Iridium signs $72 million contract with Defense Department

Computerworld - A two-year, $72 million contract to provide secure wireless communications to about 20,000 government employees was signed Tuesday night by Iridium Satellite LLC and the U.S. Department of Defense.

The deal is a huge boost for the Iridium communications satellite network, which less than four months ago was planning for the decommissioning of the satellites. Originally proposed and built as a satellite telephone company and backed by Schaumburg, Ill.-based Motorola Inc., the high-priced service was never able to sign up enough customers to stay in business (see story). Iridium LLC in Reston, Va., filed for bankruptcy in August of last year.

Under the contract, the Defense Information Systems Agency will pay Arnold, Md.-based Iridium Satellite $72 million for 24 months of satellite communications services. Approximately 20,000 government employees will have unlimited airtime to make wireless phone calls under the deal.

If the Defense Department (DOD) is satisfied with the service, there are options that can be exercised that could bring the total value of the contract to $252 million through December 2007.

A spokeswoman at the DOD had no comment on the contract.

In a statement, the agency said it signed the agreement because the Iridium system offers mobile, cryptographically secure telephone services in small handsets that aren't currently available to government users around the clock anywhere on the globe.

By adding Iridium to its existing telecommunications network, the DOD said it will be able to expand service to meet expanded wireless communications where they are needed, including in the Navy, Special Forces operations and other organizations.

"Iridium will not only add to our existing capability, it will provide a commercial alternative to our purely military systems," said Dave Oliver, principal deputy undersecretary of defense acquisition, technology and logistics, in a statement. "This may enable real civil/military dual use, keep us closer to the leading edge technologically and provide a real alternative for the future."

The assets of the original Iridium LLC recently began to be purchased by the new company, Iridium Satellite, according to the DOD. The new company is buying the constellation of low-orbiting satellites and its satellite control network, which will now be operated by The Boeing Co. in Seattle.

Elliott Hamilton, a wireless analyst with The Strategis Group in Washington, said that while the deal is better news for the reborn company after a string of disappointments, there may be too many problems to overcome for it to survive.

"This contract may allow them to keep their satellites up for that two years, but that companyis never, ever, going to be a profitable company," Hamilton said. The main problem is that the infrastructure is very expensive, with a satellite network and a series of ground stations to keep up and running. "[The DOD deal] still doesn't do anything for the long-term viability of Iridium."