Satellite telephony provider Iridium declared Chapter 11 bankruptcy on Friday, culminating its struggle to recover from marketing and distribution mistakes dating from last year's service launch.
The company is not ending operations, but rather seeking a court-approved workout plan. Chief investor Motorola said it thinks Iridium can come up with a bankruptcy restructuring plan within 30 days.
Under Chapter 11, companies are allowed to keep operating under court protection from creditors. But if the court does not quickly approve a workout plan, the venture could fail altogether.
Iridium, which provides global calling and paging over a single handset, defaulted on its bank loans on Thursday, virtually forcing the bankruptcy action.
As of last week, Iridium is still selling service -- recently repriced down to $US1.50 to $3 per minute. But the company has not released new sales figures since reporting earlier in the year that it had barely 10,000 subscribers. Expansion plans, such as making the service available through Sprint PCS, have not materialised.
The company's new management, installed two months ago, said it would focus more on the same kinds of vertical markets that have traditionally used satellite services, such as the energy industry, maritime interests, and the like.
One of Iridium's mistakes appeared to be marketing the service indiscriminately, using glossy ads that emphasised everything but the actual service details. Prospects then complained that even when they called into Iridium's call centre or browsed its Web site, they could not get basic pricing or service information. Several of Iridium's original seven distributors did not follow up sales leads, especially when one of the two handset makers suffered manufacturing delays.
In addition, cellular phone prices have dropped dramatically since the Iridium system was designed in the late 1980s, making Iridium's original $3 to $7 airtime price range uncompetitive. Other new satellite systems -- using dozens or even hundreds of satellites in low-earth orbit to gain global coverage -- are still planning to roll out during the next three years to provide calling, paging, and internet access at possibly more competitive prices.
Meanwhile, Iridium South Pacific is assuring existing and potential customers in Australia, New Zealand and the South Pacific that "it will be business as usual".
According to Carlton Jennings, CEO of Iridium South Pacific, Iridium South Pacific is an independent Australian telecommuncations carrier majority owned by DDI Coporation and Kyocera Corporation and operates as a separate entity to Iridium LLC.
"While we are confident that Iridium LLC wil successfully restructure in the US, in reality it has no operational impact on Iridium South Pacific," he said.