Iridium 20th Century Case

Iridium: The Largest International Project of the 20th Century

When Motorola Inc. executives dreamed up a globe-girdling satellite communications
system to connect wireless telephone users anywhere on earth, it seemed like a grand idea.
Motorola's engineers built a 66-satellite orbital network with technology so complex that
Motorola CEO Christopher B. Galvin has called it ''the eighth wonder of the world.''

-- Business Week, August 30, 1999

Endeavours like this are not rare at Motorola. During it’s nearly 70 year history, Motorola successfully
negotiated commercial and technological risks while enjoying the rewards associated with being first to
market. One of the company’s first successes -- the first battery free car radio – only emerged after two
bankruptcies. A series of economic recessions during the company’s early days and several failures
resulted in its founder Paul Galvin being quoted as saying: "Do not fear mistakes. Wisdom is often born
of such mistakes. You will know failure. Determine how to acquire the confidence required to overcome
it. Reach out." 1

Global Announcement

On June 25th, 1990, senior Motorola executives announced their ambitious plans to the world at
simultaneous press conferences in Beijing, London, Melbourne and New York. In its initial 1,151 word
press release, the company described the market for its constellation of low earth orbit satellites as:

Anticipated Users

The Iridium system will support millions of users worldwide, with a total capacity more than 10 times greater than
current geosynchronous satellite systems. For low-density areas lacking cellular phone networks, Iridium will be
an ideal alternative for mobile telephone service. In sparsely populated or underdeveloped areas lacking basic
telephone service, Iridium can be a foundation for an eventual ground telephone system.

For ships and aircraft, Iridium will provide voice or data links and positioning information without the
sophisticated on-board telecommunications hardware now required. Since Iridium is not dependent on land-based
communications links, it also would play a crucial role in disaster-recovery efforts following earthquakes,
hurricanes or other natural calamities.

-- Burson-Marsteller, June 26, 1990, New York, NY

The costs for this space based capability were projected to be in the area of US$2.1B and would require
about 6 years to complete. With 700,000 subscribers paying an estimated US$3.00 per minute, company
officials said that the system would achieve break-even.

Various media sources at the time reported that Iridium would probably be successful despite the
immense technological and political challenges the company would have to overcome. The relative
weight of issues discussed in its first press release appeared to confirm that belief.

For all the hoopla, the Schaumburg, Illinois company’s stock declined $3.125 to US$81 on the day
following its US$2B+ announcement (1989 sales were US$8.9B). Analysts, enthusiasts and critics alike
agreed on one thing -- that Iridium was going where no company had gone before -- creating a pan-
national, born global firm that would simultaneously launch business operations in more than 100
countries on its commercial birthday.

1
Harry Mark Petrakis. The FoundersTouch. 1965, p. 226


I Initial Concept Inspiration & Development
During the mid to late 1980’s, Durrel Hillis lead Motorola’s Space Systems and Technology Group
(SSTG) in Chandler, Arizona. There he assembled a cadre of 15 engineers to help the firm diversify its
government business into more commercial endeavours. Three of those newly hired engineers, Bary
Bertiger, Raymond Leopold and Ken Peterson would go on to develop the Iridium concept. In a
National Air and Space Museum interview, Peterson credits Bertiger with the original idea 2. Various
media reports and personal web statements attribute the inspiration of the Iridium concept to his fiancé,
Karen.

The story reads like a novel: In late 1985, Karen and Bary were planning a honeymoon vacation to
Green Turtle Cay in the Bahamas and learned that there was no wireless coverage. As a realtor, Karen
knew that constant communications was essential and refused to go. She asked her very smart husband-
to-be why he couldn’t design a phone system that would work all over the world. Her website statement
recalls the conversation as follows:

“If you are such a smart guy why can you patent the communications system used in the Voyager
spacecraft and bring back astronauts' voices from the moon, while people still can't make a cellular
phone call from anywhere on earth? 3”

In the end, they didn’t take a honeymoon but Bertiger returned to his office and consulted with his
colleagues. With the benefit and experience of notable space careers, the three contemplated moving the
cellular infrastructure from the ground into space. The principal disadvantage of terrestrial systems was
signal coverage that could in theory be eliminated simply by moving the cell towers from land to space.
The opportunity was appealing for both Mr. Hillis’ diversification goals and the promise of truly global
communications to and from anyplace on the planet.

Uncontested media reports described Motorola’s innovation process as groups of warring tribes vying
for scarce resources that tend to put forth the best opportunities. Infighting has often been criticized at
Motorola since it tends to hide the real competition. For example, the delays caused by internal
jockeying caused Motorola to lose the market race in 1986 for the second generation of its highly
successful 68000 microprocessor 4.

Senior executives such as former CEO George Fischer supported the peculiar culture insisting that “out
of conflict comes catharsis” 5. He admits that he was “uncomfortable” and “amazed” at the internal
conflict during the early stages of his Motorola tenure and that in fact some meetings became verbally
violent. Despite the uniquely emotional style, the “survival of the fittest” philosophy resulted in the
identification and correction of mistakes – something prized by a company that was one of the first
winners of the prestigious Malcolm Baldrige National Quality Award.

To turn the radical “cellular network in space” idea into a working concept the effort drew on Motorola’s
unique innovative processes. From late 1985 through 1988, the three worked in secrecy because they
believed their idea would draw criticism from other groups seeking the same corporate resources. They
considered many options such as flying airships and unmanned aircraft, but in the end the more reliable
and expensive satellite alternative proved a practical alternative.

Minority Reports

2
Martin Collins. “One World… One Telephone: Iridium, One Look at the Making of a Global Age’, History and Technology”,
21:3, 301-324. Mr. Collins is a curator at the U.S. Smithsonian’s National Air and Space Museum, Space History Division,
Washington, D.C. 2005.
3
Karen Bertiger. “Karen Lee Bertiger's Resume & Professional Affiliations”, <www.realty-wanted.com/karen_resume.htm>
(accessed on November 27, 2009).
4
G. Christian Hill and Ken Yamada. “Staying Power: Motorola’s Record Shows Giants Can Be Nimble Too”. Wall Street
Journal (Asian Edition). Dec 10, 1992. p.1.
5
Ibid.

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The first major challenge the three faced involved getting approval for development resources. The
group’s immediate boss felt the project too large and expensive however, Motorola engineers had
another option that was designed to keep information flowing to the top freely. Using something akin to
a “minority report”, ideas could bypass a Motorola employee’s supervisor if the person felt that their
proposal should be given further consideration. The original 68000 microprocessor was one example of
a minority report and the Iridium concept was another 6. So when Chairman Bob Galvin and Vice-
Chairman John Mitchell came to town in 1988, Bertiger made his pitch to the top two executives at the
firm. According to the Wall Street Journal, after hearing the pitch, Motorola’s Chairman Galvin turned
to a somewhat hesitant Mitchell and said “If you don’t write a check John, I will.” 7 “Out of my own
pocket.” 8

II The System

The newly established Iridium development group would face a multitude of hurdles such as regulatory,
financial, political and commercial challenges, but the most pressing was an initial technical design that
could be locked-down and validated. The technical dimension represented a Motorola competency and
insiders believed that they would be able to solve those challenges. The system was broken down into
three main segments: the Space Segment, the Ground Segment and the Service Provider Segment.

