Via Satellite’s Satellite Executive Of The Year, Matt Desch, CEO, Iridium Communications
Iridium Communications CEO Matt Desch continues to build the company into an impressive force on the MSS landscape. After achieving nominee status in 2010 for Via Satellite’s coveted Satellite Executive of the Year, in 2011, Desch has gone one better and won the actual award. Here, he talks about the how all the pieces for Iridium finally came together.
Since taking the reins at Iridium Communications in 2006, CEO Matt Desch has helped transform the Mobile Satellite Service (MSS) operator from a financially shaken mobile phone-focused company on the brink of being de-orbited to a market powerhouse with more than 500,000 subscribers and the fiscal strength to build a second-generation constellation.
Besides leading his company beyond market expectations for revenue, sales and subscriber growth, Desch’s achievements in 2011 included: surpassed financial and technological milestones in its Iridium NEXT constellation project; an appointment by U.S. President Barack Obama to serve on the U.S. National Security Telecommunications Advisory Committee (NSTAC); the launch of the Hosted Payload Alliance (HPA); and the creation of the Iridium Force product and service roll-out initiative, which opened the company’s core technology licensing, produced a new handset and expanded the capabilities of its existing portfolio to attract the attention of a much larger consumer market.
Desch was also nominated for this award in 2010 after a strong year capped by the close of a $1.8 billion financing facility that ensured Iridium NEXT would become a reality. Many analysts and industry watchers called this moment a catalyst for the company, but Desch and Iridium would follow-up this success in 2011 with a series of catalysts that would impact not only its own plans, but the entire industry as well. It is for this wide-reaching impact that Desch has been named Via Satellite’s 2011 Satellite Executive of the Year.
In an interview with Via Satellite, Desch takes us behind-the-scenes of Iridium’s 2011 strategy to provide both lessons learned from the past and a glimpse into the future of mobile satellite communications.
Via Satellite: What would you describe as your most significant achievement in 2011?
Desch: I think Iridium’s most significant achievement is that we demonstrated the robust quality of our growth platform. For several years, we’ve heard about how Iridium’s business would dry up when a low-cost satellite phone arrived on the market. We were very confident in our understanding of the market — that value in remote communications was about ease-of-use, coverage and features. We could have lowered our prices and still made money, but instead, we made a bold move by going up-market. We doubled down on a strategy that we knew to be right with the new Iridium Extreme handset, and as a result, enjoyed another great year of continued growth. Overall, 2011 was also a year of continued innovation, which drove our growth across the board along with our amazing partner ecosystem.
This past year was also the first full year of Iridium NEXT development. We’re currently hundreds of millions of dollars into this exciting program to replace our satellite constellation with 72 new, more powerful satellites between 2015 and 2017. We’re just about complete with all the preliminary design reviews (PDRs) on the program and we’re now moving into a year where we’ll see the critical design review (CDR) process start. That is a very exciting development for us.
Via Satellite: How has the MSS market changed during the last year? How much of a role do you think Iridium plays in shaping this new environment?
Desch: We probably view the MSS market a little differently from others. We see our ability to create a connection everywhere in the world as complementing a broader scheme than just the MSS market. In 2011, we saw a continued blurring of the lines that identify the traditional MSS market. The lines between the MSS and FSS markets are blurring, as well as the lines between the MSS and the terrestrial worlds. I think Inmarsat probably disrupted the market the most in 2011 and I believe that our continued success at the low-end of the broadband market, as well as the success of VSAT players at the high-end, forced them to respond when they saw their business flat-line. They took a very aggressive step in the MSS distribution channel by acquiring and consolidating a greater portion of the channel, while announcing a billion-dollar capital-expenditure plan to try to compete head-to-head in the traditional FSS space. I found it really surprising that they would spend that kind of money for another play in that rapidly commoditizing market. There is certainly growing demand for broadband connections, but with dropping prices and increasing competition, I certainly wouldn’t want to bet our company on it.
Competitors like to say our polar coverage is only good for ‘penguins and polar bears,’ but I think that’s quite naïve.
As far as our response, Inmarsat’s strategy creates a lot of opportunity for us. We’re really moving in the opposite direction, in that our whole strategy has always been to do what we do best and let others do what they do best. We have never been interested in competing with the maritime or aviation distribution channels. So, we are working now with the VSAT industry to integrate our products and provide the market with choice — combined or separate, they can get both the best-in-class, most global, value-based broadband product that, in our case, is ‘pay-by-the-use’ that complements the VSAT industry’s best-in-class broadband ‘all-you-can-eat’ solutions. That approach has broadened our strategic relationships with the FSS industry, and has strengthened our relationships in the maritime and aviation distribution channels. I think it’s a more sustainable, cost-effective strategy, and more customer-friendly as they are able to use the best technologies as they come available, rather than being forced into one company’s broadband vision.
I think this same strategy works for Machine-to-Machine (M2M) as well — we’re a perfect complement to terrestrial based M2M providers, and I expect you’ll see more discussion of that as we work closer with some of the biggest global players on more integrated solutions.
Via Satellite: Iridium consistently outperformed its projections, even in areas such as equipment revenue, where growth was not expected. Did this surprise you?
Desch: While our continued growth across the board may be surprising to others, it’s not that big of a surprise to us. Our compound annual growth rate (CAGR) for both subscribers and operational EBITDA has exceeded 25 percent for the last five years. These statistics have been quite robust, so Iridium turning in another good year in 2011 shouldn’t surprise anyone. Data is an increasingly important part of our business and our non-voice revenue now makes up about 40 percent of our total business. We expect that percentage to keep growing. We clearly under-called equipment revenues in 2011, however, that over-performance didn’t just come in handsets, which in hindsight were probably too conservative in our projections, but it also came in the M2M market. We exceeded our M2M objectives despite the fact that we significantly lowered the cost of our small, new Iridium 9602 data transceiver. That over-performance significantly contributed to our equipment growth.
