It's really quite fascinating to watch infrastructure bubbles, where investors overspend on infrastructure, only to go bankrupt, and have that infrastructure picked up for pennies on the dollar out of bankruptcy and turned into a useful, profitable asset. We've seen it with all the dark fiber investment
in the '90s, and perhaps we're now seeing it with satellite communications as well. Remember Iridium? The huge satellite phone operation spun out of Motorola that was valued at many billions of dollars? It was supposed to replace cellular phones with satellite phones that could work anywhere in the world. Of course, there were a few problems with that plan. First, it was insanely expensive to build out and launch the necessary satellites. Then, the satellite phones themselves were huge, ugly and bulky. Third, it cost a ridiculous amount to actually use the phones. Lastly, and probably most importantly, between the time it took for Motorola to come up with this plan and to actually have something to offer the market, cell towers were spread quite widely around the globe and cellular technology had improved greatly -- basically lessening the need (drastically) for Iridium in the first place.
That caused Iridium to go bankrupt
, and for a while the entire project was almost abandoned completely
with plans in place to destroy
the satellites. At the very last minute, though, a group of investors picked up the entire thing for $25 million
(yes, the entire system, which had cost the original company $3.4 billion to build). Not only that, but part of the $25 million buyout was a $72 million contract with the US government. The new Iridium was a lot more focused. Rather than going after the entire mobile phone market, it really narrowly focused on occupations where such phones would be necessary. However, even then, we've still been skeptical
that the economics could work out. After all, it's still costly to manage those satellites (which have a limited lifespan and need to be replaced) and reports indicated that the new Iridium really had very few
However, the company now claims it's in pretty good shape, with good revenue and EBITDA, and is even talking about trying to go public once again
. I'm sure the roadshow pitch will be quite different than the original Iridium. And, considering the name is still synonymous with one of the biggest failures
in business, it will be interesting to see how investors react. Still, it's yet another example of companies buying up expensive assets for pennies on the dollar after an investment bubble, and turning those assets into something useful. Sometimes it's good to be a scavenger, apparently.