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The larger US cell phone businesses have tens of millions of customers. Iridium presently (Mar 06) has about 150,000 - 100 times smaller than important mobile phone businesses. The cost 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 on the equipment. Well-liked cell phone designs market in quantities of many millions, and the underlying technology changes little from model to model, permitting development costs to be split over quite a few units, and with most effective high volume production methods. But the Iridium satellite phones are selling really slowly, and have unique technologies in them.
And so, whereas your standard mobile telephone organization can most likely 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 plenty of choices when choosing a regular cellular phone service. But there's only a single entirely global satellite telephone provider - Iridium - and only one source of Iridium handsets.
Could Iridium offer its 9505a phone for less than $1500? Almost definitely - the underlying variable fee per phone sold, to Iridium, is most likely $50. No need to reduce the mobile cost, because there are no competitors.
Iridium may choose to drop the cost of the phone as a way of encouraging far more individuals to sign up for their service, in a similar method to how regular mobile phone operators give away phones, but to date it has resisted such temptation.
Could Iridium offer its airtime for less than the rates it does? That is a more complicated query; for sure, the variable added cost of accepting one 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 phone cost, for individuals who truly have to have a satellite telephone, $1.50 a minute is a bargain. And for people who do not need to have a satellite telephone, even 50¢ a minute is most likely too very much. Iridium most likely feels that for the type of folks that need to have and use its services, its prices are fair.
Future satellite telephone selling price trends
Considering these issues above, we don't predict important drops in either mobile phone handset or airtime expenses occurring with Iridium satellite support in the foreseeable future.
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