Space Segment

The satellite system options included existing geostationary satellites (GEO) which were fixed and
located about 22,300 miles above the earth’s surface, medium earth orbit satellites (MEO) which orbit in
the five to six thousand mile altitude range above the earth, and low earth orbit (LEO) satellites which
fly in the range of 400-700 miles above the earth. Geostationary systems that cover a fixed area of the
earth and require only three birds were quickly eliminated because the minimum round trip propagation
delay of 240 milliseconds (nearly one quarter of a second) was estimated to be a poor quality consumer
experience. In addition, the longer transmission distance required much higher handset power levels and
users in higher latitude locations would suffer from lower elevation angles which could interfere with
signal reception.

MEO’s and LEO’s presented the best option considering power, safety, usefulness and a good customer
experience. However, the tradeoffs were costly. MEO’s required 10-15 satellites for full global
coverage and LEO’s needed estimated 40-80 satellites depending on the orbit altitude 9. For Motorola
engineers, the LEO option reduced the propagation delay as well as permitted the construction of smaller
and lighter satellites with sufficient onboard fuel for an estimated 5-7 year lifespan 10.

Table 1: Satellite Communication Propagation Delay

Delay LEO MEO GEO
(Altitude, miles) (480) (5,000-6,000) (22,300)
Minimum (ms) 2.60 34.5 195.0

Maximum (ms) 8.22 48.0 370.0

Source: Flystveit and Johannessen (1988)

For complete global coverage, the LEO constellation would require a total of 77 satellites positioned in
11 polar orbits. Each satellite would have an onboard telephone switching computer that would be able

6
Ibid.
7
Ibid.
8
David Bennahum, “The United Nations of Iridium”, Wired, October, 1998: p. 134-138.
9
Flystveit and Johannessen. “Global Mobile Personal Communications by Satellite”. Telektronikk, February, 1998. p. 22.
10
With an orbit of 485 miles above the Earth, LEO satellites would only require a 6 foot diameter satellite antennae as opposed
to 30 foot antennae diameters for other systems.

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to route calls based on the number dialled just like terrestrial systems. Further, Iridium satellites were
designed to utilize three main types of connections: one to its telemetry tracking and control center for
daily space flight plans and maintenance, voice/data crosslink’s to each of the four surrounding satellites
within its view (one each to the North and South and one more each to the East and West) and a third
voice/data downlink that would be used to interconnect Iridium calls to terrestrial networks so users
would be able to call terrestrial fixed and mobile phones or pagers.

This interconnectivity provided the Iridium System with a number of technological advantages. First,
satellites were able to route calls around troubled spacecraft and they would also be able to utilize “least
cost routing” for terrestrial interconnect during a time of expensive international long distance rates.
Second, crosslink’s provided for true global coverage versus other systems based on a bent-pipe
architecture because they could theoretically route all calls among spacecraft to a single earth station for
terrestrial interconnection or directly to another Iridium user without any terrestrial interconnection.
Competing systems such as Globalstar’s “bend-pipe” architecture required more than 125 earth stations
to be constructed globally such that a gateway earth station would have to be within sight of the same
orbiting satellite as the caller. Additionally, bent-pipe systems were not able to provide back-up
redundancy for either damaged or disabled earth stations or provide polar or oceanic coverage. It was
true that Iridium was the only planned system to be able to offer complete global coverage.

Ground Segment

In addition to providing interconnection with public networks, gateway earth stations also became a
political and regulatory asset. The initial design of the Iridium System only consisted of a single earth
station and was planned to be operated by Iridium, Inc. for the sole purposes of interconnecting Iridium
satellite calls to the public network. When regulator’s challenged the original design based partly on
sovereignty concerns, engineers had to come up with a new design that would appease control oriented
regulators who wanted to maintain their ability to “monitor” international communications from within
their own country.

Gateways were then re-positioned as an investor bonus and regulatory stick. Motorola executives
initially planned to solicit equity from partners based on their financial strength and market access
capability and planned to offer investors dividends and equity appreciation based solely on the earnings
of Iridium, Inc. When it became apparent that political and regulatory factors threatened the licensing
effort, Motorola and Iridium executives redesigned the technical architecture by creating a gateway
wholesale operation to placate skittish regulators as well as offer investors control over a quantifiable
revenue stream. 11

Gateway operating organizations (Gateway’s) were then created much like a franchise territory and were
appointed three main functions: (1) to prosecute frequency and commercial operating license
applications in every country of their assigned “territory”, (2) to build and operate earth stations for the
purpose of providing network interconnection and wholesale billing, and (3) to select and contract with
distributors and other retail sales entities within their assigned territory.

Earth station purchases were available exclusively through a Motorola Gateway Equipment Purchase
Agreement (GEPA) that included three to four antennae, PSTN interconnect, switching, a control center
and maintenance at a typical configuration cost of about US$25-30M.

In exchange for this increased level of investment and operational involvement, the Iridium Inc. business
plan was revised to include a recommended 10% revenue sharing to be retained at the gateway business

11
The national security was an issue that required significant technical modifications. In order to provide for national
monitoring and control of communications, it would be necessary to design and construct several physical earth stations to
connect the local PSTN to the Iridium Satellite Constellation. Since it wasn’t feasible to install earth stations in every country,
they were carefully offered as regional Gateway solutions and left to the discretion of the local investor’s. Regional investors
would offer an earth station as a last resort in order to obtain a frequency or commercial license.

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office. In total, one dedicated military and fourteen commercial gateways had to be engineered and
constructed. In order to facilitate this additional level of financial and operational commitment for
example, Iridium SudAmerica, the South American gateway operator was eventually capitalized in the
neighbourhood of US$330M 12 . Gateway investors thus assumed a meaningful operational position
within the Iridium system, not merely a financial or political asset.

Service Providers

The final responsibility for Iridium end user sales and service fell on the last entity in the value chain,
the Service Providers (SP’s) [see Exhibit II: Iridium Operational Architecture]. In exchange for sales
and service, it was suggested that service provider’s would earn 10% off the top, sending the remaining
90% of billed subscriber revenue to the Gateway (who then retained 10% and forwarded the remainder
to Iridium, Inc.). Service Provider’s were envisaged to be existing, experienced cellular network
operators (CNO’s). Iridium Gateway operators along with Iridium marketing executives visited
hundred’s of potential service providers from 1995 through 1998 to gauge interest, collect market
feedback and to create a database of technical specifications for billing and provisioning system inter-
operation.

Service provides were expected to be in the best position to sell Iridium services since a segment of their
customers would constitute the typical “professional traveller” (Iridium parlance) or international
corporate business traveller – Iridium’s target customer 13.

Multiple consultants as well as Iridium executives and Gateway personnel were involved in the effort to
assess the capabilities of CNO’s and identify gaps between their existing systems and the requirements
of the Iridium Billing and Service Delivery System (IBSS). Andersen Consulting was the lead firm
responsible for developing a global billing system that included more than 10M lines of code necessary
to correctly bill and settle real-time call data records from a multitude of cellular systems around the
world.

Some Gateways encountered resistance signing up potential service providers because many perceived
Iridium as a substitute to their own cellular offer instead of a complement despite ongoing dialogue on
the part of Iridium, local gateway representatives and significant differences in retail cost 14.

