OPIM 5894 Advanced Project management
Iridium LLC
Team 3
• Richard Buskey
• Jonathan Weiss
• Daniel Mahzonni
• Prashant Mishra
• Vijay Gadigeppa
• Jonathan Koenig
Iridium LLC
• What caused iridium to fail: was it a bad strategy, bad execution or bad
luck?
– Bad Strategy
• Marketing and Sales mistakes
• Overpriced phones: $ 3,000
• Prices: $3.00 - $7.50 per call
• Mixed predictions regarding the mobile satellite market
– Leslie Taylor Associates predicted a user base of 7 mill. subscribers
and revenues of $8 – 20 bill. by 2003
– Forrester Research predicted that the global satellite market would
be as much as $36 bill. by 2005.
• Very ambitious project
– Iridium had signed 256 operating agreements with local providers in
over 100 countries by July 1999. The company still had to negotiate
agreements with another 140 countries and territories.
Iridium LLC
• What caused iridium to fail: was it a bad strategy, bad execution or bad
luck?
– Bad Strategy (Contd.)
• Project Financing
– Iridium LLC was a spin-off from Motorola
– Assumption: Once project complete, would resemble a utility
company with high margins and steady cash flows
– Not planned adequately for the entire project; no contingency plan
– Need based financing vs requirements based financing
Iridium LLC
• What caused iridium to fail: was it a bad strategy, bad execution or bad
luck?
– Bad Execution
• It failed to answer over 1 mill. sales inquires due to internal confusion and
experienced logistical problems trying to distribute phones
• In March 1999, it was unable to fill 15,000 orders for satellite phones
because the manufacturer could not ramp up production fast enough.
• Iridium announced that it had only 7,188 satellite subscribers, 10,294
total service subscribers and cumulative cash revenues of $195,000 as of
March 31 [Expected: 27,000 subscribers, 52,000 total service subscribers
and $4 mill. of cash revenues]
• Non-aesthetic hand-sets
• Advertising: Spent $180 mill. campaign
Iridium LLC
• Why did Motorola finance Iridium with project debt rather than
corporate debt?
– Liability: Motorola not liable/responsible for project debt
– Lenders only have access to Iridium’s cash flows; in turn safe-guarding
Motorola’s books
– To take advantage of government sponsorship
– Risk concentration: Could not use corporate debt because of the narrow
scope; single source of revenue
– The company was looked at being a potential cash cow; retain the control and
decision making within the company
Iridium LLC
• What lessons regarding large, greenfield projects do you draw from this
case?
– Test market; Limited roll-out; Focus group
– Better understanding of the competition; over-estimation of the practicality of
the device and usage;
– Wrong target market (should have targeted Dept. of Defense)
– Thorough Market Analysis: Optimistic vs Pessimistic predictions; contingency
plans
– Stakeholders and departments need to be in sync with the project objectives
Iridium LLC
• Recent Update
– Iridium Satellite LLC merged with a special purpose acquisition company
(GHQ) created by the investment bank GreenHill and Co(NYSE: GHL) in
September, 2009 to create Iridium Communications, Inc
– The public company trades on NASDAQ under the symbol "IRDM“
– The company has approximately 447,000 subscribers as of the end of March,
2011 (compared to 320,000 in December, 2008)
– Revenue for the full year 2010 was US $348.2 million with Operational EBITDA
of US $158.9 million.
– Extensively used by the US Dept of Defense through the DoD gateway in
Hawaii..The DoD made up 23% of Iridium's revenues in 2010