Matt Dash, CEO of Iridium Communications / M. Stulov / Vedomosti

1980

AT&T Bell Labs/AT&T Network Systems employee

1987

held management positions at Nortel Networks

1995

President of Wireless Networks, Nortel Networks

2002

CEO of Telcordia Technologies

2006

CEO of Iridium Communications Inc.

2011

Member of the National Telecommunications Security Committee

How much does it cost to talk via satellite

Iridium Communications produces mobile and landline satellite communications, telephones and modems, WiFi transmitters for installation on ships, aircraft and land transport. The company's devices and services are intended for the military, rescue services, aviation, government agencies, sea and land transport, as well as for travelers and explorers. The company offers nine models of satellite phones, three types of WiFi solutions, 16 models of satellite modems and transmitters, 19 models of docking stations, 20 models of data terminals and accessories for these devices, voice, broadband communication services, data transmission. The cost of communication services varies greatly depending on the tariff: for example, with a minimum subscription fee of $25 per month, a minute of conversation will cost $4.5, SMS in all tariffs costs $0.6, all incoming are free.

How the connection was strengthened

1998 Motorola launched the Iridium satellite communications service and spun it off into a separate company. The satellite phone was heavy due to its high energy consumption and large batteries, did not fit in a pocket, did not receive a signal indoors or while moving, and cost $3,000, with a minute of communication costing $5. Having failed to meet consumer expectations, the company gained only 10,000 subscribers against the projected 500,000. Nine months after the launch, Iridium, which owed creditors $1.59 billion, went bankrupt. In 2000, a group of investors bought the assets of the bankrupt company, worth about $6 billion, including 66 satellites, for $25 million and formed a new company, Iridium Satellite. The company was reoriented to providing satellite communications services for government agencies and businesses. In 2001, the company announced the launch of a data transmission service - Internet access and voice communications. In 2002, seven additional satellites were launched to serve as backups. In 2004, Iridium Satellite reached 100,000 subscribers and turned a positive EBITDA. That same year, the company launched a small, lightweight satellite phone. In 2008, the company announced a merger with GHL Acquisition Corp., and in 2009, it completed the merger and went public under the new name Iridium Communications Inc. Iridium has 66 satellites. According to the company, it owns the largest network of commercial communications satellites. Sources: company data, The Wall Street Journal, Time

Iridium Communications

mobile satellite communications operator. The largest shareholder is Abdulrahman Khalid (16.8%), the company's management owns 5.3%, and 74% is in free float. Capitalization is $540.8 million. Financial indicators (2012): revenue - $383.5 million, net profit - $62.9 million. It produces specialized devices and equipment for both individuals and for government and law enforcement agencies, including the US Department of Defense.

The history of the satellite telephony operator Iridium has seen both ups and downs: the project, which went bankrupt almost at the start, has now turned into a very profitable business by the standards of the telecommunications industry. Iridium failed to become a competitor to cellular operators, but its services are in steady demand among high-income consumers, for whom mobile communications are often vital. Iridium recently announced the start of official operations in Russia - its CEO Matt Dash told Vedomosti about the company's plans for the Russian and global markets.

- When you came to the company, before it went public, what state was it in? Was it in ruins after bankruptcy?

– I joined Iridium seven years ago. By that time, the company had been operating on the market for six years, but it was much smaller than it is now. We had only 150,000 subscribers, today their number exceeds 600,000 worldwide – the subscriber base has grown more than 4 times. When I joined Iridium, EBITDA was about $50 million per year, now it is more than $200 million.

Seven years ago, I saw a huge growth potential for Iridium. Fortunately, at that time, the company had a fully operational satellite constellation that could serve subscribers for another 10 years. My main task was to replace the satellite constellation with a new one. We have raised enough funding to build a next-generation satellite constellation, and we are looking forward to launching it within the next two years. We call this project Iridium Next.

– During your management of the company, the subscriber base increased fourfold. How did you manage to achieve this?

– There are four factors that contribute to our growth. The first is that we have developed new, more convenient and cost-effective devices that end users really like. The second is that we have entered new markets, such as the rapidly developing M2M market (machine-to-machine – services that allow, in particular, remote tracking of the location of transport. – Vedomosti). The third is that we have expanded the geography of our presence – we have discovered, for example, Mexico and Brazil. Of course, opening a service in Russia is very important for us. Our immediate plans include entering India and China. Previously, although our network covers the entire planet, we simply could not provide services in these countries for legal reasons. The fourth factor is the creation of specialized solutions for fisheries, aviation, transport tracking, etc. This became possible due to the emergence of new regulatory requirements at the government level, which made the use of satellite communications necessary for these industries.

