Iridium Returns from the Space of Disgrace

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M2M: "Partners Do the Heavy Lifting"

As hungry as those markets may be, Iridium's voice business may grow at a pace of less than 10% a year, Quilty says. That's why Iridium is also pursuing so-called machine-to-machine (M2M) communications, used by companies to monitor equipment in remote locations and to track shipments en route. Quilty reckons that in 2008, Iridium doubled its M2M user base to 71,000.

To rein in the costs of serving the M2M market, Iridium relies on 200 outside companies to incorporate its products into their own goods aimed at specific industries, including aviation, shipping, and oil and gas. For instance, Iridium sells a satellite data modem that such companies as Honeywell (HON) and Garmin (GRMN) add to their own aviation products, thereby saving Iridium the trouble of building them from scratch. "Our partners do the heavy lifting of research and development because they know their industries better than we do," Desch says.

The biggest costs Iridium faces stem from its aging satellites. The gear will have to be replaced, starting in 2014, at a cost of $2.7 billion. "This is a problem that everyone in the satellite industry faces," says Max Engel, head of the North Star Consultancy, a space industry research firm. Iridium will raise some funds from warrants issued amid the IPO, as well as cash from operations and capital raised in the debt markets.

If All Else Fails, the Pentagon Buys

Another new source of funding that is gaining in popularity among satellite players is leasing space on satellites themselves. Iridium plans to leave capacity for government agencies and companies that need their own eyes and ears in space but lack the funds to launch their own equipment. The Australian Defence Force paid Iridium rival Intelsat $167 million to use for communications a portion of an Intelsat satellite orbiting above the Asia-Pacific region.

Other satellite players are striving for newfound relevance, too. Hughes Communications (HUGH) has carved out a niche providing satellite-transmitted Internet access to rural markets. Globalstar (GSAT) emerged from bankruptcy in 2004 and plans to begin launching a new constellation in 2010, says Ron Gherman, an analyst at research firm Frost and Sullivan.

If all else fails for Iridium, its systems remain essential to the customer whose demand is unlikely to flag for some time. "The military bought into the entire Iridium concept in the 1990s," says Raymond James' Quilty. "If everything hits the fan again, they'll still have their buddies at the Pentagon."

Hesseldahl is a reporter for Bloomberg Businessweek.

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