Iridium pushes ahead satellite project

Company taps Thales to build new constellation; challenging Inmarsat

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By Gabriel Perna: Subscribe to Gabriel's RSS feed

June 2, 2010 9:47 PM EDT

Iridium (IRDM) continues its push into the market for satellite data and telemetry services, as it announced the company that would build its second generation of satellites.

Amid a great deal of pomp and circumstance including the ringing of the opening bell at Nasdaq, Iridium announced Thales Alenia Space, a joint venture between French owned Thales (67%) and Italian based Finmeccanica (33%), would be designing and building the new satellites.

Iridium's old network of 66 satellites was designed for voice calls; the new satellites will also be able to handle data more efficiently, and include cameras as well. The company also plans to share the satellite platforms with some scientists for use in studying the Earth.

Iridium's rapid growth - the company claims 360,000 subscribers - has put it in the top tier of satellite telephone providers. London-based Inmarsat, which provides maritime and airline communications, is one of Iridium's direct competitors. Inmarsat, which trades on the London Stock Exchange, has a market capitalization of GBP 3.473 billion (US$5.08 billion) and has long dominated the maritime and aviation markets.

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But Iridium has made inroads in telemetry from places such as offshore oil wells, as well as wining a contract from the U.S. Department of Defense. On top of that, Iridium's satellites are in low earth orbit, or about 485 miles (780 kilometers) up. That cuts down the time for the signal to reach the satellite, as well as the amount of power required. Inmarsat's constellation is in geosynchronous orbit - or 23,000 miles (35,700 km) above the earth's surface. At that distance a signal takes a full quarter of a second to get to the satellite and back - a perceptible lag when speaking.

Glenn Tongue, managing partner at T2 Partners, is one investor who is bullish on Iridium's future - his fund has bought into the company. He adds that the company currently has no debt on its balance sheet and has $147 million in cash at the end of the first quarter of 2010. The smaller power requirements for its phones mean longer battery life and will help it compete in that market, he adds. In addition, the value of Iridium to the military, Tongue says, gives it an extra layer of protection as the Department of Defense would not want to see the company fail.

Not all are so optimistic. Iridium is up against an entrenched competitor in Inmarsat, says Olivier Moral, an analyst at HSBC Bank in Paris. He notes that Inmarsat has only to do incremental spending - while they have satellite launches scheduled for 2011 they aren't replacing a whole constellation. Inmarsat has also demonstrated profitability for many years, and plans to offer its own new satellite phone and data services.

Iridium's project will consist of 66 satellites, with six spares in low earth orbit, and nine more on the ground. According to Iridium CEO Matt Desch, the cost will total approximately $2.9 billion.

Coface, the French government export credit agency, is set to guarantee 95% of a $1.8 billion credit facility for the project. That facility is being arranged with a group of international banks and is expected to be complete in the summer.

The contract between with Thales allows work on the project to start immediately. The slated completion for Iridium NEXT is between 2015 and 2017, when Iridium's current satellites are no longer useful.

Many remember Iridium from its first iteration in the late 1990s, when it was a poster child for financial hubris. At that time the company raised $5 billion in investment, including $1.5 billion in loans. In 1999 Iridium filed for bankruptcy protection. The company was re-formed in 2001 by a group of private investors.

This article is copyrighted by International Business Times, the business news leader