Iridium Awarded Defense Contract

The U.S. Department of Defense, Defense Information Systems Agency (DISA), awarded Iridium Satellite LLC, Arnold, Md., a US$72 million contract for 24 months of satellite communications services. This contract will provide unlimited airtime for 20,000 government users over the Iridium satellite network. The Defense Department will pay a fixed rate of US$3 million per month for the service and an additional US$6 million per year to operate its Iridium gateway station in Hawaii. Motorola is expected to subcontract to the new company for its inventory of 15,000 handsets and spare parts. The contract includes options which, if exercised, would bring the cumulative value of this contract to US$252 million and extend the period of performance to December 2007. DISA decided to make only a two-year commitment to the Iridium service to preserve its option to look at comparable services that may materialize in the near future.

The military's existing satellite network consists of eight satellites and has grown to carry 250 percent more calls than it was intended to because demand for the system is so high. This contract will relieve pressure on the military's burdened satellite communications network. According to a Pentagon memo the government had been a customer of the bankrupt Iridium LLC. The U.S. State Department had bought 2,000 Iridium phones because of the satellite network's potential to provide communications for people engaged in diplomatic and humanitarian missions. The Coast Guard, Drug Enforcement Agency and Secret Service also could use Iridium's satellite phone service, and many federal agencies have said they supported keeping Iridium in operation. The Defense Department had previously built a US$200 million gateway in Hawaii for connecting Iridium satellite calls.

Early next year, Iridium will offer a classified capability. Classified service will not only be provided for users already registered to the DoD gateway, but will also be extended to new users from DoD, other federal agencies, and selected allied governments. Although the system currently currently supports only voice communications, plans are to incorporate technical changes that will allow for data exchange within about six months. Iridium Satellite LLC plans to lower the price to civilian subscribers from US$5.00/minute to US$0.80 a minute. The system can handle up to one million subscribers.

The Iridium system consists of 73 satellites — 66 active and seven spares. Iridium Satellite LLC plans to have Boeing launch seven new satellites during the next two years to replace failed ones. Boeing is expected to operate the system at a cost that will be less than 1/5 or 1/6 what Motorola was paying per month. The new company's business plan shows a profit within a year and a requirement of only 60,000 subscribers — at the time of the bankruptcy, there were 41,000 subscribers. Before the bankruptcy, Iridium usage was at 23,000-25,000 minutes a month and rising.

Iridium Satellite LLC is in the process of purchasing the operating assets of Iridium LLC and its existing subsidiaries, pursuant to a Nov. 22, 2000 order of the U.S. Bankruptcy Court for the Southern District of New York. Under the agreement, Iridium Satellite LLC will purchase all of the existing assets of Iridium LLC, including its constellation of low-orbiting satellites and its satellite control network, and will have Boeing operate the system. It must make a US$6.5 million initial payment to take ownership of the satellites. The bankruptcy court's decision to transfer ownership of the defunct company's assets to the new owner was contingent on the Defense Department contract.  

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