– Can you clarify whose demands these are?

– For example, in Russia, a system for tracking vessels is being created to ensure that seafood is harvested in permitted areas. There are some requirements for tracking drivers of motor vehicles to improve the efficiency and safety of transportation. In the case of aviation, satellite communications allow pilots to stay in touch during long-haul flights.

– Are there any factors in the global economy that are driving demand for satellite telephony?

– Firstly, of course, the desire of people to be mobile and stay in touch in any situation. Secondly, naturally, the development of the Internet. Today, people want to be accessible not only when they are at home or in the office. Until now, only 10% of the Earth’s surface is provided with wireless communication, which is based on terrestrial infrastructure. Russia is a very attractive market for us, since less than 20% of its entire territory is covered by “terrestrial” mobile communication. According to our information, about 25% of the population of Russia lives outside the coverage area of cellular networks. We do not seek to replace them, we simply want to support people, as well as any vehicles and industries that are outside their coverage area. Now that we have received a license and all the necessary permits in Russia, we are the only satellite operator that covers its entire territory without any restrictions. Thanks to this, we can provide voice communication services here, as well as Internet access.

- On the one hand, Russia is now increasing its presence in the Arctic, on the other hand, Russia has universal social services, the losses from which are compensated by the state from a special fund. Is there already some kind of state order for Iridium services? Are there any negotiations with the Russian authorities?

- Our distribution partners are working in this direction. We are currently participating in more than 30 tenders. We are the only company that provides an effective solution that allows for communication in the Arctic regions. Our competitors do not have coverage in this territory.

– How strong is the competition in the satellite telephony market in Russia and in the world? What is your competitive advantage?

– In fact, there are not many companies with which we really compete, only two or three. And they use completely different technologies and business models. Our main competitive advantage is that our satellites fly very close to the Earth’s surface, at an altitude of only about 700 km. Only in our company are the satellites linked to each other in space and transmit information within their own network. Therefore, the antennas in end-user mobile phones are smaller than those of our competitors, and the devices themselves are cheaper. Plus, we have a shorter signal delay, the devices work faster, since the distance to the satellites is shorter. Compared to our competitors, our connection is not the fastest yet, but after the launch of the new satellite group, the situation will change. We compete with some companies, in particular with Inmarsat, but our technological approach and business model are fundamentally different. We do not see ourselves as competitors to traditional means of communication and high-speed Internet access and data transmission operators. We see ourselves as a company that complements them. Unlike the "original" Iridium, we do not seek to compete with mobile operators, but can expand their capabilities. For example, to enable smartphones to work anywhere, and not just in the coverage area of cellular networks.

– Are you saying that one day there will be a satellite phone that can be compared in functionality to the iPhone or Samsung Galaxy?

– Not exactly, we don’t want to make a satellite iPhone, we want to enable the iPhone and other smartphones to work anywhere. Our goal is to create a satellite device that will allow you to use your smartphone as the only means of communication, wherever you are. We already have solutions that allow you to send SMS and email messages, and we want to do the same for voice communications. This does not mean that satellite phones will disappear completely, since there is demand for them from fire departments, police, the Ministry of Emergency Situations and other such services. These people are not yet ready to use smartphones as the only means of communication, especially when it comes to military affairs or ensuring security. People working in difficult conditions find it more convenient to use satellite phones.

– Still, satellite telephony is still quite expensive for the mass user. Are there any solutions to reduce tariffs?

– I wouldn’t say that satellite telephony is that expensive. For example, it is more profitable and cheaper compared to roaming services in traditional cellular networks. And, for example, using satellite communications for telematics (transmitting information about the location of an object), a subscriber spends 200–300 rubles per month.

Iridium does not see itself as a mass mobile operator, targeting a broad market, like, for example, cellular operators. We want to focus on the market that needs communication services outside the coverage areas of traditional networks. In talking with some customers, I realized that our services were cheaper than they expected, especially in case of emergency situations. Then our services are needed as a backup means of communication.

– As far as I know, there are quite a lot of people in Russia who use your phones illegally, having bought them abroad. How problematic is this for your Russian division and how do you intend to solve this problem?