Concurrent with the investment road shows, the technical architecture underwent improvements in signal
strength owing to changes in satellite orbits and fuel requirements that permitted Motorola system
engineers to decrease to 66 (from 77) the number of required operational satellites 15. Including six in-
orbit spares, the new constellation design would require just 72 satellites 16.

Early critics were mildly silenced after Motorola and Iridium successfully petitioned the Federal
Communications Commission (FCC) for an experimental license. That critical milestone would
subsequently permit the FCC to lobby in favor of a worldwide frequency plan that reserved spectrum for
all Mobile Satellite Service providers at the 1992 World Administrative Radio Conference.

However, until Iridium was able to secure a worldwide frequency assignment, potential investors were
reluctant to make financial commitments. At the same time, Iridium needed to address another political

12
This included: (1) an 8.9% equity investment in Iridium, Inc., (2) costs to build and operate a single gateway earth station
with four antennae located outside Rio de Janeiro, Brazil, (3) the costs associated with establishing a commercial office to
prosecute frequency, equipment and commercial licenses, and (4) the costs to establish distribution in the 26 countries which
comprised the territory of Iridium SudAmerica (South America and the Caribbean).
13
The Professional Traveler term most likely resulted from the original AT Kearney “Study of Demand for Mobile Satellite
Services by the High Income Professional Traveler”.
14
David Hartshom “LEO’s: Protector or Predator?” Communications, 1992. 29 (11) p. 41.
15
Robert Nelson (1998).”Iridium from Concept to Reality” p.3, Via Satellite. Motorola engineers were able to eliminate one
polar orbit reducing the constellation size by 6 satellites and altering orbit altitudes such that the onboard fuel required to
maintain constant orbits was also reduced.
16
Christian Hill, “Iridium Unit Revises Plan for Global Phone Network”. Wall Street Journal, August 13, 1993. P. B6

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hot button: bypass 17. If Iridium were to be successful, developing country post, telecommunications and
transport (PTT) entities would suffer from the loss of hard currency revenues that previously resulted
from international calls made by Iridium’s globetrotting travelling professionals within their territories.
In addition, circumventing the national telephone networks would create an unmonitored and
uncontrolled communications link to the outside world. Suddenly, the attractiveness of this new
technology came with significant financial risks for a large majority of countries whose votes Iridium
critically needed in order to be granted spectrum and market access.

Many PTT administrations were also logical business partners or prospective sources of capital funding
so developing an attractive value proposition for developing countries and their PTT’s was a top priority.
In order to obtain the spectrum votes in advance of WARC-92, Iridium officials would have to address
these issues.

Iridium 2.0

As part of a secunded group of Motorola executives, Iridium’s first official employee was Leo Mondale.
Known as a strategic thinker with a distinguished legal background in the satellite and political arena’s,
Mondale set forth to create the Iridium Global Ownership Program for developing countries. It was a
program that would preserve the cash settlement’s earned from international long distance and provide
an opportunity for developing countries to leapfrog their telecommunications profiles into the 21st
century. In addition, the program offered free Iridium minutes and financed shares of the Iridium
common stock for governments at the IPO price of US$13.33 each.

Iridium business and technical plan’s also evolved due to market feedback that suggested the target
service providers were still not convinced that Iridium would not be a competitor. About three years
prior to the commercial launch date, Iridium and it’s now active gateway investors delivered Iridium
System presentations to service providers in order to begin the process of signing retail distribution
agreements. During this process, it became clear that the intended last and most critical sales/service
entities in the complex system were not completely convinced that Iridium was such a good deal -- not
to mention a potential competitive threat. Comments citing the functional similarities and a yet to be
revealed phone size, shape and form met with scepticism among many prospective service providers.

Meanwhile, Iridium engineers were already designing software to interoperate with the common cellular
billing systems and discovered that they were building a unique capability -- the ability to correctly bill
and collect for wireless calls for most countries on the planet.

In light of this new capability amidst the growing scepticism of a cellular substitute, Iridium refocused
its marketing and technical strategy to explicitly offer a new service that would explicitly complement
terrestrial cellular services: Iridium World Roaming. This new concept would make the Iridium phones
dual mode units capable of using both the local cellular networks when in cellular range or looking to
the sky for Iridium’s Satellite Constellation when out of range... all made possible through the use of
their Iridium SIM card and Iridium’s global billing system.

Table 2: Iridium Service Offers

Iridium World Voice Service GSM based digital voice transmitting at 4800 bps utilizing a
handset with an extended antennae or a vehicle kit. Provides
full global coverage.
Iridium World Paging Service Alphanumeric paging similar to Sky Tel terrestrial services
transmitting at 2400 bps. Included a names and contact
database along with time, weather and other message data.

17
At the start of the 1990’s, offering international telephone service (utilizing emerging technologies such as Skype) without a
license nor adhering to the international settlements system was considered illegal ” bypass” in many countries for both
financial and security reasons.

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Iridium World Data Service Circuit switched modem service with transmission capacity of
2400 b ps. Requires an Iridium handset 9500 or better.
Iridium World Roaming Service A global roaming service where callers may use their Iridium
handset and GSM SIM card along with a terrestrial cellular
cassette (optional handset accessory) to access terrestrial
cellular systems based on popular wireless standards.

All told, Iridium was then able to present a comprehensive service offer to CNO’s. Through
repositioning the complementary nature of their service offer, Iridium was thus able to promote the new
service as an augmentation to the typical CNO’s revenue stream via claims that they would now be able
to earn higher margin roaming revenue when their subscribers were travelling outside their home
network service areas 18.

Financial: Capital Funding and the Motorola Equity Sell-Down

At the onset, Motorola did not intend to become a major telephone company. John Mitchell, Motorola’s
Vice Chairman in an early news briefing said that “the company was more interested in building the
system than in operating it...” 19. Relying on its strength as a technology powerhouse, the company
believed that similarly respected firms involved in the delivery of telecommunications services would
step-up as partners.

Despite advances with regulatory and distribution efforts, major telecom operators were still reluctant to
make even non-binding commitments to partner with Iridium. AT&T in the US and British Telecom in
Great Britain were top choices but the calls to partner went unanswered for more than a year. Inmarsat,
an existing global satellite communications provider which utilized suitcase sized equipment was the
defacto provider and maintained long standing interconnection relationships with the major telephone
companies around the world. They were also considering a similar satellite project, dubbed Project 21,
which planned to compete with Iridium, but utilize far less expensive technology.

Secondary telecoms providers such as MCI (USA) also remained hawkish with respect to equity
commitments in the Iridium consortium; some waiting to see how the plans and offers from more than a
half-dozen other MSS providers would evolve. Motorola thus turned its fundraising attention to lesser
capitalized yet more interested emerging market investors such as Thailand’s United Communications
Company and Brazil’s Ministry of Communications while it continued to solicit funding from more
widely known operators 20.

Private Placements

Motorola did woo enough investors the following summer to complete its 1st funding tranche despite
missing its own self imposed funding deadline in December 1992. With plans in hand to satisfy
regulatory and frequency concerns and the introduction of a new roaming service offer, Motorola
successfully completed the first of two planned US$800m private placements in August, 1993.

