- The Washington Times - Monday, May 21, 2001

Gino Picasso has great timing.

Mr. Picasso, 45, took over April 23 as the chief executive at Iridium Satellite LLC after the new owners saved the multimillion-dollar network of satellites from destruction.

He took over after the conclusion of a lengthy bankruptcy court case that began in August 1999 and ended with his new employer in possession of the valuable assets of a failed company.

He took over after the new owners secured a $72 million contract with the U.S. Department of Defense to provide satellite phone service for up to 20,000 federal government users.

He took over after the Iridium Satellite restored commercial phone service in March, more than a year after financial troubles forced the former owners to suspend operations.

?When this opportunity arose it was just way too good to turn down. It was perfect timing,? says Mr. Picasso, who came from AceComm Corp., a company in Gaithersburg that sells software to telecommunications firms.

Even though Iridium Satellite overcame those hurdles before Mr. Picasso?s arrival, it doesn?t lessen the pressure on him. That?s because Mr. Picasso?s job is to find customers.

Iridium?s bankrupt predecessor couldn?t do it, and the company?s only direct competitor, Globalstar Telecommunications Ltd., also has had difficulty signing up customers. Both companies have low-orbiting satellites circling Earth that are used for telecommunications. Globalstar reported having 40,700 customers at the end of the first quarter.

Search for customers

Mr. Picasso?s first goal is to sign up 60,000 subscribers. That?s how many customers Iridium Satellite believes it needs to break even. Four weeks into his new job, Mr. Picasso has boundless optimism in his ability to lead the new company?s effort to add customers.

?It is very hard for me to paint a scenario that says this business fails,? says Mr. Picasso, a native of Lima, Peru, who moved to the United States when he was 15, went to high school in the District at Georgetown Prep and graduated from Georgetown University.

?We think the business will have extraordinary value once it crosses the break-even point [of 60,000 customers] … When we cross that threshold, we have completely proven that this is a real business,? he says.

The single most important thing he can do to reach that goal is bolster the company?s distribution, he says. Iridium Satellite has agreements with 14 companies to market their phones. The new company has eliminated rules its predecessor enforced that limited where distributors could sell phones.

Because the company is privately held, Mr. Picasso won?t say how many subscribers Iridium Satellite has signed up.

While Iridium marketed phone service to a broad consumer audience, Iridium Satellite markets service to corporations ? including companies in the mining, shipping and aviation industries.

Iridium Satellite also is trying to reach an agreement with the Chinese government to provide satellite phone service to Chinese citizens as an extension of the country?s national phone network.

Iridium sold satellite phone service for up to $7 a minute. Iridium Satellite service will be available for no more than an estimated $1.50 a minute, which it says it can do because its costs are just $7 million a month. Debt-heavy Iridium had monthly expenses of $80 million.

?Any satellite telephony system out there is going to have the same challenges or similar challenges to what Iridium in its first incarnation had. We have a leg up,? Mr. Picasso says.

Globalstar has $2.9 billion in debt.

Iridium Satellite has no debt, though its predecessor sank under the weight of $4.4 billion in debt and filed for Chapter 11 bankruptcy protection in August 1999, nine months after it began to market its satellite phone service.

?We have a cost structure that allows us to serve everybody very economically,? Mr. Picasso says.

Despite Mr. Picasso?s optimism, satellite phone companies still haven?t caught on.

Globalstar, based in San Jose, Calif., said in a filing with the U.S. Securities and Exchange Commission in April that it may shut down by the end of the year if it doesn?t raise more cash. In a hopeful sign two weeks ago, it reported in its first quarter financial report that satellite telephone use is increasing.

Globalstar subscribers logged 4 million minutes of use during the first quarter, a 53 percent increase over the previous quarter. That could bode well for the industry.

?It can?t hurt,? Globalstar spokesman Mac Jeffrey says. ?We?ve said all along there is room for more than one operator.?

While Globalstar has significant debt, the local company could have its own problems.

The network of 66 satellites that Iridium owns and operates from its Leesburg, Va., headquarters won?t last forever. Bankrupt Iridium and its investors spent an estimated $5 billion to build the satellites and put them in orbit.

While Mr. Picasso says the devices could last another nine years, that could be optimistic, says J. Armand Musey, satellite analyst at investment banker Salomon Smith Barney.

And when it comes time to replace the devices, Iridium Satellite will have a difficult decision to make.

?I wish them luck, but it will be tough to justify spending a couple of billion dollars to fund a new system of satellites,? Mr. Musey says. ?The question is whether they have the subscribers to justify replacing the system.?

And in the end, it will be Mr. Picasso?s success at his new job that determines whether Iridium Satellite can find enough subscribers.


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