Good for Q, How about Globalstar?>
Friday August 27, 4:43 pm Eastern Time
Note: this article has a followup with more information.
ANALYSIS-Wireless phone growth doomed satellites
By Emily Kaiser
CHICAGO, Aug 27 (Reuters) - Satellite phone companies underestimated the rapid
expansion of land-based wireless phone systems, and the error may prove to be fatal,
analysts said on Friday, when the second satellite phone company in two weeks filed for
bankruptcy protection.
ICO Global Communications Ltd. (Nasdaq:ICOGF - news) filed for protection from its creditors under Chapter 11 of the
U.S. bankruptcy code, one of its stakeholders said on Friday. Two weeks ago, Iridium LLC (Nasdaq:IRIQ - news), the
satellite phone company bankrolled by Motorola Inc.(NYSE:MOT - news), filed for protection from its creditors under
Chapter 11 of the U.S. Bankruptcy Code after it defaulted on more than $1.5 billion in loans.
''I'm not at all surprised,'' said Mark Roberts, telecommunications analyst with First Union, referring to ICO Global's Chapter
11 filing. ''The areas of the world that are not covered by wireless telecommunications are shrinking very rapidly, so the target
market for satellites is shrinking.''
The idea of satellite phones fascinated investors at first. They envisioned globe-trotting executives shelling out big bucks to stay
in touch with the home office.
But by the time Iridium's system was operational late last year -- and before ICO Global started service -- cell towers were
quickly popping up along highways and on top of buildings across the United States and around the world.
The jet-set executives didn't need satellite phones to make calls from Tokyo, London or New York. They certainly weren't
willing to pay $3,000 for an Iridium handset that couldn't even handle calls inside buildings or cars when the line-of-site
connection with the orbiting satellites was blocked. Also, the satellite phones require larger power packs than cellular ones, so
the handsets are much bulkier.
As a result, Iridium was able to sign up only a fraction of the 500,000 subscribers that creditors had expected this year.
Iridium's missteps may have cost ICO Global desperately needed financing. ICO, which aims to have 12 satellites in orbit by
the end of next year, said two weeks ago it failed to secure $600 million in financing commitments it was seeking.
''If you have an industry where a very visible player has major financial problems, investors get cold feet,'' said Robert Wilkes,
telecommunications analyst with Brown Brothers Harriman. ''Given the trauma that has taken place here (with Iridium), it may
be some time before investors will be ready to come back in.''
Analysts said there are niche markets that need satellite phone communications, namely the government, maritime and mining
companies, and disaster relief agencies, which could use the phones when earthquakes or wars knocked out phone lines.
The question is, can Iridium, ICO Global and others make enough money off of those markets to justify the multibillion-dollar
cost of launching and maintaining the satellites?
''If something breaks up in the sky, it's hard to fix,'' Brown Brothers Harriman's Wilkes said. ''There are going to be a lot of
lessons learned here.''
Iridium and ICO Global's financial woes haven't stopped Teledesic LLC, the planned $9 billion satellite venture backed by
billionaires Craig McCaw and Bill Gates, from proceeding with its plans to build a high-speed, two-way global data network
by 2004. However, First Union's Roberts said Teledesic may face rough times as well.
''We have been calling Teledesic 'son of Iridium','' Roberts said. "For many of the same reasons that we think Iridium failed,
we think Teledesic is likely to fail. It's too expensive, It's too grandiose.
''The most damning part of it is that by the time something like Teledesic gets launched, the tentacles of fiber optic cable and
the capabilities of wireless networks will have stretched even further,'' Roberts added. ''The potential target market will shrink
dramatically.''
Robert Nyhus, a spokesman for Seattle-based Teledesic, said the bankruptcy filings by ICO Global and Iridium won't derail
Teledesic's plans since the company specializes in data rather than voice communications.
''If you look at the worldwide broadband market, we're just beginning to scratch the surface,'' he said. ''We are providing a
capability that doesn't exist today and won't exist until Teledesic comes to market.''
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