Equity investors included a hodgepodge of interests with telecommunications and related project
capabilities. For example, Beijing’s China Great Wall Industry Corporation and the Russian Federations
Khrunichev Enterprise both satellite launch providers held just under 5% and Italy’s telecommunications
holding company along with US Sprint held another 5%. US controlled investment was reduced to just

18
During the mid-1990’s, international cellular roaming was practically non-existent. When a CNO’s lucrative customers were
on the road, cellular usage ceased in their home markets. Iridium was now able to position their offer as an incremental source
of revenue as callers would be able to use their Iridium SIM card to make and receive cellular calls around the world seamlessly
with one number. Executives also claimed that the margins would be higher since the suggested 10% satellite call markup
would equal US$0.30 or more per minute.
19
New York Times, “Stock of Motorola off on Phone Plan”. June 27, 1990, Section D, p.4.
20
Yamada, Ken. “Motorola Signs up Some Investors in Iridium Satellite Phone System”. Wall Street Journal, Dec 23, 1992. p.
B6.

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39% at the conclusion of the initial private placement which was to date the largest in commercial
history.

Table 3: First Round Investors, August 3, 1993 21

Investor Expertise Approximate Lead Country
Ownership
China Great Wall Launch services 5% China
Khrunichev Enterprise Launch services 5% Russia
Lockheed Satellite Manufacturing 2.5% USA

Raytheon Earth Station Antennas 2.5% USA

DDI, Kyrocera Long Distance & Handset 15% Japan
Manufacturer

Societa Finanziaria State Owned 5% Italy
per Azioni (STET) & Telecommunications Holding
US Sprint Company
Long Distance
BCE Mobile Cellular Operator 5% Canada
United Cellular and Paging Operator 5% Thailand
Communications
Industry Corporation

Muldiri Investments, Private investor group 5% Venezuela
BVI Ltd.
Mawarid Group Private investor group 15% Saudi Arabia

Motorola, Inc. Prime contractor, creator 34% USA

A little less than ten percent ownership entitled equity investors to an Iridium, LLC board seat and five
percent entitled interested investors to the rights to a wholesale gateway operating company and earth
station if desired.

At the completion of the initial private placement, the project was able to continue through the end of
1994 based on its existing cash, vendor financing and its projected ongoing development costs.
Motorola officials as stated that a majority of initial investors would also participate in the second
placement.

Second Round Private Placement

In September of the following year, Motorola and Iridium officials completed a second placement which
was focused on strengthening their partnership by adding investors with both financial and technical
expertise in addition to presence in developed markets. Until the second placement, the Italian holding
firm STET was the only European partner, however the second round of equity financing brought a
US$70M investment from Germany’s Vebacom, a highly respected telecommunications and industrial
conglomerate. Through a new holding company, the South America holding company Iridium

21
Wall Street Journal (Asia Edition). “Motorola identifies for the first time the initial members of its Iridium Inc .consortium”,
August 3, 1993, P. 2.

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SudAmerica was represented with the formation of a US$140M equity joint venture between Iridium
Brasil (a Brazilian construction company), Iridium Andes-Carribe (a Venezuelan holding company) and
Motorola International Network Ventures (primarily an investor and passive operator of Motorola’s
wireless investments throughout the world). With the second round completed, Iridium had raised
US$1.573 billion in equity while approximately 4,000 people were working on the project around the
world 22.

Debt

Investors in the Iridium project anticipated substantial debt to fund the program’s completion. Its initial
short term US$750M facility was arranged by Chase Securities along with a group of 62 global banks in
August, 1996. In July, the company announced an additional US$800M issuing bonds (speculative
grade, 13-15% coupon to yield).

At the time, Iridium officials also revised the cost of the system from US$2.1B to $US3.4B as a result of
technical modifications and system upgrades. Five percent ownership stakes were reportedly sold for
US$80M. Based on the two equity placements with a total value of US$1.6B and a debt of
approximately US$1.5B, financial analysts estimated that the terms of the accumulated deals implied
something close to a 50%-50% debt to equity ratio.

Iridium’s financial strategy contemplated refinancing the various interim facilities and on Dec 23, 1998
the company closed a US$1.95B refinance which included an US$800M secured credit facility, a
US$750M guaranteed credit facility (Motorola), and US$400M in vendor financing (Motorola
operations and maintenance contract). The newly financed secured credit facility loan covenants
included strict sales targets and periodic interest only payments.

Countdown

Motorola and Iridium executives were undeterred by the criticisms that the challenging market and
political landscapes offered. Insiders, analysts and critics alike were inspired. Iridium’s Chairman,
Robert Kinzie was quoted in a trade magazine as saying:

"The main reason that Iridium is a success [and other would-be competitors haven't been] is because of Motorola's
invention, interest, and participation," says Robert W. Kinzie, chairman and CEO of Iridium Inc. "When they put
their name on a worldwide project like this, no matter how futuristic it is, people around the world want to share in
that system. The key has been Motorola's involvement." -- Industry Week, December 19, 1994.

Telecoms analyst and Silver Spring Md. critic Herschel Shosteck said:

"I'm in awe of Motorola's power…We gave about 0.6 percent probability of this happening. This demonstrates the
enormous power of Motorola in the world." – Industry Week, December 19, 1994.

Motorola’s Satellite Communications Division revolutionized the satellite manufacturing process
utilizing concepts of lean production based on assembly line manufacturing in order to produce enough
satellites to meet the commercial launch date. Iridium satellites were built and packed every four and a
half days as compared to more than three years for the manufacture of traditional satellites 23.

According to the original plan, the first rockets were scheduled for lift-off during 1996 however a variety
of technical issues delayed the program. Issues such as thermal protection, inconsistent telemetry files,
vibration dampening and inclement weather required Motorola and its US based launch provider
McDonnell Doulas to reschedule the first launch that was scheduled on January 8th, 1997. During that
short three day delay, a similar Delta II rocket for another customer exploded causing Iridium’s initial
launch to be postponed indefinitely.

22
Brian Moskal, “Iridium ,Inc.”, Industry Week, December 19th, 1994, p. 50.
23
David Bennahum. “The United Nations of Iridium”, Wired Magazine, February, 1998.

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Satellite launch services were provided by three government space agencies while space vehicle
transport to launch sites was provided with a standby Boeing 747 capable of transporting up to 7
satellites from Motorola’s Chandler, Arizona manufacturing facility to any one of the launch providers.

TABLE 4: IRIDIUM LAUNCH HISTORY:

Launch Date Launch Vehicle Launch # of Launch
Provider Satellites Site
5 May 1997 Delta II Boeing 5 Vandenberg, California

18 June 1997 Proton Krunichev 7 Baikonur, Kazakhstan

9 July 1997 Delta II Boeing 5 Vandenberg, California

20 August 1997 Delta II Boeing 5 Vandenberg, California

14 September 1997 Proton Krunichev 7 Baikonur, Kazakhstan

26 September 1997 Delta II Boeing 5 Vandenberg, California

8 November 1997 Delta II Boeing 5 Vandenberg, California

8 December 1997 Long March China Great Wall 2 Taiyuan, China

20 December 1997 Delta II Boeing 5 Vandenberg, California

18 February 1998 Delta II Boeing 5 Vandenberg, California

25 March 1998 Long March China Great Wall 2 Taiyuan, China

30 March 1998 Proton Krunichev 7 Baikonur, Kazakhstan

6 April 1998 Delta II Boeing 5 Vandenberg, California

2 May 1998 Long March China Great Wall 2 Taiyuan, China

17 May 1998 Delta II Boeing 5 Vandenberg, California

Calendar Days: 377 72

Source: Global Personal Communications by Satellite, (Arild Flystveit, 1998)

In terms of launch vehicle capability, the Russian Proton offered a large payload capable of transporting
7 satellites at one time. It was also a more capable performer in inclement weather due to its sheer size
and weight. The Chinese Long March rocket was the most inexpensive and had a payload of 2 satellites
while the US built Delta II would be able to transport five satellites. The full constellation consisted of
66 satellites and one spare in each of 11 polar orbits inclined at 86.4 degrees at an altitude of 780
kilometres (485 miles) 24. On May 5, 1997, Iridium finally launched and successfully placed into orbit
its first group of 5 satellites. As the network was assembled in space, the Iridium constellation became
the largest satellite system known to man.

