M services. Over the last six quarters, the segment has grown by about 50 percent in terms of total billable subscribers.

Iridium shares were little changed at $8.31 in early trading on Tuesday.

Reporting by Supantha Mukherjee and Sagarika Jaisinghani in Bangalore; Editing by Peter Lauria, Sriraj Kalluvila, Ted Kerr

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