Iridium LLC, the District-based wireless firm that pioneered the first global satellite telephone network, said yesterday that it will cut prices by as much as 65 percent in an effort to draw customers.
Customers have been a scarce commodity for the company, whose trailblazing service allows users to place or receive calls from anywhere on the earth through an elaborate network of 66 low-orbiting satellites. After spending close to a decade -- and borrowing nearly $3 billion -- to build the network, Iridium has been beset by technical failures, fiscal shortfalls and management turmoil since it launched service in November.
Chief among the problems is that not enough people have bought Iridium phones. At the end of March, the company said it had signed up 10,294 customers, well short of the 100,000 it said it expected to have by the end of 1998. Iridium's prices were criticized for being prohibitively high -- roughly $4 a minute for international calls; handsets sold for $2,300, plus import taxes for overseas buyers.
But yesterday, Iridium, of which Motorola Inc. owns 18 percent, said that Motorola and Kyocera Corp., both of which manufacture the distinctive, paperback-size handsets for Iridium's service, will slash prices on phones, pagers and other accessories.
"The market obviously felt the product was too expensive," Iridium's interim chief executive, John A. Richardson, said in an interview yesterday. "The evidence is overwhelming."
Under Iridium's new price structure, which will take effect July 1, international callers will pay a flat rate of about $3 a minute. It will cost from $1.60 to $2.50 per minute to make domestic calls and about $1.50 a minute to call from one Iridium phone to another.
Handsets will now cost about $1,000 or less.
Richardson said Iridium will focus heavily on markets that operate in remote areas -- pipeline, agriculture and maritime workers, for instance. When the original Iridium concept was hatched in the late 1980s, it was envisioned that globe-hopping business travelers would make up a natural customer base. But that was before the advent of much cheaper cellular phone service in this decade -- leaving Iridium to focus on smaller niche markets.
"This is obviously a positive step for Iridium," said Riyad Said, a communications analyst at Friedman, Billings, Ramsey Group Inc. But Said, like many observers of the company, said it's imperative that Iridium get its steep debt liability in order before it can make a sustained comeback.
On March 29, Iridium secured a 60-day waiver from its bankers to achieve certain conditions on $800 million in loans -- including 27,000 subscribers and $4 million in sales by May 31. But on May 14, Iridium said it did not expect to meet terms of these loans. It received another 30-day extension May 28, and Richardson said he expects another extension by the end of this month.
Shares of Iridium, which trades as Iridium World Communications Ltd., rose $1.28 1/8 to close at $9.03 1/8 yesterday. They have lost about 77 percent of their value this year.