Iridium Makes Down Payment on Iridium Next Launches

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PARIS — Mobile satellite services provider Iridium Communications has made a $19 million deposit with a launch services provider to lock in contract terms for the launch of its second-generation Iridium Next constellation and expects to select a prime contractor for the 66 satellites this summer, company officials said.

McLean, Va.-based Iridium is also opening two new fronts against its competition this year, reducing the price of its telephone handsets to prepare for a lower-priced offering by Inmarsat of London, and rolling out a two-way personal satellite tracking device to attack a market being developed by competitor Globalstar of Milpitas, Calif.

In a May 11 conference call with investors, Iridium Chief Executive Matthew J. Desch said the company has cut prices for its 9555 telephone by around $200 as it positions itself against the arrival, starting in June, of the first handset produced for veteran mobile-satellite services operator Inmarsat.

“We have a lot more room” to reduce prices further, Desch said, noting the healthy profit margins the company makes on its handsets. “We’re glad to trade off equipment margins for subscriber growth and service margins. We’ll see if we need to do that. We’ve been getting ready for competition for a couple of years now. We’ve been waiting for it.”

Iridium’s most direct competitor, Globalstar, has been hobbled in its core voice market in the past couple of years because of a defect that is causing degradation on its satellites. But one-way data links have not been affected, and Globalstar’s Spot GPS-enabled tracking device has found a consumer market that has offset the declines in Globalstar’s more-profitable two-way voice business.

Iridium is now taking aim at the same market with its 9602 data transceiver. The company has struck deals with 90 partners and is pitching the 9602 as a more-sophisticated two-way device compared with the one-way Spot product. “We have many, many thousands of preorders, including some bid customers who could do tens of thousands [in production volume] as opposed to thousands in these personal safety devices,” Desch said.

Desch said in the conference call that Iridium expects to select a prime contractor for the 66-satellite Iridium Next constellation this summer. Under this schedule, launches would occur “primarily in 2015 and 2016.”

Lockheed Martin of the United States and Thales Alenia Space of France are competing for the work, with the selection in part depending on the size and terms of an export-credit agency financial package attached to the two bidders’ proposed contracts. Iridium has hired investment banker Goldman Sachs to help with the Iridium Next financial package.

Industry officials say Iridium is all but certain to be able to secure loan guarantees from France’s Coface export-credit agency if the French contractor is selected. Getting U.S. Export-Import Bank approval for backing will be more complicated given that Iridium is a U.S. company, but Iridium and other industry officials said the company has not abandoned its attempts to secure assistance from the U.S. agency.

In a May 10 submission to the U.S. Securities and Exchange Commission (SEC), Iridium said it has paid $19 million to an unnamed launch services provider “to secure the terms and conditions” associated with launches of the Iridium Next constellation.

Industry officials said Iridium has been in negotiations with startup launch service provider Space Exploration Technologies of Hawthorne, Calif., which is advertising prices substantially lower than the competition but has yet to prove it can meet the requirements of a commercial program like Iridium.

Iridium said the $19 million deposit is refundable if the company is unable to secure Iridium Next financing, or if it has not signed a firm Iridium Next satellite construction contract within 12 months. Iridium repeated in its SEC filing that it expects Iridium Next will cost about $2.7 billion through 2016, and that much of this financing will come from the company’s expected operating cash flow.

Iridium reported revenue of $81.7 million for the three months ending March 31, up 7.9 percent from the same period a year earlier. The company, which has little debt, said it had $145.7 million in cash as of March 31.

The company is changing the way it reports its subscriptions to strip out the approximately 31,000 subscriptions that for the most part are related to machine-to-machine terminals — on ocean buoys, for example — that are no longer used.

Removing those 31,000 terminals brought Iridium’s total subscriber base — voice and data subscribers — to 359,000 on March 31, up 14.3 percent from a year earlier.

In its SEC filing, Iridium said it had still not settled a lawsuit filed in February by Motorola Inc. of Schaumburg, Ill., demanding at least $24.7 million in payments related to what Motorola says is a change of control of Iridium following Iridium’s purchase in September 2009 by GHL Acquisition Corp. of New York. The transaction resulted in Iridium’s public stock offering.

The Motorola lawsuit, if it is not settled, also threatens to deny Iridium key intellectual property for the Iridium Next constellation. Iridium said it is still in talks with Motorola, which financed and built the first generation of Iridium satellites.

 

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