The world's first global satellite telephone company has filed for bankruptcy. In August Iridium LLC filed for Chapter 11 protection from creditors after defaulting on two loans totaling more than $1.5 billion. A series of technical glitches, lack of equipment, poor marketing, expensive pricing, and overall lack of consumer interest hampered the service since it's introduction in November 1998.
Iridium began ten years ago, so the story goes, when the wife of a Motorola engineer decided not to go on a Caribbean vacation because she wouldn't be able to keep in touch with her Arizona real estate business. Her husband, along with several other Motorola engineers, eventually came up with a design to provide worldwide telephone service through a series of low earth orbiting satellites.
In partnership with a large number of other investors, Motorola created Iridium LLC and began the long, expensive process of building and launching satellites and constructing earth stations. In 1997 Iridium began launching satellites, eventually lofting more than 80 into orbit while suffering numerous hardware failures and recurring software problems. By late 1998 a dozen gateways were in operation and legal agreements were in place with many governments licensing authorities.
Finally, on November 1, 1998, Iridium opened for business, boasting that by year-end they would have 100,000 phones in use on the system.
Signs of trouble soon appeared as Iridium reported a total of 3,000 subscribers at the end of 1998. At the end of March, 1999, Iridium had just over 10,000 customers, far short of the 500,000 needed to reach financial break-even. A number of excuses were floated for such a small response, including a lack of handsets and a ill-conceived marketing plan. More telling, though, was that by the end of May several senior executives had fled the company, including the Chief Executive Officer and Chief Financial Officer.
In an attempt to attract more customers, in June Iridium introduced a simpler, less expensive pricing structure. Fifteen different price zone rates became four and airtime rates dropped to less than $4 per minute, but the market reaction was limited. By mid-summer only an estimated 20,000 customers had signed up for service, and stories were circulating about finicky phone connections and uneven voice quality. Layoffs soon followed.
After a series of debt extensions and negotiations, on August 11, 1999, Iridium defaulted on two bank loans, one for $800M and the other for $750M. Two days later Iridium filed for bankruptcy, seeking protection from creditors and time to reorganize. Iridium stock, which went public at $20 per share in June 1997 and reached a peak of nearly $71 a share in May of 1998, dropped below $3 just prior to bankruptcy.
Despite the marketing pitch to globe-hopping business executives, the primary customer for Iridium up to this point appears to be the United States Goverment. Besides purchasing a dedicated earth station in Hawaii, the federal government has contracted for several thousand handsets and airtime for military and federal use. Even in the midst of their financial difficulties, for example, heavy Motorola lobbying helped Iridium to sell 1,000 phones to the U.S. State Department for $1.4 million. Whether such tactics will succeed in the future remains to be seen.
Motorola holds about 18 percent of Iridium equity, and is the guarantor of the $750 million loan. Motorola has promised full operational support for the 20,000 existing customers and any future subscribers during the reorganization. Motorola also announced that they expect to develop the next generation of Iridium products, although that may be problematic after having laid off or transferred the entire satellite development group.
Should Iridium be liquidated or otherwise cease operation, don't expect other companies to rush in and acquire the system. Most satellites are "bent-pipe" transponders, relaying signals from the ground without regard to content, and may be used effectively with a variety of signals and equipment. Iridium satellites, on the other hand, process signals on-board and are only good for communicating with Iridium telephones and pagers. (Amateur skywatchers have found another use for Iridium satellites, since the shiny aluminum main mission antennas cause the satellite to "flare" as they pass overhead - more information on that phenomenon is on my website.)
Iridium's failure in the marketplace doesn't bode well for other satellite telephone systems. The next big LEO to try, Globalstar, has been steadily launching satellites at an average rate of four per month, having 36 in orbit as of August. Twenty more satellites are scheduled to be in orbit by the end of the year, when Globalstar plans to be in commercial operation with essentially the same type of service and potential customer base. Lower operational costs and more robust equipment may help, but Globalstar faces the same challenge of finding customers who are willing and able to pay for service.
It appears that the primary competition for Iridium, Globalstar, and other satellite telephone systems is terrestrial cellular networks. Satellite phones are currently expensive and bulky compared to their cellular counterparts, and donít work indoors or in cars. Costs for cellular telephone service continue to drop, especially with competition, and buildout continues to increase coverage areas.
FBI STALLS SATPHONE LICENSES
Apparently satellite telephones are a threat to national security. The Federal Bureau of Investigation (FBI) is currently blocking several license applications until it can work out exactly how to eavesdrop on satphone subscribers.
