The Rise and Fall and Rise of Iridium

Iridium’s constellation of 66 comsats was a technological triumph but a business disaster-until an executive and a computer geek found salvation in the Pentagon.

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With this success, Colussy went to Chase and a battery of other banks that owned Iridium’s assets in lieu of the money they had lent. In the spring of 2000, the creditors had almost gotten $600 million from Craig McCaw, America’s first great cell phone entrepreneur. Then the bubble burst, stock markets dipped, McCaw retreated, and Colussy’s motley crew, with its $25 million, was the only group left willing to back Iridium. “It wasn’t a friendly environment,” Colussy says in his unflappably modulated CEO voice. “But once they picked themselves up off the floor, they decided $25 million was better than nothing.”

Last-minute talks with Motorola, which was keeping Iridium aloft while the money men decided its fate, centered on the Earthbound topic of insurance. Motorola, already stung by lawsuits from original Iridium investors, wanted assurance it wouldn’t face any future liabilities from satellite debris plunging to Earth. “The chances of one of these hitting anyone’s house are pretty small,” says Colussy. Still, Motorola demanded full indemnity.

After meetings in London, Colussy produced a $3 billion policy from Lloyd’s. Not enough, Motorola said. Colussy, with help from his lawyers, then recalled an obscure federal law allowing the Department of Defense to indemnify civilian contractors engaged in hazardous work. He had used it in his Pan Am days so the airline could fly to Saigon during the Vietnam War. One problem: Authorization had to come from the secretary of defense. During the late fall of 2000, with Motorola past its deadline for trashing Iridium, Colussy managed to get meetings with top Pentagon officials, including then-Secretary William Cohen. By December 12 Motorola had its indemnity, and Colussy and his investors had Iridium.

Next came the task of converting the vast, gold-plated corporate Iridium into something as close to a garage start-up as Colussy and Adams could get it. Under Chapter 11 bankruptcy, the company was relieved of interest payments on about $5 billion in debt, which immediately lopped 40 percent off Iridium’s costs. Step two was to cut out Motorola, which had been charging the consortium $45 million a month in operating fees. Colussy switched to Boeing, which did the job for $3.5 million per month. Colussy closed corporate offices in favor of the Leesburg facility, rehired only 200 of the 600 employees that had been let go, returned to operational status only one of the 18 gateways (the Pentagon’s gateway in Hawaii had been excluded from closure), and ended up with eight percent of the old system’s costs. The original Iridium had needed one million customers to break even; the new version required only 60,000.

Colussy is the first to admit that Iridium will never achieve anything like its originally intended glory. “If you have a cellular or hard-wired phone system where you are, that’s always going to be the way to go,” he says. “Iridium will never be as cheap.”

Conceived in the age of voice and woefully underequipped in today’s age of data, low-Earth-orbit satellites are now commonly acknowledged to have been a wrong turn off humanity’s highway to the colonization of space. “The guys at Iridium are doing a good job with what they have,” says D.K. Sachdev. “But how many electronic systems that were designed in the 1980s are you still using?”

The rescue of Iridium does have implications for organizations wanting to manage technology reasonably. The satellite industry started in the 1960s not as an industry at all, but as an array of government consortia—Intelsat, Inmarsat, Eutelsat, among others—viewed as a second front in the space race and cold war, with all the costs-be-damned culture that entailed. By the 1980s, most LEO projects were captained by big military contractors such as Motorola and Lockheed.

Colussy’s Iridium restructuring started a completely different trend. Since December 2000, little-known private investors have taken over one satellite company after another, betting their own cash on squeezing and niche-positioning them back to health. Last year, Inmarsat, a one-time state consortium focused on maritime communications, was bought by two British venture capital firms. (Inmarsat, a geostationary system that can carry data at broadband speeds, has been running the Iraqi Central Bank’s information systems.) Globalstar emerged from its own bankruptcy this spring, purchased for $43 million by New Orleans-based investment company Thermo Capital. Intelsat, the industry godfather, was privatized in 2001 to its original consortium of governments and former state companies, with a promise to make its shares available on the stock market this year.

Technical director Mark Adams thinks small on a daily basis, particularly when laboring over a new-generation phone that will be less than half the original Iridium’s size, and, at under $1,500, less than half the price. Adams’ watchword is conservation. He and his team have extended the projected life of Iridium’s satellites from 2005 to 2014 through various resourceful measures. The least reliable system on an Iridium satellite, for instance, is a gyroscope that keeps the craft facing the sun, from which it draws energy to power its batteries. Adams and co-workers have figured out how to use thrusters to orient the satellites, saving wear and tear on the fragile gyroscopes. Now Adams and his team are working on extending battery life by letting the satellites take turns hibernating at certain points in their orbits. “These systems, like many products of American engineering, were fundamentally overdesigned,” says Adams. “They were meant to fly five to seven years, but have enough battery for 20. That gives us a lot of ways to stretch that lifespan.”

As for Colussy, now 73, he ran new Iridium for about a year, then passed the reins to chief executive Gino Picasso, who has searched far and wide for a few more customers. Iridium use is picking up among ranchers in the Australian outback, Colussy is pleased to report. And the company is challenging Inmarsat among commercial fishing fleets. New Iridium has run pilot projects in the villages of Senegal, giving native sons who are working in Paris or Washington, D.C., their first chance to phone home.

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