Matt Desch CEO, Iridium
Iridium is one of a number of highly ambitious MSS operators looking to make an impact across a variety of enterprise and commercial markets. Its long-term buzz circles around its ambitious Iridium Next constellation backed by $1.8 billion in ECA Coface credit, which will be at the centerpiece of the operator’s strategy during the next few years. The first Iridium Next satellites are expected to launch in 2015, following a five-year development plan that started in 2010.
Iridium CEO Matt Desch, a 2010 Via Satellite Executive of the Year nominee who was recently appointed to serve on the U.S. National Security Telecommunications Advisory Committee (NSTAC), spoke with Via Satellite about the latest developments for Iridium Next, why the company has increased its handset revenue outlook, MSS opportunities for hosted payloads and what lies ahead for mobile satellite’s most dedicated markets.
Via Satellite: With Iridium one year into its contract with Thales Alena Space for Iridium Next, how is the constellation’s space segment progressing?
Desch: We’re about 20 percent of the way complete toward the first service launch and it’s going very well. I’ve noticed that that when other satellite providers win contracts like this, they will have already lined-up their team and confirmed the subcontracts before they win the initial business so that when the deal is signed, the team building is pretty much done. Thales goes through this process a little differently because of its commercial heritage. They line-up their team and win the business and then go back and start negotiating the final deals with their subcontractors as they go. This way, they have a couple of choices and options in getting that done. At this point, Thales pretty much has the full team assembled. We’re early on in the design phase and we already received some pictures and specs from Thales and we’re moving onto a preliminary design review at the end of this year or early next year.
The space and ground segment together is all part of our two-pronged, $3 billion plan. If you add up all the companies associated with this project, we have about 30 major companies working as sub-contractors that are part of Iridium Next. This is a multi-national, multi-company undertaking. The goal for our ground infrastructure for Next would be that its all in place by early 2014, which supports the current network and gives it about a year of readiness before the service launches.
Via Satellite: Some analysts are projecting a surge in growth for mobile broadband services to emergency first responders. Do you agree with these predictions?
Desch: These projections sound consistent with what I’ve heard in the public safety industry during some recent discussions I’ve been a part of. I can tell you that there is still a lot of interest in broadband for fire and police. They all want the same applications that consumers expect to have on their iPads or whatever devices they may have. These capabilities help first responders do a better job. I think MSS and FSS will play a broad role in delivering these services. I think there will be a desire for higher speeds and support and, from Iridium’s perspective, we’ll be ready to support them with the current products we have and Iridium Next will give us even more capability to do so.
Via Satellite: What role did Iridium play in forming the Hosted Payload Alliance, considering that your executive vice president of marketing, Don Thoma, is chairman of its steering committee?
Desch: We did play a leadership role in putting the Hosted Payload Alliance together. The reason why is because Iridium has a unique, time-limited opportunity in hosted payloads. Most other larger satellite companies launch spacecraft with hosted payloads a few times per year on a regular basis. For them, getting hosted payloads on satellites is an opportunistic, year-by-year kind of activity. We have a huge opportunity, but it’s only for the next couple of years or so. We were operating on our own basis, but felt pretty strongly that this was a long-term opportunity for the whole industry.
Via Satellite: What factors lead you to upgrade your handset revenue forecast early on this year?
Desch: The driver behind the growth has almost solely been our new 9602 transceiver. In the past, we found ourselves being too conservative with 9602 projections, but we’ve seen it develop to the point where its size and price performance have been extremely well received across a wide range of markets. We work so that our customers can say that Iridium is the best option on multiple fronts — coverage, real-time speed and message sizes so you can get more data through in a burst. The only problem that we tend to run into is that our devices are a little bit too expensive. Our goal was to fix that by the time we came out with the 9602.
Via Satellite: Do you think Iridium could eventually capture this same kind of success in the general consumer markets?
Desch: We’re not expecting to see too much consumer development this year, but we’re counting on it in the long-term. The development will come as Iridium moves toward consumer-size devices that could take advantage of the small size of our 9602. I think we’ll have at least six different consumer-like devices come out in the near future that could generate significant volumes themselves. Cost is extremely important to that development. For now, we have more than 100 different partners that are building the 9602 into their solution. We’re seeing a lot of activity in the trucking, mining, transportation, fishing and tracking industries. There are so many different ways the 9602 can be used and we are deploying a lot more units because of it.
Via Satellite: You’ve also stated that lower production costs have helped generate higher handset revenues. How have you cut down costs for handsets on the manufacturing side?
Desch: There’s a misunderstanding out there that we have higher costs than our competitors because we’re priced higher. That is not true. In fact, we probably have the lowest costs of anybody. The reason we price higher is because we can. The phone works in more places and has more value to customers because of its size and its features.
We significantly lowered the cost of production when we made the 9555 handset and we’ve continued to make cost reductions every year since. We even have a number of cost-reduction plans scheduled for implementation in the next year or two. The primary element that will lower your overall costs is the cost of components and we have done a lot of work in the last two to three years to “siliconize” more and more components in our handsets. The work that went on in the 9602 actually paid big benefits into our 9555 handset because we’re able to take that technology and put it into our handset. The same thing happened with our machine-to-machine device. We invested almost $20 million into silconizing the many discrete components of the 9602.
Another cost-cutting factor is that we produce larger volumes of phones. If we’re making 50,000 to 100,000 phones a year, we’re going to get parts at lower prices than competitors making 1,000 to 30,000 phones. We also have worked to lower our conversion costs, which is what your manufacturing company makes in terms of the effort it takes to produce and the amount of automation it has on the process, etc.
Via Satellite: Has the increased competition in the MSS sector also had an effect on your handset pricing?
Desch: Our competition has encouraged us to lower the price of our phones somewhat and we are selling our phones at a lower price this year than we’ve ever sold them before. Our prices in the market, which are still a little higher than others, have come down more than 30 to 40 percent during the past few years. While that was always our plan, we were fortunate enough to reduce costs at the same time. We’re still making considerable margins, but not quite as much as we made four or five years ago.