Inside One Company’s Stalled Attempt to Blanket the World with Internet Connectivity
Iridium Communications, a $790 million satellite telecommunications company based in McLean, Va., was gearing up to launch the first of a new generation of satellites when the news came in from Cape Canaveral. A rocket—the very same type expected to carry Iridium’s new satellites into orbit—had exploded, mere months before Iridium’s own launch was scheduled. An investigation into the mishap would set back future launches indefinitely. The roll-out of Iridium’s new $5 billion satellite constellation, the backbone of its entire business model, was off to an inauspicious start.
All of this happened in 1997, when Iridium first set out to blanket the globe with satellite-based connectivity. (The rocket, a Lockheed Martin Delta II carrying an Air Force GPS satellite, exploded shortly after liftoff in January of that year.) Almost two decades later, it’s not unreasonable for Iridium CEO Matt Desch to feel déja vu. His company was preparing to launch a new, much-improved constellation of communications satellites—that is, until the explosion of a SpaceX Falcon 9 rocket on the launchpad last month put those plans on hold.
“It’s a bit of an echo of the first time around,” Desch says. “Maybe this will create the good luck we had last time.”
The good luck to which Desch refers has to do with the eventual successful launch of Iridium’s existing constellation of satellites in 1997 and 1998. (It has very little to do with the company’s subsequent Chapter 11 bankruptcy, at the time one of the largest in U.S. history, the result of a busted business model and rapid shifts in the mobile telecom industry.)
The company needs it. Though it’s on far better financial footing than it used to be, Iridium is facing the reality that its aging fleet of 66 satellites is in serious need of a refresh. The majority of its “birds,” as its employees call them, are now operating beyond their design lives. The company’s replacement constellation—dubbed Iridium Next—will beam data to and from any point on the planet (à la Facebook and Alphabet’s highest drone/balloon/satellite-enabled aspirations). It will also pack technology capable of tracking every commercial airliner on the planet in real time, including over the oceans. (Translation: No more missing airliners.)
Iridium’s new constellation could change the art of the possible for global satellite communications, Desch says. But once again, the company’s satellites are stuck on the ground.
Before Iridium was a $6 billion-plus debacle for Motorola, which backed the company in its earlier days, it was the future of mobile telephony. In the late 1980s Iridium’s designers envisioned the first truly global communications network, one users could access from anywhere on the planet. If a person standing at the North Pole needed to connect with someone standing at the South Pole, Iridium could connect them, provided both parties possessed Iridium’s $3,000 brick-like satellite phone and the loose cash to pay anywhere from $6 to $30 per minute for voice calls. Satellite-to-satellite links meant Iridium could bounce calls around the heavens, obviating the need for an expensive and expansive network of ground-based towers.
Perhaps the first hint of Iridium’s eventual mainstream irrelevance surfaced when a global network of terrestrial cellular towers emerged in the 1990s as wireless carriers coalesced around the GSM cellular standard. No bother; Motorola pressed on with Iridium, building truly impressive small and manageable constellation. Ninety-five satellites would eventually end up in orbit—some failures, some spares, and 66 intended as operational.
Motorola aimed its Iridium phone at the globetrotting business traveler and well-to-do gadget buff. The addressable market proved smaller than it expected. From a technology standpoint, “it wasn’t the massive misstep that people perceived it to be,” says John Bloom, an investigative journalist and author of the book Eccentric Orbits: The Iridium Story. “It did what it was supposed to do. It was an engineering miracle. It’s just that not enough people needed a phone at all longitudes and latitudes.”
The Iridium phone also failed to embody the “cool” Motorola hoped it would. By the time the full Iridium constellation achieved orbit in 1998, cell phones were becoming smaller, cheaper, and more ubiquitous—objects of style and culture as well as communication. Technology dictated that the Iridium phone carry a bulkier profile that left much to be desired in terms of aesthetics. (Nevermind that the business traveler who in 1995 might have hauled an Iridium phone to Paris, Berlin, or Tokyo to stay in touch with the home office simply didn’t need one by 1999.)
So begins a long list of failed assumptions, mismanagement, and bad luck that eventually led to Iridium’s flame-out. The cost of developing the constellation ballooned by billions of dollars. Iridium needed $50 million per month just to service its debt. Its business model required at least a million subscribers to bring revenue in line with the upfront costs of launching a satellite constellation, but subscriber growth came slowly, hampered by delays in handset delivery, a high rate of dropped calls (since fixed), and the fact that inexpensive terrestrial cellular coverage continued its global expansion.
By August 1999, Iridium filed for Chapter 11 bankruptcy. Motorola, facing massive write-downs, planned to de-orbit its costly satellites. But Dan Colussy, a former Pan Am executive living out his retirement in Florida, thought it a waste to let a $5 billion hardware investment—an engineering marvel, really—crash into the ocean. Motorola held out long enough for Colussy to put together a motley crew of investors that, true to Iridium’s global reach, included a D.C.-based investment firm, a member of the Saudi royal family, a Brazilian telecom firm, and an Australian venture capitalist. In December 2000 Colussy and company acquired the entire Iridium constellation for the fire-sale price of $25 million.
Colussy then got to work streamlining Iridium. Motorola had been charging it $45 million per month to operate the constellation; Colussy hired Boeing to do the same job for a monthly fee of $3.5 million. He hired back some of Iridium’s former employees and consolidated operations. The new Iridium functioned at one-tenth the operating cost of the old, requiring just 60,000 subscribers to remain viable.
