The larger US cellular phone businesses have tens of millions of clients. Iridium presently (Mar 06) has about 150,000 - 100 times smaller than key cellular phone companies. The expense of its 66 satellite network is about $6 billion, and although those are all sunk costs, the satellites will need to be replaced at some stage.

A comparable equation applies towards gear. Popular cell phone designs market in quantities of many millions, and the underlying technology changes little from model to design, permitting development costs to be split over quite a few units, and with most effective large volume production methods. However the Iridium satellite phones are selling really slowly, and have unique technologies in them.

And so, whereas your typical cellular phone company can almost certainly make money by giving you a free of charge phone and 1000 minutes of airtime for only $30/month; Iridium absolutely can not.

Lack of competition as well as price inelasticity

You've lots of choices when choosing a typical cellular phone service. But there's only a single totally worldwide satellite phone provider - Iridium - and only 1 source of Iridium handsets.

Could Iridium offer its 9505a phone for less than $1500? Almost definitely - the underlying variable charge per mobile sold, to Iridium, is probably $50. No need to decrease the mobile cost, because you will find no competitors.

Iridium may choose to drop the price tag of the handset being a way of encouraging far more individuals to sign up for their support, in a similar method to how regular cellular phone operators give away phones, but to date it has resisted this kind of temptation.

Could Iridium offer its airtime for less than the rates it does? That is a much more complicated query; for certain, the variable added cost of accepting 1 more call onto their network is close to zero, but they've large fixed costs that need to be covered. And, a great deal such as the mobile price, for people who genuinely have to have a satellite telephone, $1.50 a minute is a bargain. And for individuals who do not have to have a satellite cell phone, even 50¢ a minute is probably as well very much. Iridium most likely feels that for the type of folks that have to have and use its providers, its prices are fair.

Future satellite cell phone selling price trends

Considering these issues above, we don't predict important drops in either mobile or airtime fees occurring with Iridium satellite service in the foreseeable long term.

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