Reviving Iridium

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The Iridium Venture Contd...

Iridium faced another setback when it encountered technical problems during the launch of its services to customers. These problems were not limited to once but several times. The company also faced delays in delivering handsets to its customers. Customers could not get the services according to the schedules announced by the company.

The service costs and handsets were not the only problems. There were many technical glitches as well. The company's phones did not work indoors, because they could not catch the signals relayed by the satellites. This was very inconvenient for the users who had to go outdoors to answer an incoming call. Moreover, Iridium did not offer any data services11 initially. All the above factors landed the company into deep financial problems. In the fourth quarter of 1998, Iridium posted a loss of $ 440 million and in the first quarter of 1999, Iridium reported a higher net loss of $505 million on revenues of only $1.45 million. The company could signup only 10,294 customers as against a projection of 57,000, as stipulated in the terms of the $800 million loan taken by the company. The company's sorry state of affairs prompted some of its major investors to file an involuntary Chapter 11 petition against it. Iridium's strategic partners began discussions to work out a financial restructuring plan for the company. However, they were not able to reach a consensus.

Commenting on this development, a member of the Steering Committee¹² that owned about 25% of Iridium's $1.45 billion in outstanding debt said, "Despite the best efforts of the parties involved, consensual agreement could not be reached on a restructuring plan. It became clear to the various parties at interest that a Chapter 11 filing was inevitable and, unless drastic action was taken, the company's assets could be at serious risk."

The company asked its key partners for investments but it did not get any positive replies. Even Motorola refused to invest more money into the failing company. However, it agreed to provide full operational support and a significant amount of technical, sales and marketing support. The company decided to file for Chapter 11 bankruptcy in August 1999.

Iridium also tried to look for some outside buyers, but again in vain. Though Craig McCaw¹³ initially showed some interest, eventually he ended up buying one of Iridium's competitors, ICO Global Communications, which was also bankrupt. With even the last bidder turning away, Iridium had no other option but to decommission its network of LEOs and stop offering its services.

Resurrecting Iridium

Things changed dramatically for Iridium in late 2000 when Dan Colussy,¹⁴ came to the rescue of the company. He formed Iridium Satellite LLC (Iridium Satellite) and made a bid of $25 million, out of which $6.5 million was paid in cash, to acquire Iridium's business. This included purchasing all of Iridium's existing assets, its satellites and the satellite control network. In November 2000, the US Bankruptcy Court for the Southern District of New York approved Iridium Satellite's bid to purchase Iridium's operating assets.

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11] Facilities to connect to the Internet or a corporate network with the help of a satellite phone form anywhere on earth. Using this, the customer can browse the Web, send/ receive email and transfer files.
12] Iridium's major investors formed a steering committee called the 'Informal Committee of the Holders of the Senior Notes of Iridium.' Members of this committee were called the members of steering committee.
13] A pioneer in the cellular telephone industry and a leading name in the global wireless communications industry. He was the Chairman and Co-CEO of Teledesic, the leading US based telecommunications company. He initially made a $ 75 million offer to buy Iridium but later backed off.
14] An aviation industry businessman who had previously served as Chairman, President and CEO of the US based aviation major UNC Inc.; Chairman, President and CEO of Canadian Pacific Airlines and President and COO of Pan American World Airways.