OVERCOMING widespread skepticism, Motorola Inc. has raised enough equity for a bold plan to encircle the earth with satellites, which will enable customers to talk using compact telephones from anywhere on the globe.
Iridium Inc., a company launched in 1990 by the Schaumburg, Ill.-based Motorola, has mustered start-up capital totaling $1.57 billion by rallying an eclectic consortium of around 15 or so worldwide companies. The successful equity financing puts Iridium far ahead of rival consortia and enables it now to seek debt financing to round out the $3.37 billion needed for the project.
The effect of wireless, global phone systems will be far-reaching. The pocket-sized mobile phones will facilitate business and promote third-world development. They could also give political dissidents the ability to bypass controls on traditional land-line and cellular phones and other forms of communication imposed by autocratic regimes, telecommunications experts say.
By 1997, Iridium says it plans to launch into low orbit the first of 66 satellites. It says it will begin service in 1998.
The signals from portable Iridium phones will bounce off the company's chain of satellites to other Iridium telephones or to Iridium ground stations. From the ground stations, signals will be shunted to land-lines or cellular phones. The Iridium system will handle all types of phone transmission: voice, facsimile, data, and paging.
Obstacles in the way
Although equity has come more easily than expected, Iridium must still overcome big obstacles. It faces strict regulatory requirements in dozens of countries and logistical challenges in running a galaxy of 66 satellites, the experts say.
``To get licensed to operate in each and every country will be a monumental task,'' says Carol Ferrari Gerbetz, a senior analyst and telecommunications industry specialist at the Yankee Group in Boston.
Iridium consortium members are responsible for securing regulatory approval in their home countries. But these members would not have made multimillion-dollar investments in Iridium had they thought an official go-ahead was unlikely, says John Windolph, an Iridium spokesman.
Even if the company successfully lays the bureaucratic and financial groundwork, it still must complete the arduous task of stringing its fleet of satellites in precise position 420 nautical miles above the earth. ``Launching the initial constellation of satellites and maintaining it over time is very expensive and risky,'' Ms. Gerbetz says.
The company has rallied a broad mix of know-how for its launches. The satellites will ride aboard the Delta 2 rockets of McDonnell Douglas Corporation, the Proton rockets of Russia's Khrunichev Enterprises, and the Long March II rockets of the China Great Wall Industry Corporation.
The Iridium consortium also includes telecommunications and industrial firms from Japan, Thailand, Taiwan, South Korea, Saudi Arabia, Italy, Russia, Germany, Canada, Venezuela, and Brazil. In addition to Motorola, consortium members in the United States include Lockheed Corporation, Raytheon Company, and Sprint Corporation.
By gathering enough capital to get started, the diverse consortium has pulled clearly ahead of its competitors, all of whom are promoting more modest systems. Its nearest rival is Globalstar, a joint venture between US telecommunication companies Qualcomm Inc. and Loral Corporation. Inmarsat, an international consortium originally set up to offer emergency communications to ships, said last month it will try to raise $1 billion for a similar global satellite telephone system.
Iridium seeks to dominate a small but lucrative slice of the burgeoning market for wireless phone transmission. By 2000, the worldwide market is expected to balloon to $60 billion with 150 million customers, according to the US International Trade Commission. Of that, Iridium aims to serve 1 million voice telephone users and 600,000 global pager customers, Mr. Windolph says.
The vast majority of its customers will be international business travelers who would gladly pay an average charge of $3 per minute for the convenience of placing and receiving phone calls anywhere, he says.
But not all Iridium users will wear pinstripes. The satellite phone system also could benefit people in developing nations, Windolph says. Iridium has urged several developing countries to consider installing the company's telephones in solar-powered kiosks in villages neglected by the national, ground-based telephone system, Windolph says.
By relying on satellite phones, the countries could avoid paying the high cost of stringing fiber optic or copper wire telephone lines. Iridium, in turn, would allow the governments of these countries to bill domestic customers and guarantee them a fair share of the revenue, Windolph says.