One of the tales of modern business history is the satellite phone business. Just shortly before the dotcom boom gained full steam billions of dollars had been invested into high risk projects to conquer a market that never really existed.

The pitch was impressive - enabling the globally traveling elite with instant global communication via voice and data. Alas the most projections were made before global GSM and CDMA roll-outs had been planned. Between 1993 and 2000 the world had seen an unprecedented growth in mobile coverage especially surprising in countries that were not supposed to have modern technology at all (parts of Africa and Asia). Many GSM providers got funding and realized that a network infrastructure can be done relatively cheap even in infrastructure unfriendly countries (i.e. sub-Saharan Africa)

But the satellite phone business had moved in a direction it couldn't change anymore. I found the area so interesting I took a deeper look on the dominant players in this industry and tried to identify some lessons learned.

Iridium - the symbol of the whole industry had an especially bad timing and despite more than US$ 3 billion investments never made more than some millions in revenue.

"Iridium was the first of several planned global satellite-communications networks. The system relied on a network of 66 satellites in low-earth orbit (240 miles high) to provide phone and other high-speed communications services. Iridium's business model was based on the assumption that traveling consumers of communication services, want "to be in touch" everywhere in the world. To fulfill this need, Iridium developed a telephone that travelers can take with them to make calls through satellites from any spot in the world. However most of the potential clients to such services, travel to places where they can make telephone calls to any place in the world through local telephone companies. Most travelers also stay in places where they can be reached by telephone through local telephone companies. In addition to these methods of "being in touch", nowadays travelers can take with them a cellular telephone and be reached through it. Thus the basic need of most potential consumers "to be in touch", can be fulfilled by more convenient and cheaper methods. Even highly paid traveling executives will be reluctant to spend thousands of dollars for an Iridium telephone and pay 3-7 dollars per minute, when they can "be in touch" for much less and more conveniently. The problem that Iridium is facing now is not that of a failed technology, but of a bad business concept: What is the value of Iridium's services to potential consumers, and are there enough of them to make Iridium a viable business?"

Financially it was a hardly disaster hardly seen before:

"Iridium has borrowed approximately US$3.02 billion as of March 1, 1999, and expects to borrow a substantial amount of additional funds. Iridium is not currently generating any meaningful revenues to fund its operations or repay its indebtedness..."

"Iridium's 66-satellite network is a time bomb in its financial strategy. Each satellite is designed to work for only about five years. After that, Iridium has to shoot up a whole raft of replacement satellites to keep its system running."

We know how the story ends and how quickly Iridium had to face Chapter 11. But Iridium wasn't alone in the disaster the whole industry was marching into it together:

Orbcomm filed for Chapter 11 on 9/15/2000. It emerged from it years later and found new investors like Astra operating SES Global. You'll find more on Orbcomms fate here.

Globalstar another provider just emerged out of Chapter 11 just some weeks ago and has been acquired by Thermo Capital Partners a Private Equity Group. Thermo now owns 81.25% of a newly-formed Globalstar company in exchange for an investment of $43 million.

"Underlying these [new] initiatives is a new business plan that Globalstar and Thermo have been developing over the past several months, centering on re-aligning the company's resources to bring greater emphasis on addressing customer needs, particularly in the company's key markets such as oil and gas, maritime, defense, and transportation. Furthermore, Globalstar has already recruited new professional staff who will bring new expertise and skills to the company's sales and marketing departments and will be hiring additional professionals to further augment its sales efforts."

ICO - another failed provider is also still under Chapter 11 protection from it's creditors.

But not the whole picture is so gloomy, there are success stories, too. Thuraya - a Dubai based start-up has been entering the market with a similar business model. But Thuraya started with just one cost effective satellite and initially only covered the Arabian peninsula, where many countries still have very low mobile coverage outside of bigger cities. The two wars in the region have done the rest to spread the nicely outfitted Thuraya phones to the masses. The company is now slowly upgrading the network and is seemingly busy counting the cash it earns.

"Thuraya's geo-synchronous satellite provides border-to-border coverage to a footprint area of more than 110 nations. Thuraya's coverage spans Europe, North, Central Africa and large parts of Southern Africa, the Middle East, Central and South Asia."

"Thuraya provides its services in a region that is characterised by its low fixed line and cellular teledensity. Thuraya brings satellite telecommunication down from a luxury item for the affluent, to a modern yet affordable tool within the reach of the average person, whether residing in an advanced urban city or the remotest suburbs of geographically vast countries."

Lessons learned?

• avoid a too long Product Development Cycle
  • between initial planning and full roll-out have been 7-8 years in the case of satellite telephony
  • todays product cycles in electronics tend to be shorter and shorter
• treat corporate money as your own money, even if these are billions - so think twice before spending
• big investments rounds say nothing about the viability of your business, don�t be fooled!
• have a backup business model, if yours is not really taking off (You don't have to tell this anyone besides your wife before.)
• Don't spend all the investment money; leave a good part of the investment in the bank in order to readjust your business model. No excuses that your business model is special and just too expensive, money is easy to burn in a second but it's hard to earn a margin.
• too much competition can simply kill your business - be ready to adjust or move out of business
• Have a vision and if all fails have an idea for your next start-up handy.