III Building a Business: from Motorola to the Service Providers
As the satellites were being built and launched in space, commercial work began in earnest on the
ground. Gateway operators were busy establishing themselves and hiring telecoms, regulatory, and

24
According to Nelsen, the specific LEO altitude was chosen to be within the range of 370Km and 1,100 km which would
place the satellites above the residual atmosphere (which would adversely affect its lifetime) and below the Van Allen radiation
environment (that required external shielding).

9


marketing and information system specialists in anticipation of integrating their operation into the global
system.

While Motorola’s leadership was obvious in terms of technology, its leadership also extended into the
gateway operation with assistance in multiple commercial areas. In September 1995, Motorola’s
Network Ventures Division (NVD) 25 based in Schaumburg, Illinois established a task force at the
direction of Vice Chairman John Mitchell to develop a complete list of tasks necessary to
“commercialize” Iridium. Motorola NVD was the original partner in many of the gateway territories
and responsible for the ongoing sell-down of Motorola’s equity in the project 26.

The mission of this 15 member task force was to ensure that Iridium would not suffer any further delays
in meeting its commercial launch. This program was intended to be a “cook book” for gateway operators
to use as they built up their operating organizations. The schedule included key areas such as business
establishment, regulatory, distribution, earth station design and engineering, distribution, and system
testing and trials [see Exhibit VI]. The task force members included specialists from all Motorola
Iridium program areas (e.g. SATCOM, Cellular Subscriber Group, Government Relations Office MNVD
as well as the South American Gateway, Iridium SudAmerica) and completed the production of its
“cook-book” roughly six weeks after it began. Though not compulsory, gateways adopted this guide in
most of the territories where Motorola had influence. Iridium LLC’s 27 business operations staff
subsequently released its own program management guide in January, 1996 as a development guide for
the remainder of the Gateways which was adopted from Motorola’s initial work.

Early gateway commercialization activities included securing approval for service licensing and
frequency assignment as well as the purchase, configuration and installation of the earth stations as
necessary 28. Local gateway partners on multiple occasions visited regulatory agencies and international
telecommunications operators to solicit licenses and negotiate interconnection for calls which either
originated or terminated within their local territories. Progress was slow as the concept of Mobile
Satellite Services did not exist and a rather extensive educational process had to occur before seating the
appropriate decision makers in any negotiation. Meetings often grew from one or two individuals to
entire rooms full of interested observers.

Where beneficial, Motorola Government Relations would use its relationships in order to gain entry to
senior decision makers in the local government or telecoms ministries. Since most governments did not
have a process to address mobile satellite services, Gateways had to collaborate with government
officials on the technology and suggest a fair process in order to grant frequency assignments and
service licenses. In Chile for example, Iridium SudAmerica and Chile’s Ministry of Transport and
Telecommunications co-developed an application process in conjunction with the Universidad de Chile
in Santiago.

Meanwhile, Iridium’s growing Washington DC based business development team released the first
edition of the Gateway Business Office Organizational Design document in July, 1996. Prepared by
Iridium consultants, Booz, Allen and Hamilton, it was a time sensitive document that illustrated the
functional requirements and evolution of an gateway organization from a development stage entity
through to a fully functioning wireless wholesaler.

25
Motorola NVD was the only group within Motorola that had hands-on expertise in managing the “operations” of cellular
companies. Its mission was to create a marketing channel by investing in or creating foreign cellular operators with little
technological or operational expertise. At the time of the case, NVD had board representation and equity investments in
approximately 26 wireless operators around the world with a market capitalization of over US$4B.
26
Motorola initially held 100% equity in the individual Iridium territories and its NVD group was responsible for selling down
its interests within these territories over time to potential investors. It retained however significant ownership and board
representation in Iridium territories across the America’s (INA, ISA, ICAM).
27
Iridium was originally established as Iridium, Inc. however it re-organized itself into a limited liability corporation after an
exhaustive analysis of the US tax ramifications of a global consortium of international investors, the majority of whom were not
US entities and not otherwise subject to US taxation.
28
Not all gateway organizations needed a physical earth station. Gateway earth stations were shared where political and
technical factors were favorable for a gateway sharing agreement (e.g. Iridium Germany and Iridium Italia)

10


Figure 1: Gateway Business Office -- Functional Evolution

•IBSS Requirements
Implementation (1997->FOC
•Distribution Channel 23 positions) •Call center
Strategy management
•SP & RP draft •Market trials •Channel management
agreements •IBSS installation & test •Financial
Planning and Design •Operations integration management
(1996 - 12 positions) of SP's
Managing and Operating
(Post-FOC -- 34 positions)

Key senior positions included a CEO or president, marketing director, information systems director, and
finance and administration directors. A total of 34 positions were recommended to be implemented prior
to commercial activation and each position was profiled by Iridium’s consultant based on best practices
in the US wireless industry. For example, the Business Operations Director position was a direct report
to the CEO or gateway president and carried a targeted salary of US$150k annually in exchange for 10-
15 years experience in the wireless industry with a particular emphasis on billing systems and
information management.

Table 5: Position Profile – Business Operations Director

-
Key Responsibilities (post FOC hire): Recruitment Profile:

- Service delivery
1) Manage all aspects of GBO operations, 10-15 years of operational experience in

- Customer care -
including: wireless industry, 3-5 of those years in billing

- Billing and collections
system and information management

- Financial settlements -
Solid background in voice service, preferably

- Fraud management
GSM or messaging

-
Knowledge of local market conditions and
operating practices in Gateway territory
Establish and managed 25+ person staff
2) Develop and enhance processes for day to ranging from entry level to middle
day operations as business needs evolve management

- US$150K+ per year with 20-30% at risk based
3) Manage interfaces with and provide Salary Range:
support to internal functions (i.e.,
marketing, finance) as well as external on meeting predetermined milestones

- Interface with Iridium, LLC NSO for the
business partners (PSTN’s, Roaming
partners) Relationship to Iridium, LLC:

- Interface with Iridium GBO Team for the
4) Build and Maintain industry relationships, purpose of usage process management, CDR
including roaming partners. auditing, resubmission, and settlement

5) Perform operational and subscriber trials as purpose of managing policies and system
well as ongoing system and process testing enhancements as well as resolving inquiries
for new services

6) Quality control for all aspects of GBO
Adapted from: Iridium Gateway Business Office Organizational Design, July 1, 1996

11


Partly due to the fact that Iridium was a completely new concept and that many investors lacked actual
wireless industry operating experience, the Iridium GBO team also developed a Gateway Cost Model
based in Microsoft Excel that would serve as an interactive, “what if” scenario manager that was capable
of modelling the costs and organizational needs of a variety of gateway territories (both complex single
country and complex multiple country territories).

