ECON101: Principles of Microeconomics (2021.A.01)

The 66 satellites were poised to start falling from the sky. The hope was that the pieces would burn to bits on their way down through the atmosphere, but there was the chance that a building or a person would take a direct hit.

The satellites were the primary communication devices of Iridium's satellite phone system. Begun in 1998 as the first truly global satellite system for mobile phones - providing communications across deserts, in the middle of oceans, and at the poles - Iridium expected five million subscribers to pay $7 a minute to talk on $3,000 handsets. In the climate of the late 1990s, users opted for cheaper, though less secure and less comprehensive, cell phones. By the end of the decade, Iridium had declared bankruptcy, shut down operations, and was just waiting for the satellites to start plunging from their orbits around 2007.

The only offer for Iridium's $5 billion system came from an ex-CEO of a nuclear reactor business, Dan Colussy, and it was for a measly $25 million. "It's like picking up a $150,000 Porsche 911 for $750," wrote USA Today reporter, Kevin Maney.

The purchase turned into a bonanza. In the wake of September 11, 2001, and then the wars in Afghanistan and Iraq, demand for secure communications in remote locations skyrocketed. New customers included the U.S. and British militaries, as well as reporters in Iraq, who, when traveling with the military have been barred from using less secure systems that are easier to track. The nonprofit organization Operation Call Home has bought time to allow members of the 81st Armor Brigade of the Washington National Guard to communicate with their families at home. Airlines and shipping lines have also signed up.

As the new Iridium became unburdened from the debt of the old one and technology improved, the lower fixed and variable costs have contributed to Iridium’s revival, but clearly a critical element in the turnaround has been increased demand. The launching of an additional seven spare satellites and other tinkering have extended the life of the system to at least 2014. The firm was temporarily shut down but, with its new owners and new demand for its services, has come roaring back.

Why did Colussy buy Iridium? A top executive in the new firm said that Colussy just found the elimination of the satellites a terrible waste. Perhaps he had some niche uses in mind, as even before September 11, 2001, he had begun to enroll some new customers, such as the Colombian national police, who no doubt found the system useful in the fighting drug lords. But it was in the aftermath of 9/11 that its subscriber list really began to grow and its re-opening was deemed a stroke of genius. Today Iridium's customers include ships at sea (which account for about half of its business), airlines, military uses, and a variety of commercial and humanitarian applications.