- Our services in Russia are absolutely legal. What you call the grey market is now in the legal field. More and more subscribers from this market are registering in the network and legalizing. About 1000 subscribers are registered weekly. We expect that within a few months there will be no grey market left in Russia. Eventually, when we build our gateway in Russia, all traffic will be white, there will be no technical possibility for illegal use of services, since everything will go through it. Now we are using an interim solution, but we are making every effort to build the gateway as soon as possible.

- What are your plans for business development in Russia? How many people do you plan to involve in the next year or two?

– I would not like to make specific forecasts, but if you look at the global market, on average, the number of Iridium subscribers grows by 15-20% per year. In Russia, of course, we expect higher figures – there is a huge demand for our services in Russia. We see huge potential in connecting trucks, in supplying equipment for oil and gas metering, and in other telematics markets.

– What is the average monthly revenue per unit (ARPU) of Iridium subscribers?

– It depends very much on the service – it can be from $15 for M2M services to $300-400 for broadband access on ships. A commercial aircraft can generate $500-1000.

– Based on the results of 2012, you have a very high EBITDA margin – about 50%. How can you explain this?

– In the satellite industry, EBITDA profitability reaches 70–80% – this is the case with those satellite operators that have already grown, have been operating stably and for a long time. By 2015, we want to have a profitability of 60%. Updating a satellite constellation every 15–20 years requires very large capital investments, but in the intervals between upgrades they are small, and additional costs for attracting new subscribers are very small. That is, there is no reason why we should not achieve a profitability of 80%.

- Your net debt/EBITDA ratio is about 2. Compared to Russian mobile operators, 2 is already considered too much. Is this an acceptable level for you?

– You know, for a growing communications company, this is not so much. Now the indicator is 2, but it will reach its maximum by 2015 and will be about 5. But even this indicator is not as big for the industry as it seems. After 2017, when we completely update our satellite constellation, it will begin to decrease rapidly. Unlike mobile operators, we do not spend large amounts of money on infrastructure every year, we will not have such capital expenditures in the next 15 years. Now you see us halfway, but after some time, when we complete the constellation, you will be surprised by the attractiveness of our indicators.

– The share of income from equipment sales is falling in your growing revenue. What is the reason for this?

- In the last two years, the revenue from equipment has been more or less stable in absolute terms. We sell more than 150,000 different devices annually, but the price of these devices is getting lower, because we want to make them more attractive. Unlike mobile operators, who do not make money on the production of handsets, we make money on the production and sale of equipment. This is an important business for us. But for a satellite operator, the most valuable revenue is from the sale of services.

– What will Iridium Next give to your customers – how will the new satellites improve the quality of communication, the range of services, etc.?

– Firstly, our current clients will not notice the change of the system, as all our existing devices are fully compatible with the new satellite group and will work perfectly without any additional settings. But at the same time, the data transfer rate will increase significantly – up to 1 Mbit/s and even more. This will help us increase the capacity and power of our network and make our services more attractive. Of course, we will develop new services, such as push-to-talk (direct communication between subscriber terminals, bypassing the operator’s switches. – Vedomosti). We also plan to organize television broadcasting for owners of hundreds and millions of devices. In addition, we have a new Aireon service – with its help, commercial airliners are provided with navigation services; it allows them to determine their location. This solution will allow aircraft to maneuver more confidently, approach each other closer, which reduces, for example, fuel costs. We hope that it will optimize air traffic, including over Russia.

– The Russian economy is increasingly showing signs of recession. How might it affect Iridium’s Russian business? Do you take such developments into account in your business plan?

– We have already survived the most powerful crisis on the financial markets in 2009. But our market has grown by 20%. We do not sell luxury goods, we do not provide entertainment services – we provide business solutions, which are often vital. Moreover, our solutions allow saving money in times of crisis – for example, by optimizing the movement of vehicles. Iridium solutions, which Russian companies can now use along with global ones, will accelerate their integration into the global economic space. Our Russian partners are ready to develop new solutions, which can then be sold and implemented around the world.

– What do you like to do in your free time when you’re not flying Iridium?

– My passion is flying small aircraft. I have been flying since I was a teenager – I got my pilot’s license at 18. I love flying everything that takes to the air. Our aviation services account for only 10% of Iridium’s total services, but I am glad that this business partially intersects with my hobby.

Interview - Matt Dash, CEO, Iridium Communications