Matt Desch: 250,000 subscribers, and for every new
subscriber there is no additional cost
Where they're active: Iridium phone usage for the week
of beginning July 22 2007
Timeline: how they rebooted Iridium
Motorola missile engineers Ken Peterson,
Raymond Leopold and Bary Bertiger conceive the idea of
using 77 satellites in low earth orbit to cover 100% of
the earth's surface for a digital phone and data
network. The element iridium has the atomic number 77 -
and the name stuck even when the design was improved to
use 66 satellites.
According to a Wired Magazine article from 1998,
Bertiger's wife Karen Bertiger needed a phone in a
remote part of the Bahamas in 1987 to be able to close
a real-estate deal. Her question led the Motorola trio
to devise the Iridium solution.
An IPO on Nasdaq, private placements and debt together
bring Iridium's funding to $5.5 billion.
Commercial service starts, using 66 active satellites,
each 775 kilometres above the earth and taking 100
minutes to orbit. Handsets communicate on the 1.6
gigahertz band, automatically swapping links from one
satellite before it goes below the horizon to another
that is visible. Unlike other systems, Iridium can
route calls from satellite to satellite in space.
After nine months of commercial service Iridium, with
too few customers, defaults on two loans worth more
than $1.5 billion and files for bankruptcy. Motorola,
which owns 18% of the company, prepares to crash-land
the satellites and burn them up on re-entry into the
Similar problems hit other satellite phone companies -
including one originally promising 40-50 million
After the Pentagon helps rescue the project with a big
contract, a new Iridium company takes over for a
reported $25 million.
New Iridium begins offering commercial service for
voice, data and internet.
Spare satellites launched into orbit.
Text and fax services introduced.
Reaches 100,000 subscribers and positive EBITDA.
200,000 subscribers; second quarter 2007 revenue of $66
million and EBITDA of $20 million.
First quarter 2008 shows $74 million revenue, $24
million EBITDA; 250,000 subscribers.
Final cases involving Motorola from the bankruptcy of
the original Iridium are settled.
Iridium is starting to make plans for a share flotation,
following a period of rising revenues and earnings, so that it
can afford to build and launch a new series of
Now that is a sentence that few people expected to read, or
write, a few years ago, when satellite phone operator Iridium
was the classic case study of foolish investments in
over-optimistic telecoms operations.
But it's true, in all those elements: Iridium, the successor
company to the one that went bust nine years ago after just
nine months of commercial service, now has 250,000 customers.
Based on first-quarter figures, revenue is running at an
annualised level of about $300 million and EBITDA is about $100
"The thing about satellite companies is that they eventually
become cash machines," says Matt Desch, who has been CEO of
Iridium since September 2006. "For every new subscriber there
is no additional cost - the revenue just goes to the bottom
line. We have crossed over profitability and we're now
generating significant new levels of cash."
Desch is a mobile phone man who had no connection with Iridium
until 2006. He has spent most of his career with vendors,
including Nortel - where he specialised in the mobile business
- and Telcordia.
New satellite network
His biggest tasks for the next few years are to continue to
grow Iridium's business but also, more importantly, to find the
funding to build a new satellite network, without making the
mistake that Iridium Mark One did back in the 1990s.
That's because, even without a dodgy business plan, satellites
fade and die. They run out of the fuel that's needed to keep
them in position, and if they're in low orbit, as Iridium's are
- to keep handset power down and avoid the time delay suffered
by satellites in high orbit - then they will fall back into the
atmosphere and burn up.
Iridium was planned with 66 operating satellites, but with a
lot of spares, ready in orbit to be moved into position to
substitute for the failures.
"We've used up five spares in the last seven years and there
are nine more left," says Desch. They're good for five years or
so: "The ninth spare will be used up around 2013 or
After that, there will be holes in Iridium's coverage if
nothing is done about it: customers won't be able to get a
signal or calls will be dropped. So the company is planning a
series of new satellites to replace the existing fleet.
"We want to be launching the replacement satellites by 2013,"
says Desch. "We expect that we will be replacing those
satellites over a three-year period from 2013 to 2016. Each
satellite will be backwards compatible with the previous
satellite. We will launch six at a time."
So that's 11 launches at least - plus more for the
second-generation spares - in three years or so.
Iridium has already set a budget for the operation at $2.7
billion. Now the company is finding out, firstly, what it can
get for the price, and secondly, how it can raise the
It has named three companies as competitors for the job of
building and launching the satellites: Lockheed Martin, Loral
and Thales, in alphabetical order. One will be chosen, and
Desch is aiming for a fixed-price contract by the end of the
second quarter of 2009.
Satellite and launcher technology have moved on since the late
1990s, and what Desch and his team can buy for their $2.7
billion budget is a lot more than the first Iridium team could
get for way more back then.
"We're working with our suppliers to see what is the maximum
amount of technology we can afford for that price," says Desch.
And not all of it will be for Iridium's own purposes.
Its satellites can carry more than the Iridium system.
Equipment can be installed for a whole range of other
organisations that would find it useful to have electronic
systems in orbit over every bit of the earth's surface.
"The one that's most public is earth observation," says
Desch: "scientific sensors that would measure global climate
change in real time - there's a tremendous need for the
He expects to raise "from $600 million to $1 billion" in
revenues from such "secondary payload sales".
On top of that Desch estimates that the company will be able to
generate $1 billion from internally generated cashflows.
And the rest? That will have to come from other sources. "Were
raising a little equity in anticipation of an IPO in 2009," he
At the moment "I don't need the money that much", but he wants
to be prepared. He's already commissioned Evercore Partners, an
investment banking boutique, to advise on the fund-raising. "I
can't talk much more about that because it's a very competitive
But by the time of the main IPO "we'll be generating
substantial earnings", says Desch: $300-$400 million a year, he
Is this a realistic projection? Iridium today has a very
different subscriber base from that envisaged by the Motorola
team which worked on the idea in the early 1990s.