The cost model included as inputs subscriber forecasts and a gateway estimate of the functional
capabilities of each of the service providers they contracted with. Some service providers for example
would not provide 24x7 customer service as required by Iridium or would only be able to activate
phones from the Gateway handset inventory. Other territory specific variables that the cost model
considered were the number of taxing authorities within the territory, the number of PSTN
interconnection providers, inflation rates and currency conversion requirements, for example.

Figure 2: Gateway Cost Model

Operating Personnel and Other Costs Personnel and
Assumptions Headcount Cost Summary
Output

•Subscriber forecasts •Productivity Measures •Currency conversion •None: Uses
•Service Provider •Personnel Availability requirements data from
Support Levels (std, • Service levels by task •Wholesale value of previous
enhanced, full) (7x24 v. 7x12, etc) equipment units modules
•# PSTN's, Dealers, •Operating Assumptions •Inventory carrying cost
SSP's, Regulators, •Number of (% hurdle rate)
Taxing Authorities Management
•Inflation Rates Personnel
•Cost Asumptions:
labor, load factors,
currency hedging

Source: Iridium Operational Cost Model, July 1, 1996.

Major cost model outputs included the number of personnel required to perform each task (including
supervisory personnel), cost for currency conversions, inventory carrying costs and personnel headcount
by GBO function. According to the “generic gateway design” (20k subscribers in 1998, growing to
164k in 2002), the typical “generic” gateway was able to forecast an operational budget of US$2.7M
and a headcount of 43 individuals in 1998 and a budget of US$25.7M and a headcount of 91 by 2002.
The GBO operational cost model utilized a “bottoms up” approach to estimating costs based on actual
wireless industry practices.

The plan was for Gateways to use this to either launch or refine their business operations, adapting those
recommendations with respect to local needs and business practice. Not all were pleased with the level
of resources called for or the timing of the activities. For example, Gateways were instructed to
implement earth station control centers and fully staff them a full two years prior to commercial launch
for training and testing purposes. During an operating committee meeting, Alberto Finol, Chairman of
the South American gateway simply told Motorola executives “No” and asked what else these technical
people would be doing besides “pushing a bunch of buttons for two years”?

During the final two years as a development stage organization, the Gateways themselves became the
driving political force in the Iridium system and began to make important decisions and accept
responsibility for decisions on resources and policy. Balancing the power of Motorola and Iridium, the
Gateway Advisory Council or GAC became the de facto operating committee for the consortium.

12


Investors designated their key operating executives to represent their interests at quarterly GAC
meetings, the first of which commenced in September, 1996. Gateway Advisory Committee meetings
would discuss and debate the division of labor as well as the roles and responsibilities shared between
Iridium, LLC, the Gateways and the SP’s with respect to common activities (e.g. customer care,
advertising expenditures, handset inventory, trials and testing, etc.).

Introducing Iridium
On June 22, 1998, Iridium launched the world’s largest, simultaneous, global advertising campaign in 45
global markets under the direction of Amirati Puris Lintas, Ltd (APL). The campaign targeted the global
business traveller with print, television, indoor and outdoor advertising as well as emerging media such
as interactive 29 and internet methods. The advertising theme was the result of a joint team of APL
executives from 18 countries. Its goal was to develop a message that transcended cultural and national
borders. The final result: “Calling Planet Earth”.

In order to reach these global travellers, the initial six month campaign included conference and event
exposure, Antarctic journey sponsorships, in-flight advertising on 26 airlines, and traditional media such
as The Economist, The Wall Street Journal, and The Far Eastern Economic Review. Its television
advertising was shot on location in the Namibian desert, the Seychelles, and Katamandu featuring voice-
overs from actor Alec Baldwin based on the themes: “Alone”, “Vacation”, and “Experience”.

Referencing the target market, APL client director Rob Quish said: “These executives travelling around
the world have more in common with the person sitting next to them [in the airplane] than they do with
their neighbours back home” 30. Martin Puris, APL CEO and Chief Creative Director said that “our
campaign breaks the confines of traditional communication engaging customers in fresh new
ways”...”Iridium’s communication [advertising message] is a worldwide team effort that truly reflects a
global perspective 31. The advertising program was considered a success: a total of 1.5 million responses
and 140,000 qualified sales leads poured into Iridium’s customer response centers around the globe.

As the project neared its launch, the downstream effects of the delayed launches began to emerge. For
example, the final handset software tuning to be delayed to the point that it was not possible to conduct
many test calls. Those tests that were conducted showed low completion rates and poor sound quality.
Accordingly, Iridium’s CEO Ed Staiano announced on September 9th that commercial activation would
be delayed from September 23rd until November 1, 1998 sending shock waves throughout the Iridium
community. The same day, Standard & Poor’s lowered its outlook on the stock to negative from stable.

Other complications that Staiano had to resolve were a lack of handsets. Motorola handsets were in short
supply as a result of last minute software updates and those from its second supplier, Kyrocera were
unavailable until late March, 1999. According to press reports, the entire European market did not
receive any handsets until Christmas 32.

Iridium needed 50,000 subscribers to meet its 1998loan covenants yet JP Morgan analyst and
prospective Iridium customer Marc Crossman said that by year’s end Motorola only produced 20,000
handsets with the majority going to promotional agencies, celebrities and relief efforts such as Hurricane
Mitch in Central America. 33. Analysts estimated that Iridium had only 10,000 paying subscribers by year
end 1998.

Despite significant improvements in call quality (see Exhibit VIII) on March 1, 1999 Iridium reported
that it expected to miss its first quarter target of 52,000 subscribers. CEO Staiano also reported that the
company needed US$120M per month in revenue to meet its cash flow break even which included

29
An example of emerging “interactive methods” was the use of lasers to project Iridium’s logo into the clouds.
30
Financial News, June 19, 1998. “Iridium Advertising Launches Worldwide”
31
Ibid.
32
Wall Street Journal, “European Gateway Missing Phones”, December 20, 1998.
33
Mobile Satellite News. “Missing in action, the case of Iridium handsets”, January 31, 1999. p.1

13


marketing funds to reach its projected 1999 subscriber base of 500,000. Searching for an improvement,
Staiano re-organized Iridium’s marketing and distribution organization and told the Wall Street Journal
that “were driving it from Washington”...”trying to fix things faster than in the past quarter”34. Later that
month, CFO Roy Grant resigned for personal reasons.

A few weeks later, on April 23, 1999 Iridium announced that its CEO Ed Staiano resigned over
differences in distribution management. Staiano thought that Iridium’s gateways were not doing enough
and sought to take full control of distribution in Washington, however, the Iridium Board didn’t agree.
Analysts believed creating a global sales and marketing organization would have proven too rich for an
already over extended investor consortium.