The FBI has long complained that advances in technology are eroding their ability to wiretap telephone calls. In 1994 Congress responded to law enforcement lobbying and passed the Communications Assistance for Law Enforcement Act (CALEA), which mandates that telephone companies make their networks easily accessible to government eavesdroppers. While much of that law is still embroiled in controversy, the FBI is adamant in wanting the ability to eavesdrop on satellite telephone users just as they do with terrestrial cellular and traditional landline phones.
Legal wiretaps on wireless networks are almost always perfomed at the switch, where the call may be intercepted regardless of which base station the caller is using. The corresponding access point for satellite networks is the gateway, usually a satellite earth station with a connection to the public switched telephone network (PSTN).
The international nature of satellite telephone service is creates a legal problem, however, when the gateway is not located in the same country as the caller. Globalstar, Iridium, and a few other companies hope to use gateways located in Canada to serve customers in the United States, but have seen their operating licenses held up due to FBI demands.
Case is point is TMI Communications, a Canadian-based service provider using the MSAT-1 satellite to sell voice and data service across North America and the Caribbean. TMI filed a license application with the FCC in early 1998, after the FCC began openly promoting competition in the satellite services market. The FBI promptly blocked approval of the license on national security grounds, demanding to be given the ability to intercept all calls made by U.S. citizens or placed on U.S. soil and to know the exact location of the caller.
The FBI would like TMI to pay for retrofitting all of their existing satellite phones with Global Positioning System (GPS) receivers, thus providing location information that could be used to determine the point of origin for a call. TMI explained that they could not afford such an expensive undertaking, but offered to pass along all calls made from American handsets. The FBI rejected this idea, fearing that the bad guys would simply purchase a phone from a Canadian or other foreign dealer, thus having a non-U.S. identification code and bypassing any interception. As of this writing, the issues remain unresolved.
For their part, the Canadian government isnít happy about the FBI listening to Canadian citizens, although they have expressed some interest in a bilateral agreement whereby each spies on the otherís citizens, much as the national intelligence organizations already do.
Besides having their privacy violated, the consumer may suffer as prices remain higher due to limited competition. The U.S. is already blocking foreign competition, and other countries may choose to block license applications from U.S. satellite providers as a way to protect their own industries or negotiate for the ability to wiretap satphone users within their own borders.
DIAL 911 ANYWHERE
According to the best estimates, more than 77 million wireless telephones are in use in the United States. With so many phones in so many hands, itís never been easier to report an emergency. The trick is, what number should you dial? More than 20 different wireless emergency numbers are presently operating in different areas of the country, including such non-intuitive ones as *55 in Missouri, *999 in Illinois, *DUI in Ohio, and *77 in Maryland.
For the 100,000 or so emergency calls placed by wireless phones each day, having one nationwide emergency number makes sense. Senate Bill 800, introduced by Conrad Burns (R-MT) and passed by the Senate in August, establishes 911 as the nationwide emergency assistance number for both wired and wireless networks. The bill also extends to wireless systems the same type of liability protection enjoyed by wireline telephone companies, should an emergency call not get through or be routed to the wrong place.
In most areas of the country emergency calls are delivered to a Public Safety Answering Point (PSAP), where dispatchers answer phones and coordinate emergency service responses. Enhanced 911 service on landline telephone systems provides dispatchers with the name, address, and number of the calling telephone, from which they can determine the physical location of the caller. Locating wireless telephones is a more complicated problem, as covered in the August 1998 PCS Front Line column, but it boils down to the dispatcher not being sure where a cellular call is coming from. Since between a quarter and a third of all calls coming into PSAPs are from wireless phones, this is a significant problem. The Federal Communications Commission (FCC) is currently overseeing a series of demonstrations to provide PSAPs with wireless 911 location information, but the final solution has yet to be determined.
Another problem faced by emergency service dispatchers is "PSAP flooding," where many wireless callers all phone in reports of the same incident at the same time. An accident on a busy highway may overwhelm a PSAP as dozens of helpful Samaritans all call in as they pass the accident site. To complicate matters, many mobile callers arenít sure of their own location and end up creating more work for the dispatcher as they sort out whether the caller is seeing a different accident.
That's all for this month. More information is available on my website at www.decode.com, and I welcome electronic mail at firstname.lastname@example.org. Until next time, happy monitoring!
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