Iridium LLC, the pioneering global satellite telephone company that once ranked as one of Washington's most promising technology firms, filed for bankruptcy protection yesterday.
The company's customers still will be able to use their brick-sized handsets from Towson to Timbuktu; the revolutionary $5 billion network of 66 satellites and ground-based equipment will continue to operate as Iridium tries to restructure its debt, said chief executive John Richardson.
"It's business as usual," he said, but he also said it's "a great shame" that the once-highflying company has come to this.
Iridium's tale is one of a company that spent years getting a product to the market, and then found the market very different from what it had expected. The company was conceived at a time when conventional cell phones were expensive and rare. When it finally switched on its service last fall, cell phones were cheap and plentiful the world over and few people wanted costly, heavy Iridium phones.
Shares of Iridium World Communications Ltd., the company's public investment entity, lost more than a quarter of their value yesterday, falling $1.18 3/4 to close at $3.06 1/4. The stock had traded at more than $49 per share in the past year. The Nasdaq Stock Market halted trading in Iridium's shares at 2:04 p.m. yesterday and issued a statement that the stock would not resume trading until the company provided "additional information" to the exchange.
Shares of Motorola Inc., Iridium's largest investor, ended the day at $93, up $5.25, in a strong day for the stock market.
The company repeatedly has missed deadlines on payments on about $1.5 billion in bank loans and another $1.5 billion in bonds, and has spent weeks in intense negotiations with its investors and creditors. The immediate reason that the company filed for protection under Chapter 11 of the U.S. Bankruptcy Code, however, is that Iridium was hard up against a Sunday deadline for a $90 million payment on the bonds--a payment that the company could not possibly meet.
Motorola had announced recently that it would not pour any more money into the company without an agreement that involved all of its major investors. With the bond payment coming due, "we really had no alternative but to seek protection of the courts," Richardson said.
In the hours before yesterday's bankruptcy filing in Delaware, a group of the company's bondholders filed their own petition in New York to force Iridium into bankruptcy reorganization.
Richardson, a blunt Australian who became head of the company after founding chief executive Edward Staiano resigned abruptly in April, blamed prior management for the crisis. He believes the company's basic concept is sound and that it will find a way out through recently slashed costs of the phones and improved marketing.
He said he spent last week touring Africa and was pleased with his phone's performance. More important, he said, "people were buying the phones," Richardson said. "They want the product. It works."
In Richardson's view, Iridium and Motorola "excelled" at "all the tough things"--the engineering challenges of creating and operating a global satellite telephone and paging network. The other part, however--"commercial skills"--he admitted "we singularly failed in. Our marketing was inept . . . and the products didn't work" at the time of the company's very public launch of service.
Much has changed since the days when the company launched its last satellites in May 1998. Enthusiastic analysts foretold a brilliant future for the fledgling network, with analysts predicting that stakeholders would see a 100 percent return on their investment in just three years. The company said it would have 500,000 customers this year and 5 million customers by 2002--and estimated it would show a profit after signing on 650,000 customers.
But the last time Iridium released figures, it had only signed up about 20,000 customers.
Potential customers expecting the dependability and ease of use they had come to know with cellular phones were unhappy to discover that satellite phones are a quirkier technology; Iridium units, for example, only can be used outdoors, where the fat black antenna has a clear shot at the open sky. The one-pound handsets looked like behemoths compared to pocket-sized cellphones.
Some market observers question whether the millions of potential customers for phones by Iridium and other companies with names such as ICO and Globalstar really exist. They say that, like the DeLorean sports car, satellite phones are a product of the future that was overtaken by events.
Business travelers, they noted, have decreasing need for a satellite phone that works anywhere; the impoverished Third World communities that might benefit the most from a connection, they argue, probably cannot afford one.
Since the company's slide began accelerating, it's been open season on Iridium. Columnist Herb Greenberg of online site TheStreet.com criticized the company in increasingly arch terms--and called the investors "Iridiots." Commentator Tero Kuttinen, whose acerbic views on the satellite telephone industry have appeared on TheStreet and other financial Web sites, called the diehard satellite enthusiasts "futurama clowns." "I'm expecting Iridium to become a chronic disease for Motorola," he said.
Iridium's long slide has cast a pall over all of the firms that have promised to ring the globe with telecommunications satellites.
London-based ICO Global Communications, which contends that its satellite network will be cheaper and more dependable than Iridium's, tried to raise at least $600 million by issuing new stock this summer and found too few takers. It withdrew its offering and is exploring other investment alternatives.
Tony Trujillo, spokesman for the Intelsat consortium that for decades has operated a fleet of conventional telecommunications satellites in high orbit, suggested that the Iridium story is a cautionary tale about new technology.
A pioneer's life is inherently risky, Trujillo said: Some trailblazers end up dominating their markets, but "sometimes you pave the way for others, but you're not successful yourself," he said.
Some analysts retain hope for Iridium's future. "The company has filed to restructure--the company hasn't filed to turn the system off," said Timothy O'Neil, an analyst with Soundview Technology Group. "Motorola still has a vested interest to keep the program alive," he said.