Via Satellite: How do you continue this pace of expanding growth in other areas when that expansion may pit you against increasing competition?
Desch: We continually work to identify our own natural, sustainable advantages and the ways we can exploit them. Clearly, one sustainable advantage is our unique network of 66 cross-linked satellites. Global coverage is truly a big advantage. The adage in the wireless industry has always been ‘coverage is king’ and that still holds true — Iridium by far is the king of coverage. It’s not just coverage, but also our low-Earth orbit, giving us a size and cost advantage, particularly with antennas, as well as low latency on both voice and data. We also think our growing partner ecosystem is a competitive advantage. We make sure they’re healthy and growing, and they take care of us too.
Competitors like to say our polar coverage is only good for ‘penguins and polar bears,’ but I think that’s quite naïve. Ships, aircraft and all kinds of assets travel all over the world and to be able to go with a supplier that’s able to serve, no matter where the customer may be, is a great advantage. Our network is healthy and we’re confident that it will stay that way through our Iridium NEXT launch in about three years.
Via Satellite: How did you grow your customer base to more than 500,000 subscribers in such a short amount of time? How do you maintain quality of service with such rapid growth?
Desch: When I came to Iridium, we were just passing 150,000 subscribers. I’m certainly proud of the continual growth we’ve had since then. The 500,000-subscriber mark is a nice round number and a milestone, but we can support millions on our network and even more millions after we launch Iridium NEXT. Our quality, on many fronts, has actually improved during the last several years. I get a lot of compliments from our customers on the reliability of our network and how they can depend on our signal anywhere.
Via Satellite: After Iridium NEXT received its financing in 2010, what was the strategy that you carried out in 2011 to build off of last year’s progress?
Desch: Achieving the financial security that comes from a fully-funded business plan with Iridium NEXT was a long process that we started soon after I got here in 2006. I was confident that our unique, fast-growing business, combined with our maturing and cash generating satellite business model, would attract investors even if there were twists and turns along the road, like the global economic downturn we experienced during the process. We knew investors would want to be a part of a business with high operating margins and long-term growth. We went public in 2009 and then secured the complementary $1.8 billion, 15-year financing vehicle in 2010. The development of Iridium NEXT started in mid-2010. Now, we’re 18 months into that program and right on track for an early-2015 launch. In 2012 the design locks down, code starts getting written and the metal starts to bend, so to speak. Long-term parts will start getting procured. We’ll start the CDR cycle in 2012, and as the designs mature, we’ll start building satellites — 81 of them!
Via Satellite: What was the strategy behind the extensive Iridium Force service and product rollout?
Desch: Iridium Force is a five-point strategy. The first is to go beyond satellite phones to deliver personal communication devices that let people use their smartphones, for example, in remote places. The second point is to greatly simplify the way a customer makes a connection, particularly data connections, and making those connections a simple matter of plug-and-play. Third, we want to keep driving innovation by opening up our product interfaces, chipsets and hardware modules to let others innovate around and through us. The fourth point is focused on location awareness. We want to make it easier for users to find themselves on the planet and use that information in valuable new ways.The fifth is that we expect all of our Iridium Force products to perform without compromise and without excuses about satellite positioning, antenna pointing, or lack of satellites. We delivered a number of exciting products under the Iridium Force strategy this past year and we have a lot more ideas in the works.
Via Satellite: As an advocate for satellite on industry-wide concerns, what do you currently see as the most important challenge for satellite to conquer?
Desch: Because capital expenses are often large and time frames are long for satellite projects, I think the internal challenges for the satellite industry lie in the fact that new ideas are often met with skepticism. There are many in the industry who have been around a long time and are sure they know how everything works. They have always done things a certain way. We need to stay open to change. Resistance to change, in my opinion, is a real danger to this industry. The most pressing external challenge for the satellite industry is overcoming the prevalent perception that satellite services are limited, large and expensive. Iridium and other companies in the satellite industry have proven that these perceptions are wrong.
Via Satellite: What does Iridium hope to achieve in 2012?
Desch: The biggest efforts in 2012 will be finalizing our hosted payload plans and, hopefully, doing it in a way that adds a lot of value in our business going forward and that accomplishes an important mission for our customer. We also have a lot of important new products on the way, particularly in the maritime and aviation sectors. We really think we can help change the game in conjunction with our friends in the VSAT market and you’ll see some surprising new alliances come out of that this year. Opening the growing Russian market also is important to us in 2012. We’re hoping to see our solutions enter that market and make as big of an impact on Russian business, safety and security as they’ve made in other parts of the world.
Via Satellite: What do you think the MSS environment will look like at the end of 2012?
Desch: The change in the MSS industry will continue to move slowly. Though some of our competitors continue to struggle, I doubt any will give-up willingly given the potential they see in the global wireless space. Maybe we’ll finally see some resolution to the spectrum side of the industry with LightSquared and/or EchoStar, but who can say? I’m just glad that I’m running a profitable, growing operation that uses its entire spectrum and doesn’t depend on selling or leasing it to others on the ground!
Desch and the Iridium executive management team at the company’s headquarters in McLean, Va. Left to right, Don Thoma, Executive Vice President, Marketing; Thomas Fitzpatrick, CFO; Matt Desch, CEO; Lt. Gen. John Campbell, USAF (Ret.) Executive Vice President, Government Programs; Thomas Hickey, Chief Legal Officer. caption.