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 : Telecommunications

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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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"The brilliance of the technology cannot take precedence over the market case. At the end of the day, if you're spending $5 billion on the technology, there better be a market for it. And if there isn't, there will be great humiliation."

- Herschel Shosteck, a Wheaton-based wireless analyst, in March 2000.

"Iridium failed to match its system to its mission which caused too much pressure on the company to get customers quickly."

- Leslie Taylor, a consultant for the satellite industry in Washington, in March 2000.

Iridium's Failure

In August 1999, Iridium LLC¹ (Iridium), the world's largest provider of global mobile satellite voice and data solutions, filed for Chapter 11² bankruptcy protection in the United States Bankruptcy Court.

The news did not come as a major surprise to the global telecommunications industry since the company's financial trouble was well known. It had defaulted on US $1.55 billion in bank loans. Considering the company's investment loss of US $5 billion, the bankruptcy court imposed a deadline of March 15th 2000 to either bring forth a purchaser or to close its operations. In response, Iridium promised that if it couldn't attract a buyer by 5 p.m. that day, it would proceed with plans to liquidate. Despite the company's best efforts, it was not able to convince any party to support its business and it was forced to file for bankruptcy. Following this, many executives in the top management cadre resigned and its satellite services covering an estimated 20,000 subscribers were stopped.

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Commenting on the debacle, COO Randy Brouckman said, "I am deeply saddened by this outcome.

I particularly regret the impact this will have on our customers. Iridium achieved significant milestones, and I want to thank the more than 160 countries that licensed the service and the distribution partners around the world who helped market Iridium."

A spokesman for Globestar, one of Iridium's major competitors said, "We think Iridium could very well have succeeded. There's nothing wrong with the concept, but with their execution." Industry analysts commented that Iridium's chances of coming out of this crisis were very bleak.

Many of them even stated that Iridium had all the features of a potential failure right from its inception.

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1] LLC or limited liability company is a hybrid legal entity that has the characteristics of a corporation and a partnership. An LLC provides its owners with corporate-like protection against personal liability, although it is treated as a non-corporate business organization for tax purposes.

2] Often referred to as 'business reorganization,' Chapter 11 bankruptcy is one of the most complex areas of the US bankruptcy law. Organizations/individuals can file for Chapter 11 bankruptcy to deal with their financial problems of a large magnitude. Those who file for Chapter 11 can propose a payment plan and their creditors can vote on this plan. If a stipulated number of creditors vote in favor of the plan, it is approved. Once it is approved, Chapter 11 essentially rewrites many of the contracts the debtor has with the creditors and thereafter both parties act according to the new agreement.