Back in the 1990s Moto0rola raised around $9 billion and blew it all putting 66 satellites in the sky, with out making sure that there were people that wanted to use them, and the company went bankrupt. Anyone who remembers this ill-fated Iridium venture, will wince when they hear the name. But after the go ahead was given this week by the FCC for the system to change hands, investors once more are going to be asked to look at the same ‘gawky’ mobile satellite system. Iridium is being bought out by private equity company Greenhill & Co, in preparation for an injection of $500 million, a new generation of satellites and a public quotation.
In its time the design was revolutionary ‘ relying on satellites which were not the usual 22,000 miles from the Earth, but a new kind of Low Earth Orbit satellite, which instead of being geostationary were travelling at 17,000 miles an hour relative to the surface, but which were just 485 miles away.
By putting up 66 of these, and having them run in queues from pole to pole in both directions at different longitudes, they covered the entire Earth’s surface at any given moment, and didn’t need such sophisticated antennas or such powerful signals as today’s satellites.
The satellites were bought out of bankruptcy in 2000, and a relatively less ambitious business has been carved out of their use under the same Iridium brand name.
Each satellite is powered by a cluster of now ancient Freescale processors, and signals are transferred around the planet from satellite to satellite using intersatellite microwave beams. In this way a call can be connected from the US to say Afghanistan, without ever having to come down to the surface to be switched by land based equipment. The satellites can also reach all of the world’s ships and any airplane.
The new purchasing company is called GHL Acquisition Corp and will no doubt change its name to Iridium once the deal goes through, and it will pay out existing private shareholders with shares, with just $100 million in cash changing hands, with only $33 million of that coming from Greenhill itself. Naturally Greenhill shares are going down, not up, now that the FCC has agreed the deal can be done, because few want to be associated with a telecommunications investment disaster as big Iridium was in the past, even if it might make money in the future.
The company will then borrow or pre-sell services to the tune of $500 million and prepare for a next generation of satellites, far more powerful than the existing set up, which will be in place by 2016. Right now each of the 66 processors can only process 1100 calls at any point in time, so the entire system can only handle around 67,000 concurrent calls, which means that those calls had better be pretty important, which is why maritime communications, the government and military make up most of the existing customer base. Of course places which have absolutely no wireless communications such as the North and South Poles, are also good candidates for using Iridium satellite services.
Subscribers are up 23.9% over a year ago at 347,000 and the market is especially promising for machine to machine communication in environments which are too challenging for actual people to live (the poles, the desert, the middle of the ocean, etc’). Iridium reported revenues of $82.7 million last quarter with net income of $28.6 million. The investment concerns are how a business of that type can service significantly more debt with such low revenues.
Iridium also increased its subscribers by nearly 24 percent to 347,000 at the end of the quarter, up from 280,000 a year ago.
Iridium will tout for business among maritime, aviation, government, military, emergency, humanitarian services, mining, forestry, oil and gas, heavy equipment, transportation and utilities.