Motorola Inc.’s Worldwide Information Network Services group confirmed the Defense Information Systems Agency of the U.S. Department of Defense awarded it a three-year contract valued at up to $219 million for the purchase of Iridium phones, pagers and airtime.
Under the contract, Motorola will provide the agency with an undetermined number of Iridium handsets and up to 28 million airtime minutes annually. The company will provision the service through the U.S. government-dedicated Iridium gateway located in Hawaii.
This is an extension of the Enhanced Mobile Satellite Services contract signed almost two years ago with DISA, which commissioned the construction of a government-dedicated gateway in Hawaii. According to John Weidman, vice president and general manager of M-WINS, cost of the gateway construction is not a part of this most recent contract.
The extension allows the government to buy an undetermined number of products and up to 28 million minutes of airtime a year, at a total cost cap of $219 million for three years. Should the government require products and airtime for more than that figure, the contract again will be modified.
Weidman said he expects a typical government customer to use between 1,000 to 2,000 minutes a year. If the government uses all 28 million minutes of airtime accounted for annually at the rate of 2,000 minutes a year per user, the contract can handle up to 140,000 customers.
While the contract is with DISA, an office of the DOD, it was arranged in a way that will allow any government agency to take advantage of Iridium service, Weidman said.
“U.S. government contract negotiations are very complicated,” he said. “This contract vehicle makes it easy for any government user to sign up. We expect that its significance will spur the sales of Iridium.”
One possible hindrance to adoption, however, is that all government transmission uses what is called STU-III security encryption technology, which Iridium phones are not expected to have until the end of the year. Until that time, Weidman said government customers will use the regular commercial Iridium service and handsets without STU-III.
Much has been made of Motorola’s efforts to secure Iridium subscribers. Motorola owns 19 percent of the satellite carrier, and its stock price is affected by Iridium performance, whether positive or negative.
Government contracts are expected to play a decisive role in the success of Iridium’s business plan, although it is unclear exactly what effect this particular contract will have on the company’s ailing subscriber list. As such, Motorola likely will play an increased role in securing large customer contracts, and Weidman said M-WINS is negotiating with governments in other countries for similar contracts.
Iridium does not sell its own service but rather relies on a network of service providers to do so. M-WINS merely is one such service provider.
Iridium’s challenges in attracting the subscribers it needs to operate have become well known. Last month, the company said it most likely will miss revenue and subscriber targets necessary to meet the covenants of its bank loans. The lending covenants required Iridium to post cash revenues of $4 million and 27,000 satellite customers and 52,000 overall customers by the end of the first quarter.
The company received a 60-day waiver on those covenants from lenders under its $800 million Senior Secured Credit Facility. Under the terms of the waiver, Iridium now has until May 31 to meet these targets. It also will renegotiate its future milestones to avoid similar problems in the future.