In July with an estimated 20,000 paying subscribers, Iridium officials signalled that they would exercise
the firm’s right to take an extra 30 days to make its US$90M interest payment due on August 15th35.
However on Friday, August 13, 1999, just 10 months after opening for business, Iridium filed for
protection from creditors under the Chapter 11 Bankruptcy code. 36

Discussion Questions (A)
1) What was the primary cause of Iridium’s failure? Describe what happened. What factors
contributed to the failure of Iridium’s business plan?
2) Describe the development strategy Motorola utilized to create Iridium? What elements did
Motorola and Iridium employ to advance the project (resources, venture structure, etc.)? How
did this impact the projects progress/success?
3) Iridium targeted international business travelers in its initial launch. Why do you think it
selected this segment as its target? Discuss the pros and cons of its market segmentation and
targeting strategy.
4) Did Motorola’s corporate culture have an impact on its leadership of the project at its various
stages of development? Would you follow the same leadership strategy? Why or why not?

34
Quentin Hardy, “Global-Minded Iridium Has Down to Earth need: Profit – Despite Product Delays, Wireless Firms Big Loss
is narrower Than Expected”. Wall Street Journal, January 26, 1999. p. B4.
35
Peter List, “Crash and burn?” Project Finance, October 1999. p. 18.
36
Leslie Cauley. “Iridium Files for Bankruptcy Protection After its Bondholders Submit Petition”. Wall Street Journal. August
16, 1999. p. A3.

14


Exhibit IA: Iridium Operational Architecture

Iridium, Space System Operation &
Upgrades, Global Settlements,
LLC Brand, Corporate & Product
Development

Licenses, Earth Station Construction
Gateways & Operation, PSTN Interconnection,
Distribution, Service Provider Billing
(15*) & Settlement

Service Subscriber Sales, Provisioning &
Providers Service, End User Billing and
(FOC: 200+) Collection, Market Feedback

Exhibit IB: Iridium Gateways

Gateway Service Territories

Iridium Middle East China Spacecom
Iridium North America Nippon Iridium
Corporation (Hong Kong)
Iridium Central America Iridium Africa Pacific Iridium
and Mexico Telecom. Co. Ltd. Iridium Korea
Corporation
Iridium Eurasia Iridium India
Iridium Sud America P.T. Bakrie
Southeast Asia Communications
Iridium Services Corporation
Iridium Italia Iridium
Deutschland
1
1 Motorola Confidential and Proprietary

15


Source: Motorola Iridium University Presentation (8/97)

Exhibit IIA: Iridium Historical Timeline (Space Segment)

Source: Diane Stamp, Iridium Satellite – March 2005. Slide 2, Company Presentation. Taken from web
on 12-24-2009: www.es.gsfc.nasa.gov/ses_data_2005/050802_Stamp.ppt

Exhibit IIB: Motorola Iridium Contact Values

Iridium System Costs (1995-1998)
US$ millions
Year Space System Ground System O&M Total

1995 802 802
1996 836 64 900
1997 577 74 651
1998 589 139 728
1999 6 129 135

Total $3,216

16


Exhibit III: Iridium Market Potential

Wireless Subscriber Growth Demonstrates
IRIDIUM Market Potential

Worldwide Growth of Cellular and Paging Subscribers

350

300

250
Subscribers in Millions

200 Cellular
150 Paging

100

50

0
1995 1996 1997 1998 1999 2000 2001

Source: 1996 MTAEMCI SERVICE PROVIDER PRESENTATION, PAGE 10
REV 1

Source: Iridium Service Provider Presentation (8/96)

Exhibit IV: GBO Marketing and Sales Organization

Marketing
*Market Planning Channel Development *Strategic Planning End-User Sales
Communicatoins
Manager Manager Manager Manager**
Manager
•Public Relationns •Subscriber Services •Management of •Management of •Management of
Management and Product Service Provider Long Range Strategic Dealer Sales
•Advertising Management Development Plans •Management of
Management •Market Growth •Management of •Provide Input to Direct Sales
•Marketing Analysis Alterrnative Budgeting Process •Management of
Communications •Pricing and Service Channels •Provide Input to Telemarketing
Management Plan Management •Development of Mergers,
•Industry Relations Multinational Acquisitoins, and
management Accounts Partnerships
•Country/Region •New Product
Management Development
•** This position
•Application
assumes the
Management
gateway will be
(airline, phone
providing direct sales
booths, MXU)
•* This is a post FOC •* This is a post FOC to dealers and
•Roaming Partner position agents and providing
position. Management full support to the
SP.

Source: Iridium GBO Organizational Design, 7/1/1996.

17


Exhibit V: Gateway Project Task Force Elements & Risks

No. Process Description Identified Risk Areas (10/95)
1 Business • Mission definition • Key management staffing
Formation • Local market analysis (timing)
(10 pgs) • Organization development • Operating strategy definition
• Operating strategy (timing)
• Tactical work plans • Business planning
• Financial plan

2 Regulatory • Obtain frequency licenses in every • Key regulatory resources
(11 pgs) country (as few as one and as many as (consultants, political allies,
26, depending on the gateway territory) message)
• Obtain commercial licenses • Political action planning
• Obtain cross border equipment licenses o Bypass
(handset movement) o National sovereignty
o Freq. auctions
• Reporting and tracking of
progress
3 Generic Facility • Package of designs and drawings that N/A
Design describe layout and facilities that support
(4 pgs) technical equipment (switch, interconnect A SATCOM task subcontracted to
& antenna control systems Bechtel National, inc.
4 Site Planning • Physical land sites capable of: • Selection of suitable sites
and Analysis o Horizontal visibility to satellites (alternatives)
(7 pgs) o Low precipitation, low frequency • Selection delays (decision
rain/snow events making)
o Local interference • Site acquisition delays
o Employee and utility access (purchasing, permits)
o Environmental factors
May be subcontracted to Nouva
Telespazio (part of the STET family of
companies)
5 Engineering, • Construct facility suitable for SATCOM to • Inability of gateway operator to
Procurement o Approve facility design, engineer, construct center on time to
and test link margin, furnish and install provide for SATCOM’s Beneficial
Construction custom equipment specific to gateway Occupancy Date (BOD)
(6 pgs) design
6 Service • Planning and implementation of gateway • Lack of primary market research
Provisioning distribution channels that maximize • Inefficient understanding of local
(16 pgs) o Marketing/sales market regulations (capability)
o Service activation • Marketing / Channel
o Customer care management resources
7 Business • Development and implementation of three • Cross-system call detail record
Systems (IBSS) tiered business support system to provide (CDR) formatting
(6 pgs) Iridium (IBSS), Gateways(GBSS) and • Numbering plan (regional
Service Providers (SPSS) support for: interconnection and billing)
o Service delivery • Fraud control
o Customer care • Testing and integration of IBSS
o Clearing and settlement (Iridium business support
o Billing and collections system, 3 months)
o Decision support
8 Customer Delivery of voice and messaging equipment Primarily a Motorola Cellular
Premises including: Subscriber Group and SATCOM
Equipment • Handheld portable phone responsibility. Gateways:
(23 pgs) • Mobile exchange unit (adapter for small • update market and service
PBX) forecasts (7/96)
• Alphanumeric pager • Support technical operational
• Radio channel unit’s for special use: and market trials
o Phone booths • Contract with various
o Aeronautical equipment providers for
o Accessories volume commitments
9 Terrestrial Includes contract milestones associated with N/A
Network the design, development, and documentation
Development of the Gateway segment (gateway technical A SATCOM responsibility to Iridium,
Contract elements) in two major releases: Inc to benefit gateway
(4 pgs) • R1: call processing, control, emergency
calling, basic telephony services Implemented through the Engineering,
• R2: call completion, multi-party and bearer Furnishing and Installation task (No.

