Iridium L.L.C. announced it will delay its initial Sept. 23 service launch date to Nov. 1, citing the need to “improve operational stability of the network,” according to Ed Staiano, the company’s vice chairman and chief executive officer.
In a briefing with reporters last week, Staiano said the Iridium Network was not yet at the point where he felt the company should offer commercial service. His main concern was that the system has not been tested enough.
“We have come too far and invested too much time, effort and money into this business to go into commercial service with anything less than a world-class product,” he said. “Providing merely acceptable service is not what Iridium is all about. We are determined that Iridium customers will receive nothing less than the highest-quality services that our system is capable of providing.”
Staiano blamed what he called a lack of “mileage” on the system. “We need to have hundreds, even thousands of trial users out there using our service under every conceivable circumstance,” he said, to define possible weaknesses and have contingency procedures in place.
To address this, the company said it will distribute some 2,000 handsets on Sept. 23 to select individual, corporate and government customers in what it called a controlled service rollout that will function as a subscriber trial. These subscribers will receive free handsets and service for the duration of the trial, expected to last throughout the year. Once completed, those choosing to remain customers will be expected to pay for the service.
The result is the company will not begin generating revenue until the end of the year. Originally, Iridium expected to begin charging subscribers beginning Sept. 23.
Analysts and Wall Street investors largely shrugged off both the technical reasons behind the delay, and to a degree the resulting lack of revenue. Iridium needs to acquire enough customers and revenue to recoup its $5 billion investment and prepare for the network upgrades necessary in the next five to seven years. Whether or not the company succeeds will not come down to a month or two of missed revenues.
“One month of revenue is inconsequential when you’re evaluating a stock based on a 10-year discounted cash-flow model,” said Tim O’Neil, analyst at SoundView Financial Group. “I’ve have $9 million in revenues projected for this year and $250 million projected for next.”
While the financial implications of the delay are minimal, the next question is the public-relations hit Iridium takes in postponing a long-touted deadline.
According to O’Neil, the Sept. 23 deadline primarily served as a motivation for Iridium employees, while also providing critics with a target. He said the loss of face Iridium suffers by missing the deadline can be regained easily if it launches a successful service in November because dates are forgotten easily. It would have been worse to launch on time but with poor quality. A year from now, when Iridium launches won’t be important … what Iridium launches will, he said.
“There should be no surprises that something of this magnitude was pushed aside for a few weeks,” he said. “The surprise is that it was only a few weeks.”
Iridium’s closest competitor, Globalstar L.P., last week lost 12 satellites when a Russian Zenit II rocket carrying the birds failed, setting the company back six to nine months. While this means Iridium likely will enjoy a longer term as the world’s exclusive provider of satellite-based global voice communications, the Iridium delay and the Globalstar disaster occurring in the same week tarnishes the reputation of the mobile satellite industry in general.
Should Iridium miss the new Nov. 1 launch date as well, this reputation could take a further dive, deserved or not. But both Staiano and O’Neil seemed confident that wouldn’t happen.
“I feel personally confident we will meet that date,” Staiano said.
“I believe Nov. 1 is a very doable date,” echoed O’Neil. “He (Staiano wouldn’t move to a date with any inkling that he would have to move it again.”
Although Iridium blamed the service launch delay on a lack of adequate testing time, the crunch is but a symptom of several technological problems the company has suffered in the months directly preceding the deadline-specifically, satellite failures and software loading time line.
Iridium launched five satellites on a Delta II rocket last week, replacing the satellites which failed after the initial deployment phase. Three of the seven new satellites will fill gaps in the operational constellation, while four will serve as spares. It takes two weeks for these satellites to reach their proper orbit. Final, or phase F, software loading wasn’t completed in those satellites until last Friday, giving Iridium exactly three days to test that software before making a go/no-go decision on meeting the Sept. 23 launch. Had Iridium stuck with the original launch date, it would have done so with satellites only in place for about a day.
“It just go so close to wire, why push it?” O’Neil said. “They were thinking about launching with holes in service and decided against it.”
Additionally, Staiano reported some problems with an existing satellite already in orbit, which may require another maintenance launch in October. The company determined the latest satellite failures were not systemic.
“Let me emphasize that we are always going to see satellite failures,” Staiano said. “They are a fact of life in this business.” He said Iridium has planned for as many as one failure every two months. As such, Iridium has altered its replacement strategy. Because the cost of launching five satellites is only slightly more expensive than launching three, Staiano said he has opted to launch as many satellites as possible with each maintenance flight to place its spares in orbit, rather than store them terrestrially and launch when needed.
“What we’re changing is not the number of failures we expect … but rather where we keep the spares,” he said.
Also at issue is the delay in handset software. Motorola Inc. expects to deliver up to 30,000 handsets by next month and ramp up to more upon service launch. Together with Kyocera, 1998 volumes could reach as much as 100,000. However, Kyocera remains behind in its equipment manufacture schedule due to software development delays. Motorola reportedly has solved all software bugs, while Kyocera’s debugging process is up to six weeks behind schedule.
“The good news is this little delay gives Kyocera time to catch up,” O’Neil said.
Additionally, the China gateway facility is not yet fully functional and is not expected to come online until October, primarily due to a prolonged government regulation process. Iridium has several international agreements to secure as well, most notably in Africa. The company has 147 roaming partners and 148 service providers, addressing more than two-thirds of the global market.
While the date of service launch remains the subject of the moment, other issues will remain with Iridium. One concern is the higher-than-expected handset costs, which range from $2,795 to $4,000, depending on the features.
Staiano also disclosed problems responding to early customer interest. He said 400,000 calls have come in responding to the ad campaign to date, which has expanded from 15 to 27 countries, ultimately to reach 52. However, the company has reported difficulty in processing these requests. Staiano said Iridium is in process of creating an Internet shopping site for online ordering as one means of addressing the problem.
On everyone’s mind it the current global financial crisis. The question remains whether the Iridium price tag will be too high if the global community decides to tighten its belt, or if the Iridium service will be a cheaper alternative to building out wireless infrastructure in emerging ma
rkets.
