Iridium Communications Inc. IRDM has enjoyed a lucrative niche within the Low-Earth Orbit (LEO) satellite internet and communication sector for years, and it has recently made efforts to expand the scope and depth of its offerings. Iridium enjoys some of the benefits of temporary monopolies within its niche, a position coveted by virtually every company in every industry.
Yet, for all its present advantages, Iridium faces the threat of competitive disruption. Iridium’s leaders claim that they have developed a differentiated service with a competitive edge. This claim will soon be put to the test as a host of upstart players have begun to enter the LEO space.
Obviously, the new LEO constellations set to come online in the coming years are not going to eat Iridium’s lunch tomorrow, or even the day after. But anyone thinking about the long-term prospects for the company must acknowledge the very real threat lingering on the horizon.
Big trouble in little Iridium
Iridium was originally conceived in the 1990s. Its developers were convinced that a LEO satellite internet constellation would have wide appeal, especially in the government and corporate sectors, though also among discerning individual consumers.
The Iridium constellation was almost certainly the most ambitious private space venture attempted up to that point, and its satellite engineering proved to be a true technological marvel of the time. Unfortunately, marvelous technology is worth little if it cannot pay the bills.
Iridium’s 66-satellite constellation cost its backers $5 billion to deploy. While the company’s original rosy projections foresaw a relatively rapid recoupment of these outlays, the reality proved far less stellar. In the end, a lack of sufficient paying customers forced the heavily leveraged business into bankruptcy.
But that was just the beginning.
A star is reborn
From the ashes of Chapter 11 rose a new Iridium. Unburdened from its vast debts thanks to the magic of restructuring, Iridium’s new owners were able to revive the constellation, albeit with narrower ambitions.
The key to the new, leaner Iridium’s success was targeting a smaller niche of customers. The simple fact was that ground-linked communications were cheaper than LEO satellite internet and telecommunications, except in rather extreme cases. The low latency provided by LEO satellite internet also has certain advantages to a small set of clients. Ultimately, Iridium found its niche supplying governments, especially the United States Department of Defense, as well as relatively isolated but important infrastructure and resource exploration businesses.
While money is hardly raining down from the heavens onto the heads of Iridium’s investors, the company has clearly established and maintained a stable business.
Upstart world
The number of new players trying to enter the LEO satellite internet sector is almost mind-boggling. OneWeb, a satellite startup, is perhaps the most concrete of Iridium’s competitors to date. It has launched its first operational satellites and has even managed to sell most of its bandwidth to various specialist customers.
SpaceX, the space flight company founded and led by Elon Musk, is another would-be king of LEO satellite internet. The company’s Starlink constellation has been in development for years. Despite recent departures by key engineering staff, SpaceX has still managed to launch dozens of prototypes that Musk says will be fully functional components of the final constellation.
Waiting for Bezos
While Iridium might console itself with the knowledge that OneWeb and SpaceX have a long way to go before they can scrape together the necessary capital to make their lofty dreams a reality, there is another player entering the market that is not nearly so constrained.
In April, Amazon.com Inc. AMZN threw its hat into the LEO internet ring as well, announcing Project Kuiper, a proposed constellation of 3,236 satellites. According to Amazon, the Kuiper constellation will compete for the expanded consumer segment targeted by the other new entrants, especially SpaceX:
“Project Kuiper is a new initiative to launch a constellation of Low Earth Orbit satellites that will provide low-latency, high-speed broadband connectivity to unserved and underserved communities around the world. This is a long-term project that envisions serving tens of millions of people who lack basic access to broadband internet. We look forward to partnering on this initiative with companies that share this common vision.”
Other people’s money
Both OneWeb and SpaceX have extremely ambitious aims, but cost has proven to be a severe constraint to both of these private companies. OneWeb’s per-satellite costs have doubled to $1 million, while Starlink’s 11,000 small satellites could easily cost $10 billion all-in. The capital requirements are truly massive, but this has failed to deter either company.
Yet, while OneWeb and SpaceX have a lot of ambition, the question of how they will be able to fund them has yet to be answered satisfactorily. Amazon, on the other hand, is flush with cash and could easily eat a few billions dollars worth of development and launch costs. CEO Jeff Bezos is clearly passionate about space, having invested billions from his personal fortune into his own space launch startup, Blue Origin.
Amazon definitely has the resources, and probably has the will, to make a serious play for the LEO crown. That should worry Iridium.
Verdict
While a bunch of hungry players clearly want to eat Iridium’s lunch, but the venerable satellite internet provider will not be going down without a fierce fight. Iridium has a strong starting advantage, sophisticated technology and excellent relationships with key customers. These will be hard to overcome, even with the likes of Amazon investing heavily in their own alternatives.
We will return to the subject of Iridium in the near future in order to explore how Iridium envisions its business and market position will evolve in the coming years.
Disclosure: No positions.
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