18


services, and messaging 11 below)

10 Space System Design, development, documentation, N/A A SATCOM responsibility to
(6 pgs) production, delivery and installation of the Iridium, Inc.
Space System (constellation)
11 Engineering, Gateway to execute a Gateway Equipment • Gateway failure to fund/execute
Furnishing and Purchase Agreement (GEPA) that provides GEPA on a timely basis (12/95)
Installation gateway specific equipment engineering, • Gateway failure to obtain
(11 pgs) furnishing and installation of earth terminals regulatory permits, frequency
(Scientific Atlanta) , telecoms switch (Siemens and commercial licenses and
D900) and other equipment and software import licenses on a timely basis
associated with the messaging and voice • Failure to obtain interconnection
service. with PSTN
12 Trials and Four level system wide tests including: Tests mainly conducted by Motorola
Testing • Laboratory segment tests: Space Vehicle, with service provider and end user
Gateway, CPE & IBSS) trials managed through the gateway
• Technical trials: total system trial including marketing office.
IBSS • Risks include failure to properly
• Operational trials: Total system trials train SP’s and end users on use
Including service providers of the system.
• Market Trials: Total system trials including
“Friendly” customers

N/A: Not a gateway specific responsibility or activity, for reference only. Source: Iridium GBO
Organizational Design, 7/1/1996.

19


Exhibit V(b): Service Delivery (Provider) Value Chain

SERVICE DELIVERY VALUE CHAIN
1 2 3 4 5 6 7 8

Sales Lead Post Sales
Generation Sales Support Billing and Support/ Terminal Fraud Control
Delivery Service
and and Terminal Activation Collection Customer Maintenance & Deactivation
Qualification Sales Service

• Branding/Communications
INCREMENTAL COST ELEMENTS
•Advertisement •Sales Force •Shipment •Cost of •Cost/Bill •Salaries CSR • Cost repairing •Fraud/subs.
•Sales Force •Commissions •Inventory Activation •Bad Debt •Infrastructure terminal •Deactivation
•Demo Units • Training Cost •Staff •Credit Card •Training cost
•G&A •Logistics/Staff •Training commissions •Marketing,
•Late Payments promotion,
•Staff retention
•Training

Acquisition Costs On Going Costs
(Retention)

20

Exhibit VI: Gateway Business Office -- Key Position Hires

Function/Process 1996 1997 Post-FOC
President/CEO • President/CEO
Marketing and Sales • Marketing & Sales Director • Marketing Communications • Strategic Planning Manager
• Channel Development Manager Manager • Communications Specialist
• Account Executive (3) • Planning analyst (2)
• Contract Administrator • Marketing Assistant
• Marketing Analyst • Market Administrator
Business Operations • Customer Care Manager • Training Specialist • Quality Assurance Manager
• Settlements Manager • Inventory Manager
• Billing Manager • Director of Business • CC and SD Analyst
• PSTN Manager Operations • Contract Administrator
• Network Operations Manager • Fraud Manager • Billing Analyst
• Payables/Receivables Clerk • Staff Engineer (2)
• Collections Administrator • Fraud Analyst

Information Systems • Director of Information Systems • Systems Analyst • GBS Manager
• Hardware Specialist • Software Development Manager
• LAN/WAN Manager
• Applications
• Specialist
• Networking Specialist
Finance • Director of Finance • Financial Administration • Financial Clerk
Manager
• Accountant
• Controller
• Financial Analyst
Administration • HR Manager • Office Services Manager • Compensation and Benefits
Specialist
• Director of Administration • HR Specialist
• Facilities Assistant
Legal/Government • Government/Legal Affairs Director • Regulatory Compliance Manager
Affairs • Regulatory Assistant • Licensing / Standards Manager
• General Counsel
• Contract Manager


Exhibit VII: Iridium World Communications (IRIDF) Quarterly Earnings & System Progress
(Thousands)
Net IBSS Trial
Stock Loss Equit Satellite License SP's Gateway Switch (of s (of
Date Source Qtr Price (M's) Asset Debt y s s * POP's** (of 12) (of 12) 15) 15)

8/7/1997 ILLC 2Q 29.13 48 2935 913 1787 17 -- -- -- -- -- -- --
10/17/1997 ILLC 3Q 43.25 84 3190 1015 1754 22 -- -- -- -- -- -- --
1/22/1998 ILLC 4Q 36.5 125.6 3645 1327 1634 44 35 100 47M 10 9 1 --
4/17/1998 ILLC 1Q 59.93 203.5 3628 1340 1437 62 47 180 51M 12 11 12 4
7/14/1998 ILLC 2Q 59.06 244.7 3529 1701 1195 72 86 195 87M 12 12 14 10
10/28/1998 ILLC 3Q 44.18 364.3 3565 1715 834 79 120 270 105M 12 12 14 14

Net Call
Stock Loss Equit Revenue License Completio Droppe
Date Source Qtr Price (M's) Asset Debt y (M's) s SP's Sub’s n d Calls

11/1/1998 CI 85 12
1/25/1999 ILLC 4Q 34.62 440 3738 1729 477 0.186 140 300 3000 90 6
4/26/1999 ILLC 1Q 16.38 505 3720 1743 214 1.451 -- -- 10294 -- --
8/13/1999 ILLC -- 3.06 -- -- -- -- -- -- -- 20000 -- --

*Service Providers (SP's) offered Iridium Satellite services Iridium Roaming services or a combination, Roaming Partners (RP's) offered Iridium World Roaming only.
** POP's were the estimated number of existing Cellular Network Operator subscribers covered through the SP or RP agreements

Source: Case writer analysis based on Iridium, LLC quarterly 10k filings

22


Exhibit VIII: Iridium System Overview

Source: Iridium University Presentation, Iridium, LLC (8/97)

23

Bibliography
Arild Flystveit, A. J. (1998, February). Global Mobile Personal Communications by
Satellite. Telektronikk , pp. 22-33.
Dolan, R. (1992). Concept Testing. Boston: Harvard Business School.
Dolan, R. (2000). Note on Marketing Strategy. Boston: Harvard Business School.
Iridium World Communications LTD. (1997, March 14). Form S-1. Registration
Statement Under the Securities Act of 1933 . Washington, DC: Securities and
Exchange Commission.
Jan Janssen, R. W.-M. (1999). Maximum Delay Bounds for Voice Transport over
Internet Protocol. IEEE Proceedings of the International Workshop on Satellite-Based
Information Services (pp. 48-55). Rio de Janeiro: IEEE.
Mahajan, J. (1992). The Overconfidence Effect in Marketing Management Predictions.
Journal of Marketing Research , 329-342.
Nelsen, R. A. (1998, September). Iridium: From Concept to Reality. Via Satellite , pp.
1-8.
Petrakis, H. M. (1965). The Founders Touch. New York: McGraw Hill.
Schultz, R. (2001). The Role of Ego in Product Failure. working paper: University of
Iowa.

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