Then Iridium was going to deliver voice telephony around the
world, to all those places not connected to the fixed network
or the still embryonic cellular networks.
Even though Motorola should get more credit than any other
company for coming up with the idea of the cellular phone in
the first place, it failed completely to recognise how
successful mobile phones would be.
In the year Iridium launched its commercial service, there were
100 million GSM phones in operation and international roaming
was well established. GSM was a success on a scale that
Motorola had not expected, and the opportunity for satellites
in mass-market voice services was past.
But there are different opportunities now, says Desch. "Only
18% of the planet is covered after 23 years by wireless
technology. It isn't going to expand much beyond that."
There is no GSM coverage at sea and little in the remote
regions of the world - such as the middle of the Sahara or
Siberia. Inmarsat, which has been in business for three
decades, has the biggest market share, though according to
Desch its share is now 47%, to Iridium's 22%, in second
Satellites orbiting above the equator - such as Inmarsat's -
have a big advantage but a few disadvantages. It's useful that
the satellites are in fixed position, so a user can point the
antenna at the best satellite.
It's not so handy that the speed of light means radio waves
take a third of a second to get to the satellite and return;
phone conversations can be stilted and web browsing slows
And fixed satellites cannot reach the areas round the north
and south poles - where equatorial satellites are unreachably
below the horizon. That's not a problem with Iridium's 66
craft, which zip around a few hundred kilometres over every
patch of earth, including the Arctic and Antarctic.
"Only 12% of traffic goes over the poles," admits Desch, but
the polar effect is more significant than that. "If you're
going to install one system on an aircraft you want one that
will work everywhere."
So a FedEx plane from, say, Moscow to Memphis will be able to
stay in touch throughout the route via Iridium. "The thing you
worry about most is coverage, coverage, coverage. We have the
It's not broadband - and Desch recognises the irony that
someone who has worked in broadband for most of his career,
including in 3G mobile, should now be running a system where
128 kilobits is called "high speed".
It's enough for three voice lines and for IP data, he says. "It
can work on a fishing vessel or a cruise ship, for crew access
or ship's business."
A customer that continues to be important to Iridium since the
early days is the US military. The Pentagon helped provide the
market assurance that ensured Iridium was rescued after
bankruptcy back in 2000, and figures published by Iridium show
a around 20,000 Department of Defense users: the glow of usage
around Afghanistan on the world map no doubt shows where some
of those are.
But the biggest growth for Iridium is machine-to-machine data.
"Two years ago we introduced a modem the size of a pack of
playing cards that married up with a GPS receiver, and
sometimes with a wireless GPRS receiver to provide real-time
two-way connectivity anywhere on the globe."
You'll find it in ships and trucks and containers, reporting on
speed and position. "Transport is one of the biggest early
users - knowing where the truck is, the status of the truck. Is
the driver going over 65 mph? Is there an emergency? What's the
status of the refrigeration in the back? Have they been
hijacked?" he says. "That business is growing 200% a year for
us and is continuing to grow at that level. We see eventually
millions of customers."
Sometimes you won't see it in use: the construction industry
uses sensors to track large, expensive machines. There are
security sensors that "can now be put in places where you can
track if something's crossing the border where it
Some systems are used for monitoring things that don't move -
pipelines, wind turbines, for instance - but where it's cheaper
to use an Iridium device to send a burst of data now and again
than to install a fixed telecoms connection.
Iridium, with only 150 employees, does not develop these
applications internally. An ecosystem of companies works in
different sectors, "service partners who are specialists in the
spaces they serve".
Sometimes Iridium gets to hear of odd applications because of
technical requests those partners make. One asked if there was
a way for a terminal to log onto the nearest Iridium satellite
and transmit a burst of data in under five seconds. Why?
Because that was the time that the whale carrying the
monitoring equipment came to the surface, says Desch.
There are other Iridium terminals on buoys checking deep ocean
currents and temperatures, surfacing from time to time like the
whales to report back. Submarines use tethered buoys to
communicate with base - less susceptible to interception than
conventional radio. Tuna fishers use Iridium to combine sonar
pictures to find where the shoals are swimming.
There are many other applications, including "some I can't tell
you about that are pretty cool", he smiles.
"The real secret to our success in the last seven years has is
the change in business model," says Desch. "Before bankruptcy
Motorola envisioned Iridium as a mass-market consumer service
for business people. This system is not really good at
But it was designed to be upgradable. It is "a software system
in orbit" and "it's been changed dramatically by our technology
partner, Boeing", says Desch. Boeing built and launched the
One upgrade being considered is a positioning function, to
use Iridium satellites along with the GPS system to improve
accuracy. "That can be programmed on the current
constellation," he says.
Iridium "is the most sophisticated commercial satellite service
in the world", he says. "We have more satellites than any
operator except the US and Russian governments. They're some of
the most sophisticated satellites that have ever been built but
it's going to get even more interesting as we build the next
If he doesn't get the funding, Iridium will fail for a second
time. "Iridium was and is a technical marvel," says Desch. "It
wasn't conceived correctly from a business perspective. Once we
got the business model right, it's now become a business marvel
The investment bankers, and other potential sources of money,
will be seeing a lot of Desch over the next few years.
Chairman and CEO of Iridium since September
BS in computer science from the Ohio State
University and an MBA from the University of
Spent 13 years until 2000 at Nortel Networks,
finally as president for wireless networks business and
responsible for its carrier customers in Europe, Middle
East, Asia and Latin America
CEO of Telcordia from July 2002 to October 2005,
having also served on the board of Telcordia's parent
SAIC and then taking Telcordia into private equity