Iridium Returns from the Space of Disgrace

After its Chapter 11 debacle a decade ago, the satellite-calling provider is trying to reinvent itself. Can Pentagon demand and other niche needs keep it aloft?

By Arik Hesseldahl

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Ten years after suffering one of tech's most spectacular flameouts, satellite-calling provider Iridium Communications (IRDM) is staging a comeback. Its late-September public share sale has sparked hope for the larger satellite industry, long burdened by exorbitant startup costs and anemic demand.

Iridium raised $200 million in a Sept. 29 initial public offering after reinventing itself and wringing $54 million in profit from $320 million in sales last year.

Originally the company had planned to sell go-anywhere phones to globe-trotting executives and provide calling with signals beamed from a constellation of 66 orbiting satellites, plus spares. But after spending $5 billion to get the equipment off the ground—and failing to anticipate the threat from coast-to-coast wireless networks—Motorola (MOT)-backed Iridium drew only a fraction of the customers it needed to stay in business. Setting a pattern repeated across the industry, Iridium filed for bankruptcy protection in 1999. Three years later, rival Globalstar followed suit, while Teledesic, founded by wireless impresario Craig McCaw and Microsoft (MSFT) founders Bill Gates and Paul Allen, shut its doors.

Covering Air, Sea, and Mountaintops

The new Iridium still provides satellite calling but has a plan for tapping new markets and running its satellites more efficiently. It has 347,000 customers, up from about 50,000 when it filed for Chapter 11. "People understand much better what these things cost, how they work, and what they can and can't do," says Jonathan Atkin, an analyst at RBC Capital Markets, which has provided investment banking services to Iridium in the past year. "There's a much more realistic view across the industry."

For Iridium and other satellite companies, the challenge is to translate that realism into sustainable profits. Rather than position itself as an alternative to conventional wireless calling, the company wants to provide communication in parts of the world not reached by mobile networks. "Less than 10% of the earth's surface has wireless coverage after 25 years and it's never going to get much more than that," says Iridium CEO Matthew Desch. That includes airspace, the sea, and mountaintops—places where the military, defense contractors, and companies involved in shipping and logistics or oil and gas exploration will pay dearly for ways to communicate.

The U.S. military is Iridium's largest customer, accounting for about 21% of revenues and 9% of its user base. "This is the very definition of a niche product," says Chris Quilty, an analyst at Raymond James (RJF), which handled Iridium's IPO. "It's used by people who need to have it."

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