Iridium, a 485 miles view
The name Iridium is derived from the chemical element “Iridium” which has an atomic number of 77. The original architecture of Iridium had 77 satellites, but later the altitude was raised, leading to a 66-satellite constellation(1). 1) What were some of the problems of mobile phone services during the 1990s?
In early 1990’s with the use of digital voice coding and digital modulation, the 2G - Global System for Mobile communication (GSM), technology was introduced and some limitations of 1G were addressed. GSM increased bandwidth, allowing addition of more customers, and the rapid increase in customer base was not followed by a rapid increase in cell sites (towers) to provide better signal quality to expand the CPC (Cell Phone Coverage). Narrow service region resulted in poor signal quality causing dropping calls, chopped conversations and frustrated customers. Also the different communication technologies, such as GSM, TDMA, WCDMA, GPRS, HSCSD,(2) used by different telecom companies within a country and across continents generated roaming fee and also the incompatibility of devices among different carriers. The three main problems of mobile services during the 1990s were (1): Signal Quality, Roaming fee and Infrastructure problems. 2) What are the advantages of the satellite phone service over the cell or PCS phone services?
When compared to cell phones services, satellite phones services have strong signal everywhere in the world with access to more bandwidth that allow stable voice and faster data transmission. Because of their globe spanning infrastructure (satellite constellation, gateway, switches) satellite phones would not require roaming fees or present compatibility problems across networks allowing the same headset be used anywhere in the globe (1). The Public Switched Telephone Network (PSTN) also was part of the Iridium global reach and enhanced the ability of regular Terrestrial Phone receives and makes calls to satellite phones.
3) What are the advantages and disadvantages of LEO compared with GEO? * GEO has lifespan greater than 15 years. LEO lifespan is between 5 to 7.5 years * GEO orbiting distance is greater than LEO orbiting distance, causing weaker signal than LEO signal strength * GEO is more economical because the costly launch of new LEO satellite every 5 years * Twice a year the sun crosses behind each GEO satellite as it is viewed from the ground station causing a temporary loss of signal due to the thermal noise from the sun with the satellite (5) * signals causes a temporary loss of signal * GEO has lifespan greater than 15 years. LEO lifespan is between 5 to 7.5 years * GEO orbiting distance is greater than LEO orbiting distance, causing weaker signal than LEO signal strength * GEO is more economical because the costly launch of new LEO satellite every 5 years * Twice a year the sun crosses behind each GEO satellite as it is viewed from the ground station causing a temporary loss of signal due to the thermal noise from the sun with the satellite (5) * signals causes a temporary loss of signal
Comparing Low Earth Orbit (LEO) to Geo-synchronous Earth Orbit satellites (GEO) the differences are:

LEO, MEO and GEO orbits

4) What did the terrestrial mobile phone companies do to cope with their narrow service region?
The mobile cell companies seeing the “threat of substitution” by the satellite phone services, made a strategic alliances among them to minimize poor signal quality and do away with roaming fee.
Also the continuous rapid grow of mobile cell phone subscribers attracted investments from cell phone manufactures and mobile phone services carriers to develop new technologies to expand coverage areas and allow more reliable network by installing new cell sites (towers) and deploying new handsets with compatibility among several carriers.
5) What market did Iridium try to target?
The initial headset price, $9,000 and $7minute rate made Iridium focus in a niche market to serve the big corporations customers such as oil and aviation. In the first year projection were 52,000 subscribers but the actual customers base was 20,000. It was a gross misreading of the market.
6) How did mobile companies develop “substitute services” for Iridium?
Since Iridium project took a long time (more than 8 years) to deploy all satellites and become operational, the cell phone companies had addressed many of consumers’ complaints linked to signal quality and roaming fees as well as lowered the costs of services. Consumers felt that mobile phone services’ low airtime fees and start-up costs compensated for satellite phone services worldwide coverage and higher reliability. In essence, consumers substituted technically inferior services for Iridium’s satellite phone service (1).

