Faulty Handset Antenna Prompts Iridium To Issue Recall

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BERLIN — Mobile satellite services provider Iridium Communications on May 3 said it is recalling its new Iridium Extreme telephone handsets because of a faulty antenna but that the problem will have no lasting effect on revenue or subscriptions.

In a conference call with investors, Iridium Chief Executive Matthew J. Desch said all the affected customers’ phones will be repaired or replaced by June. Iridium declined to say how many phones are being recalled. The Extreme handset was introduced in September.

“The bottom line is that the technical problem with the unit’s antenna is understood and has been corrected,” Desch said. “Our customers’ handsets will be exchanged by the end of the second quarter and we don’t believe this issue will affect our equipment sales for the full year.

“[W]hile I’m obviously disappointed we had this issue, I think we’ve addressed it appropriately and we’ll have it behind us quickly.”

Iridium Chief Financial Officer Thomas J. Fitzpatrick said during the call that Iridium had taken a $1.2 million warranty charge during the financial quarter ending March 31 and that no further charge was expected in the current quarter, which ends June 30.

Desch said the replacements or repairs should be completed in a matter of days for most customers that have turned in their defective Extreme handsets.

Desch said Iridium’s current constellation of 66 satellites in low Earth orbit is working well and expected to continue operating as Iridium prepares its $3 billion second-generation constellation, called Iridium Next. These satellites are scheduled to begin launching in 2015.

Iridium has been seeking customers that would place their hardware on the Next satellites and pay Iridium both for the space and resources on the satellites, and an annual service fee.

Desch reiterated during the call that by late June Iridium would announce an agreement with an unnamed entity that would represent global air traffic management authorities. The payloads on Iridium Next satellites would permit air traffic authorities to track aircraft over ocean routes.

But Desch hinted that Iridium would not just be renting space and power, but would take an equity stake in the venture.

“We’re looking at and setting up a business that truly could exploit this unique opportunity,” Desch said. “There is … a real estate element to this transaction, which means hosting fees during the timeframe of building up Next, as well as what we’ve always expected to be data fees for the payload.

“There is as well in this case a retained interest or at least a profit out of the service and the unique nature of what that would be. And that’s kind of a new piece of all this. We probably want to be part of this for the long term as well.”

Desch said Iridium’s network of low-orbiting satellites covering the entire globe, with links enabling information to be passed from satellite to satellite for quicker download to a given ground station, is uniquely qualified to provide the air traffic service.

Any competing proposal, he said, would be costly to set up as it could not take advantage of a satellite constellation already under construction.

Iridium said it is sticking to its forecast that its service revenue in 2012 would increase by between 8 and 11 percent over 2011, when the company reported $262.3 million in service revenue.

Operational EBITDA, or earnings before interest, taxes, depreciation and amortization, is expected to be around $215 million for 2012, which would be an increase of nearly 13 percent more than 2011.

For the three months ending March 31, Iridium reported $93.5 million in revenue, up 2 percent from the same period a year ago. Service revenue was 72 percent of the total, compared with 67 percent a year ago. Revenue from subscriber equipment sales was 27 percent of total revenue a year ago, and 23 percent for the first three months of 2012.

Iridium said its total subscriber base for commercial voice services grew by 12.6 percent, to 313,000 as of March 31.

Commercial data customers using machine-to-machine (M2M) devices for remote monitoring of assets grew to 183,000, a 40 percent increase over a year ago. These customers generate much lower monthly revenue than do voice customers, but their numbers are expected to be far greater than voice subscribers.

Government M2M subscribers grew by 33 percent, to 12,000 as of March 31.

The only customer set that shrank was government voice subscribers, which numbered 36,000 as of March 31 compared with 37,000 a year ago.