Iriduim

Case Analysis Iridium
By
James Mitchiner
Brandman Univeristy
BUS 620

I Introduction
The purpose of this work is to determine the objective and analyze the business relationship between Motorola and Iridium. Iridium in 1990 partnered with Motorola to build satellite communication. The intent was to provide communication for anyone and anywhere in the world. The lack of attention and financial commitments allowed for Iridium and Motorola to ignore the trends in the industry and continually push their agenda. The analyses will provide an understating on how Iridium and Motorola recruited companies, set pricing and researched market competiveness
II Analysis
In the summer of 1990, Motorola was determined to be a leader and innovator in the mobile network industry. Motorola announced they intended to build a satellite network that provided voice, fax, message and data communications to everywhere on the planet. Motorola invested five billion dollars with the intention on having a network of satellites that could cover every area of the earth. Motorola planned to offset cost by primarily focusing on selling the satellite equipment. Motorola then decided to partner with nineteen telecom and industrial companies from all over the world. Partners included Lockheed Martin, Raytheon, Sprint, Great Wall Industry Corp of China, Russia’s Khrunichev Enterprise, and BCE Mobile of Canada (NYU 2002). Before the product was released there was discontent with the size of the phone and the suitcase that was needed for use. Furthermore the satellite service only worked when there was a clear path to the satellite. In November 1998, Vice President Al Gore made the first Iridium call, to Iridium CEO Edward Staiano. Several analysts rated the stock highly, including CSFB (Buy, December 1998) and Lehman (Buy, March and July 1999). By the summer of 1999, however, the customer base had grown to only 55,000, which was not enough to cover the interest costs on Iridium’s debt (NYU 2002). Iridium eventually filed for bankruptcy protection and currently owes five billion dollars to Motorola. The quick rise and fall leaves questions to be answered: Why would Motorola buy into a partnership then release their own product? What was cost benefit of the 19 investment companies? Where was the research that showed profit and cost of service ratios?
Motorola’s business plan with Iridium was not clear and with a $400 million dollar commitment there was no plan to not support the business model that was in effect. By the time the (Iridium) system began commercial service, Motorola had developed a dual-mode phone that provided both land based cellular and satellite phone service. It was larger than a standard cell phone, but smaller than the “brick” described in the 1990 announcement. Moreover, the phones were substantially smaller than the “suitcases” used in other satellite-only services (NYU 2002). Motorola created their dual mode phone in reaction to the ever-growing GSM network that had successfully operated in Europe. Commercial GSM service began in 1991 and by 1993, there were 36 GSM networks in 22 countries, with 25 additional countries having already selected or considering GSM. This would eventually grow to more than 200 GSM networks in 110 countries. By the beginning of 1994 there were 1.3 million GSM subscribers worldwide; by February 1999 the number was 150 million. Including all cellular subscribers (analog and digital), there were more than 480 million subscribers worldwide by January 2000 (Inkpen 200). The rapid numbers indicate that Motorola had no choice but to create a dual mode phone in order to stay one of the leading companies in technology.
On the surface Iridium did not disclose the technology advances in the industry and persisted that demand for the company’s product would continue to grow. To defray the cost of building the system and provide complementary expertise, it set up a consortium of 19 telecom and industrial companies from all parts of the world (NYU 2002). In exchange for investments of $3.7 billion, the partners received equity and seats on Iridium LLC’s board of directors. In 1998, 27 of the 285 directors on Iridium’s board were either Iridium employees or directly appointed by Iridium’s partners. Iridium’s partners would ultimately control marketing, pricing, and distribution when the service came on line. Iridium’s revenues came from wholesale rates for its phone service (Finklestein 200). For Motorola the investment partners could have control of pricing in exchange for Motorola making the majority of revenue from satellite service being used. That contract (Motorola’s $50 million a month agreement with Iridium to provide operational satellite support) is absurdly lucrative for Motorola (Inkpen 2000).
Pricing and demand are very important factors when gathering analysis for a business plan. Iridium decided to wholesale minutes and the minutes where resold by local companies. Motorola forecast a price of about $50 a month for service plus usage fees of $3 a minute. By the time the service began commercial operation in 1998, the price of world service for a US customer had risen to $70 a month and $4-8 a minute (NYU 2002). Because it took nine years from the time of announcement, technology began to change very drastically in the phone sector and Iridium refused to adjust to their business plan. The cost of their service was unreasonable and combined with the service the price did not match. The Iridium phone could not be used in the open and due to the GSM network; there was not many places that a cell phone could not reach.
III Conclusion
Motorola learned many valuable lessons after Iridium filed for bankruptcy protection just nine months after coming on the market. One of the biggest lessons for Motorola is the cost benefit of entering into long term projects. In the beginning Motorola would have been on the cutting edge of technology, however after nine years the competition caught up and in some cases surpassed Motorola. Upon the release further analysis was needed to understand if the pricing for the product could sustain and become competitive within the industry. Lastly, the commitment to investors has to equal profit; Motorola used their brand name and past success as leverage to obtain partnerships without fully detailing their investor’s about the technology trends that were taking place in the satellite/cellphone industry.

References
NYU STERN (2002) Iridium. Films and Markets Mini Case
Inkpen, A., Martin, M., Pacheco, I. (2000) The Rise and Fall of Iridium. http://edbodmer.wikispaces.com/file/view/Rise+and+Fall+of+Iridium.pdf Retrieved July 27, 2013
Finkelstein, S., Sanford, S. (2000) Learning From Corporate Mistakes: The Rise and Fall Of Iridium. http://www.rentcell.com/Iridium.pdf Retrieved July 27, 2013

References: NYU STERN (2002) Iridium. Films and Markets Mini Case Inkpen, A., Martin, M., Pacheco, I. (2000) The Rise and Fall of Iridium. http://edbodmer.wikispaces.com/file/view/Rise+and+Fall+of+Iridium.pdf Retrieved July 27, 2013 Finkelstein, S., Sanford, S. (2000) Learning From Corporate Mistakes: The Rise and Fall Of Iridium. http://www.rentcell.com/Iridium.pdf Retrieved July 27, 2013