---------------------------- Feasibility Analysis: Why was Iridium not feasible?----------------------------
Product Concept: The product concept would include the Need (Benefit) + Form + Technology. * Satellite Handset

Conceptual Design of Iridium handset - 1990 Motorola and Kyocera Iridium headsets – 1999

* Mobile Terrestrial Phone:

DynaTAC 8000X – 1990 MicroTAC 9800X - 1999
NEED: “The product has value only as it provides some benefit to the customer that the customer sees a need or desire for” (7). Iridium provided a solution for a problem that didn’t existed for the majority of the market. Only a small niche of the market had that need and it didn’t justify the development of the product.
FORM: Maybe to use product platform and minimize development cost/time, Motorola adopted the form of the contemporaneous first terrestrial mobile phone, also Motorola, DynaTAC 8000X for the conceptual design of 1990 Iridium handset. When launched in 1999, Iridium handset became a closer copy to the terrestrial mobile phones. Iridium handset was bulkier, heavier, limited battery usage and lacking auxiliary functions to its terrestrial mobile competitors. The satellite phone missed the target to become lighter, ergonomic, easy to use and incorporate auxiliary functions like its terrestrial rival.
TECHNOLOGY: The complex technology would need to be developed from the ground up. As required by the Technology feasibility test, if a technology is not currently available, the product development must be discarded. Furthermore, Iridium on its original business plan, decided to use 77 LEO satellites in a polar constellation. Instead Polar configuration, they should choose the Walker constellation configuration and use only 39 satellites, instead of the final 66 satellites. This decision would provide a good quality signal and keep the global coverage with reduction of capital and time.

Continuing with the Product Concept evaluation, the use of A-T-A-R, Model of Innovation Diffusion, to sales forecast would assist Iridium noticed the Inadequate profit forecast. By the second year, 2001, Iridium expected 6,076,000 subscribers (table III-1) and Iridium stated at that time that its own research placed the global market potential for satellite telephone services, in US alone, exceeds 30 million subscribers and 104 Million subscribers globally (9 page 57) [Using the same U.S. penetration average ratio of 4.5%, (table III-1) for the 4.7 M Iridium global subscribers, we can back calculate that Iridium estimated a global addressable market as 104 M].
A-T-A-R: 134,000,000 subscribers, x 10% Percent awareness after one year, x 10% Percent of aware owners who will try product, x 10% Percent availability at electronics retailers, x 1.10 Measure of repeat (10% of customers buy a second phone), x $4,000 Price per unit minus trade margins and discounts ($9000) minus unit cost at the intended volume ($5000) = $589.6 Million Profits for the handset alone. The return in a U$ 5 B investment didn’t justify the optimist forecast.

A-T-A-R: 134,000,000 subscribers, x 10% Percent awareness after one year, x 10% Percent of aware owners who will try product, x 10% Percent availability at electronics retailers, x 1.10 Measure of repeat (10% of customers buy a second phone), x $4,000 Price per unit minus trade margins and discounts ($9000) minus unit cost at the intended volume ($5000) = $589.6 Million Profits for the handset alone. The return in a U$ 5 B investment didn’t justify the optimist forecast.

Cost Feasibility: The development cost of U$5Billion, the $10 Million monthly maintenance expenses, the break-even point when the user base reach 600,000 subscribers, the initial headset price of $9,000 and the minute rate of $7 were several red flags missed by Iridium senior management. Iridium estimated the break-even point when the company would reach 600,000 subscribers. Using 6,076,000 subscribers in five years (from scheduled operational services to customers starting in 1997 to 2001) x $9,000 handset price U$ 54.7 Billion in five years of handset sales alone. This forecast is unrealistic and can be debunked by the A-T-A-R 589.6 Million. As shown at table VIII-3 below - left, Iridium projected total system costs was 3.7 Billion. But the project ended up cost U$5.4 Billon. Demonstrating a gross error in estimation and forecasting.

In the first year Iridium expected 52,000 subscribers and to achieve the break-even point were necessary 600,000 subscribers. Considering the subscribers rate grow as a linear curve, it would take 11years to reach 600,000 subscribers (600,000 subscribers ÷ 52,000 subscribers/year 11.5 years) pushing the break-even point to 11.5 years. The 6,076,000 subscribers forecasted to be reached by2001 (5th year of operation) in table III-1(above right) does not validate the break-even point at 2008 (1997 + 11).

