Reviving Iridium

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Case Details:

Case Code : BSTR031
Case Length : 11 Pages
Period : 1999 - 2001
Organization : Iridium LLC
Pub Date : 2002
Teaching Note : Available
Countries : USA
Industry : Telecommunication

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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About Satellite Telephones

Satellite telephone systems work on the concept of wireless technology that uses individual radio frequencies to make and receive calls.

These radio frequencies are used over and over again by dividing a service area into different geographic zones called 'cells,' with each cell having its own transmitter/receiver antenna. These cells could be as small as a building or as big as 50 km across. When a customer makes a call on a wireless phone, the message is transmitted by low energy radio signals to the nearest antenna site, which is connected, to the local terrestrial phone networks. These messages are delivered to the receiver via phone lines if the call is made to a landline phone and by radio signals if the call is made to a wireless phone. Whenever a wireless phone user reaches the boundary of a cell the wireless network immediately senses that the signal is getting weak and automatically passes the call to the antenna of the cell into which the caller is travelling...

The Iridium Venture

Iridium had invested lot of money in R&D, building, deploying and maintenance of its satellite constellation. Though Motorola realized the fact that the venture would involve substantial time and cost outlays and was very risky, it was perturbed when the venture consumed more time and money than expected.

By 1999, Iridium found itself in deep financial trouble with a huge amount of outstanding debt to be repaid to its bankers and creditors. Chase Manhattan, Iridium's lenders had already given three extensions for repayment of loans by August 1999. Analysts remarked that the company's troubles were not due to the concept of satellite telephones, but due to its faulty strategies. Iridium had to spend a couple of million dollars every month just to maintain its infrastructure. In addition to the 66 satellites being used, Iridium was incurring heavy expenditure to maintain the spare satellites as well (to be launched in case any of the 66 satellites failed). Moreover, the company planned to offer its services to a broad customer base so as to make the business viable...

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