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John Richardson is a ruddy Australian who has scaled Mount Everest--twice. Now the 55-year-old executive is engaged in another steep climb, this one in Washington, D.C. He's scrambling to save Iridium--a $5 billion satellite-communications system--from what could be a spectacular failure. Right now, Iridium is teetering on the edge of bankruptcy, unable to attract many customers or meet its heavy debt payments. Motorola--the U.S. wireless-equipment giant that conceived the idea of hurling a phone system into space, and which owns 18 percent of Iridium--has raised the possibility of liquidating the company. Richardson, who took charge in April, says that such a dire scenario "is not on our radar screen." It may soon be: Iridium has less than a month to restructure its finances. If that effort fails, the once high-flying satellite start-up will tumble into oblivion, like other technological pioneers before it.
In an era of rapid technological change, established companies are betting huge sums on new--and unproven--markets. Motorola, while still prospering in its communication and chip businesses, believes that space-based networks are the best way to bring phone service to distant corners of the world, untouched by regular land-line and cellular networks. At least two other satellite consortiums--Globalstar (owned mainly by Loral Space and scheduled to start limited service this year) and ICO (a commercial spinoff from Inmarsat) share its ambitions. They are now rushing to distinguish themselves from Iridium. "We've had to do some explaining," says Loral chairman Bernard Schwartz. ICO, which hopes to start its service next year but hasn't yet launched any satellites, is struggling to raise new capital. "The whole sector could be dragged down a little by this," says Eric Lowenstein, an analyst with the Yankee Group.
How? For one thing, Iridium bungled its launch. Service began last November, trumpeted by a $160 million worldwide advertising campaign. It was wasted money. The handsets weren't ready. Iridium targeted globe-trotting businessmen, promising "anytime, anywhere" connections to those who, after nailing down a bauxite deal in Russia, need to get a word in with the accountant. Problem is, the phones couldn't match the promises. They work neither in cars nor in buildings. Moreover, the service was outrageously overpriced. Whereas conventional cellular providers sell handsets for, typically, $200 or less, Iridium's phone cost $3,000--and was the size of a brick. And per-minute calling prices averaged between $2 and $9. Given all that, it's not surprising the international sales effort has been a disaster. An informal survey by NEWSWEEK in Kazakhstan, which ought to be prime Iridium territory, turned up not a single user. "I really wanted one," said Alex Lesser, a U.S. lawyer in Almaty. "I called their marketing center in Holland, but the contract never showed up." Last fall Iridium predicted that it would sign up 3 million customers by 2002. Thus far, it's got fewer than 15,000.
Will the other satellite networks do any better? Globalstar and ICO are different from Iridium, but perhaps not different enough. Officials at both consortiums stress that their systems are simpler and less costly than Iridium's. Both have forged partnerships with leading telecom providers around the world, who will market the satellite service as a complement to their existing wireless subscribers. The handsets offered by both Globalstar and ICO will be slightly smaller than Iridium's, and each will cost about $1,000. Calling charges will average about $2 a minute. Both Globalstar and ICO contend that there is a potentially large market for satellite-phone services--upwards of 30 million people. But here is a cautionary fact: Inmarsat--the oldest and most reliable satellite-communications system, used by everyone from spies to journalists to cruise-ship captains--has only 110,000 customers.
Trail-blazers often pay a price--just ask the investors in Iridium. The company's stock, which last spring sold for $70 a share, has plunged to $9. Motorola, which itself has invested nearly $3 billion in the project, says it remains "supportive" of Iridium, but it wants other Iridium partners to help bail out the company. Roger Rusch, an aerospace consultant and former engineer with Hughes Aerospace and TRW, a company that started a satellite system of its own and then pulled out (folding its technology into ICO ) told NEWSWEEK before Iridium's launch that satellite phones would never be cheaper, smaller or more reliable than cellular. Of Iridium, he said: "I think it will end up a monumental engineering achievement that few people will use." That was a prescient thought--and a sobering one now for those rolling the dice in space.