The high monthly maintenance cost (U$10 Million), the tremendous cost to launch new satellites after 5 years of usage (LEO satellite lifespan is 5 years) would deter Iridium, partners and investors to proceed with this pharaonic project.
Market Feasibility: The need for a satellite phone and the financial ability to find, purchase, and use is restricted to a small group of people globally. There was no competitor in the market signaling that the “GAP” Iridium would like to cover could be not profitable. These are the original Iridium target markets: (1) sparsely populated locations where there is insufficient demand to justify constructing terrestrial telephone systems; (2) areas in many developing countries with no existing telephone service; and (3) small urban areas that do not now have a terrestrial mobile communications infrastructure.
The assumptions used to U.S. and global average penetration rate of 4.5% were unrealistic and hyper-optimistic. Table III-1, previous page, show the data: * 60% of international travel * 50% commercial aircraft * 70% pleasure boats * 50% business aircraft
Iridium estimating the total satellite phone global addressable market as 134 Million was beyond miscalculation. And predicting a huge 4.5% customer acquisition rate was beyond words.
----------------------------- Is there an alternative business plan for Iridium? ---------------------
First I would like to present an alternative technical solution for Iridium. During the development of the product concept of a satellite phone, Iridium could explore the use of technology brokering and reduce the capital necessary to launch the extremely expensive LEO satellite constellation. One alternative would be to use existent GEO satellite constellations and lease transponders, channels and airtime for product alpha and beta testing. The prototyping of a difference satellite phone capable to provide a reliable communication with GEO satellites would provide a unique value proposition for the satellite phones by cutting incredibly the development cost, first move advantage by cutting development time from 10 years to maybe 3 years, minimizing maintenance, increasing satellite lifespan and reducing the need of new 66 satellites every 5 to 7.5 years.
Iridium marketed to “high-ticket international business travelers and explorers” (6). Instead Iridium should target federal government subscribers, maritime applications, importers and inaccessible areas that lack terrestrial phone services.
Another approach to improve the market positioning would be to create Price discrimination Strategy. Offer different prices for Voice only, Data Only and Voice and Data. This strategy would allowed lower subscription price and could attract a critical mass of customers to sustain the business.
Iridium marketed to “high-ticket international business travelers and explorers” (6). Instead Iridium should target federal government subscribers, maritime applications, importers and inaccessible areas that lack terrestrial phone services.
Another approach to improve the market positioning would be to create Price discrimination Strategy. Offer different prices for Voice only, Data Only and Voice and Data. This strategy would allowed lower subscription price and could attract a critical mass of customers to sustain the business.
The Product Positioning also is an important mark missed by Iridium senior management.

Based on a GAP analysis for mobile communication for the military personnel that usually is entrenched in remote areas without any mobile phone coverage and also the need for privacy/encryption, it is clear that Iridium could focus its marketing at the DoD (Department of Defense). In 2005, 20,000 U.S. DoD workers were subscribers of Iridium reliable 66 LEO satellites.
Also, the aviation market could be another focus of Iridium services. Offering GPS location for commercial airliners would sell the possibility to increase dramatically the location of missing airplanes such as MH370 and many others.

References: 1) http://web.mit.edu/deweck/www/research_files/comsats_2004_001_v10/Unit1%20Success%20and%20Failure/unit1_summary.htm 2) http://www.engadget.com/2013/06/16/spot-global-phone-review/ 3) http://www.slideshare.net/fullscreen/vpodobnik/mobile-network-fundamentals-and-evolution/6 4) http://www.worldtimezone.com/gsm.html 5) https://www.iridium.com/support/types/coveragemaps 6) http://apps.fcc.gov/ecfs/document/view?id=7520956711 7) Crawford, C. M., & Anthony, D. B. (11 ed.). New products management. 8) http://web.mit.edu/deweck/www/research_files/comsats_2004_001_v10/Unit1%20Success%20and%20Failure/unit1_summary.htm