Colussy also shifted Iridium’s market focus. Instead of competing with traditional mobile telecommunications giants for consumers, the company focused on deals with the U.S. military—a deep-pocketed customer that understands the value of a telephone that works anywhere—as well as maritime shipping companies and fishing fleets, energy and mining companies, and other commercial concerns that tend to operate where traditional wireless coverage is scarce. Within two years of its resuscitation, Iridium was cash-flow positive for the first time.
Iridium began looking seriously at replacing its satellites around 2006. Desch, a Nortel veteran, came aboard as CEO at about the same time. Year after year, the company saw consistent subscriber and revenue growth (last year, it counted 782,000 billable subscribers and more than $400 million in revenue). But with each passing year, it became more apparent that Iridium needed new “birds.”
Every technology company needs a periodic product refresh. For Iridium, that refresh has been a decade in the making. Desch went to work almost immediately to find the right technology—as well as financing—with which to overhaul Iridium’s constellation. The company planned to raise cash in the traditional way, through a mix of debt and an IPO. In a characteristic turn of Iridium’s luck, the very day it was set to down-select which investment bank to work with, Lehman Brothers went under. Wall Street grew suddenly preoccupied with its own existential crisis, and again Iridium had to wait.
The company went public in 2009. It contracted French satellite-maker Thales Alenia to build 81 new satellites—66 for the operational Iridium Next constellation, six in-orbit spares, and nine additional spacecraft to serve as a kind of insurance policy against any kind of mishap. The satellites will not only expand the company’s capacity to serve its existing customers but also correct some of the design flaws in the original constellation. It’s “probably the biggest technology refresh ever, and most certainly the highest-altitude one,” Desch says.
Part of that refresh—one that most people will benefit from whether they realize it or not—involves the integration of technology that could help prevent “lost airplane” events like Malaysia Airlines flight 370, which disappeared over the South China Sea in 2014 with 239 people on board. (All were presumed lost.) Called ADS-B, for “automatic dependent surveillance broadcast,” the space-based technology will be added to Iridium’s new satellites via transponders that automatically, twice per second, provide air traffic controllers with precise location and flight data of aircraft flying around the world. (Current technologies are able to do this only once every 15 minutes or so.)
The real-time precision provided by ADS-B technology will also allow aircraft to fly more efficient and faster routes, saving countless dollars on fuel, and give pilots more awareness of air traffic around them, allowing them more flexibility to adjust their existing routes to avoid turbulence and weather. Most of the world’s passenger aircraft will have ADS-B transponders installed by the early 2020s.
For Iridium, the new satellites will help it finally leap into the 21st century. For all the engineering prowess that went into building the original Iridium satellites, Motorola equipped them for a maximum data transfer rate of no more than 2.4 kilobits per second. The new satellites will provide data transfer rates of 1.4 megabits per second, or more than 500 times as much. “We’re going to be the most cost-effective, smallest broadband offering that can scale from very small battery-powered devices to broadband devices on ships and aircraft and cars, doing a megabit per second,” Desch says. “That opens up whole new markets for us.”
Those markets won’t go unchallenged. Companies ranging from Facebook and Google parent Alphabet to SpaceX and upstart OneWeb also aim to connect the unconnected parts of the world with drone-, balloon-, and satellite-based Internet connectivity. Iridium faces further competition in its air and maritime traffic surveillance businesses from the likes of British satellite telco Inmarsat. Inmarsat developed a system known as SwiftBroadband that will allow for flight data and other communications to flow between aircraft and Inmarsat’s own satellite constellation in realtime; Airbus will reportedly be installing the system on future A320 and A330 aircraft.
Desch isn’t fazed. Iridium has endured the multibillion-dollar growing pains of building out a worldwide satellite communications network. He knows that Iridium enjoys truly global coverage—something competing satellite constellations lack (Inmarsat, for instance, has gaps in coverage in the polar regions many airliners transit). And his company has already learned the hard lessons of the space-based hardware business—lessons that software companies like Facebook and Alphabet have yet to experience. As entrepreneurs in the category constantly remind us, the space business is hard—often many, many billions of dollars hard.
“There are many companies that have indicated they’d like to be in space offering a communication service or related space business” he says. “No one has presented a business plan that says they can compete with us.” Others may disagree. Either way, Iridium 2.0 finally has the opportunity to do everything right that Iridium 1.0 did wrong.
Eventually, anyway. Iridium had just begun fueling the first 10 Iridium Next satellites in preparation for their launch in late September when that SpaceX Falcon 9 rocket exploded on the launchpad, destroying the Israeli AMOS-6 satellite it was supposed to carry to orbit. Those satellites, originally slated for launch in late September, now sit on the ground in California awaiting SpaceX’s return to flight. SpaceX founder Elon Musk called the explosion “the most difficult and complex failure we have ever had in 14 years.”
SpaceX president Gwynne Shotwell says the company could resume launching as soon as November. When a SpaceX rocket exploded mid-flight in June of last year, it took the company six months to diagnose the problem, engineer a fix, and return to launching. But a return to launch by November isn’t unrealistic, says Marco Caceres, senior analyst and director of space studies at Virginia-based aerospace consultancy Teal Group. The fact that the explosion occurred on the ground rather than in flight makes it a pre-flight problem rather than, explicitly speaking, a rocket problem. “If they can’t find out what happened they really don’t have any choice but to start launching again,” Caceres says. “You can’t stay grounded forever.”
That means Iridium, after many years of patience, risks being only a few months behind its original schedule. Desch says he and the company can hold out that long—as long as Iridium’s current constellation of satellites can do the same.
“It really doesn’t change anything for us,” he says. “It’s just difficult being patient.”