[2/19/07 edition] Iridium Satellite will spend more than $2 billion to build and deploy its second-generation satellite constellation, dubbed Iridium Next, the company announced Feb. 15.

Plans call for the 66-satellite system to be rolled out incrementally in order to ensure a smooth transition from the current constellation: In 2007 and 2008, Iridium will focus on identifying customer and system requirements, developing the architecture and selecting development and deployment partners.

"Independent studies confirm our expectation that the Iridium constellation will be fully operational into the next decade," Matt Desch, Iridium chairman and CEO, said in a statement. "We are acting now to ensure a smooth transition to next. We are making major infrastructure investments and we are inviting potential partners to work with us on this breakthrough program."

A portion of the cost will be funded through cash flow, which is about $60 million per year, and the remainder from capital markets and strategic partners, Iridium said.

The company finished 2006 with 175,000 subscribers, a 23 percent increase over the end of 2005, Iridium announced. It reported revenue of $212.4 million for the year, and earnings before the interest, taxes, depreciation and amortization (EBITDA) of $53.9 milllion.

"2006 was an exceptional year for the company by all the important metrics [of] subscribers, revenue and EBITDA," Desch said. "Iridium has now been profitable for two years, which bears witness to our successful operatingstrategy. … With the company generating significant and growing EBITDA and cash flow, we are in an excellent position to both self-fund much of the new network development, as well as to access the capital and debt markets for the remainder."

"We started to look into launching the next-generation constellation about a year ago," including design aspects and likely tenants, said Liz DeCastro, an Iridium spokeswoman. "We obviously can’t just turn off the old [constellation] and start the new one, but starting in the 2010 time frame, a global, IP-based constellation will offer new services easily added in – for example, calls that don’t need to hit ground-based infrastructure, etc."

Iridium considers the unveiling of its satellite plans "almost as a call-for-partners announcement," DeCastro said. "We anticipate many more discussions from companies who wish to participate in bringing this to fruition."

The initial phase of the project is expected to run for up two years, with manufacturing and development phases to continue throughout 2008 and 2009. The first satellites will be placed into orbit around 2010, and the 66-satellite constellation is tentatively slated to be operational by 2016 "depending on tons of factors," DeCastro said.

"We’ve had a couple of independent studies saying that [Iridium’s current constellation] will be operational until 2014," she said. "But our plan is to deal with any degradation that occurs meanwhile, and get them replaced before any noticeable difference in service."

Meanwhile, she added, "we’ll be speaking to customers to find out what their needs are and will be finding ways to accommodate."

Iridium already is enhancing its current constellation with initiatives to offer higher speed services, along with new opportunities for data services and embedded systems. In addition to network equipment sustainment and system upgrades, Iridium has been investing in infrastructure — including new ground stations in Fairbanks, AK. and Svalbard, Norway — to add features and to build in redundancy.

Ultimately a one-for-one replacement plan calls for all of Iridium’s 66 satellites currently in orbit to be replaced by new ones while seamlessly continuing total worldwide coverage.

Among the questions dearest to investors may be the extent to which Iridium opts to expand data capabilities, particularly in light of recent risks to low Earth orbit (LEO) competitors. Earlier this month, degraded performance from Globalstar’s constellation of satellites led the company to warn its customers that they may lose two-way voice and data service as early as next year.

"In contrast to the system performance recently announced by other mobile satellite services providers, Iridium continues to operate the strongest, most robust low Earth orbiting network in the world well into the future," Iridium said in its Feb. 14 financial release.

"Globalstar started with more ability to move data, [while] Iridium has been resistant to getting broader band (not to be confused with broadband) because they saw that as getting into unnecessary competition, said Max Engel, an analyst with Frost & Sullivan. As a result, "You can talk to Iridium anywhere. Their orbital constellation provides better coverage. They’ve always had the best coverage of any satellite, [geostationary] or LEO. Their business plan has been you can talk anywhere, if not necessarily move a lot of data. But that’s changing. To what extent will they try to move more?"

Through Iridium Next, the company plans to offer a flexible range services — from high-bandwidth data to voice and short messaging services — to enable new applications for its commercial and government users. By featuring an IP-based architecture, Iridium hopes to leverage broad-based technology enhancements from the industry, enable customers to integrate applications efficiently, and ensure upgrading flexibility. Iridium Next will be engineered both to support communications with other space-based assets and maintain the company’s satellite cross-linked architecture.

DeCastro hinted that while plenty of discussion is yet to be had, some direction will be provided by Iridium’s existing partners.

DeCastro would not provide any specifics on potential partnerships. "We’re not announcing any specific partners yet," she said. "Anyone involved in satellite design or the expansion of services — those are the types of folks we’re interested in speaking to."

On Feb. 9, Iridium Satellite appointed eight new value-added partners offering Iridium-based products and services for remote asset management and other machine-to-machine data applications. Resellers among them include GeoTrac International, Implicit Solutions, IonEarth, Premier GPS and ROM Communications. New developers include BriarTek, CosComm International and SatTrans.

"All of these companies are actively involved in the emerging [machine-to-machine] sector," Greg Ewert, executive vice president of Iridium, said in the announcement. "This is an important growth market for Iridium, and our service partners are spearheading the development of new packages."