news.com. Teledesic confirms Motorola is prime contractor
By Reuters
Special to CNET News.com
July 9, 1999, 3:35 p.m. PT
Teledesic, the planned $9 billion satellite venture backed by billionaires Craig
McCaw and Bill Gates, said today it reached an agreement confirming Motorola as
its prime contractor.
The agreement ends several months of speculation that Motorola, already reeling from
financial problems with the Iridium wireless communications system, was backing away
from Teledesic, which aims to provide a high-speed, two-way global data network beginning
in 2004.
The speculation was fueled by Motorola's decision to halt work on Teledesic while the two
companies hammered out technical details of the program.
"From the standpoint of both Motorola and Teledesic management, we have been together
throughout these months," Teledesic co-chief executive officer Bill Owens said in an
interview. "There was never a time when we thought we would not be proceeding with
Motorola as partners."
Details of the agreement with Motorola, which Owens
described as one of the largest fixed-price contracts ever,
were not immediately released.
Owens said an updated cost projection and other technical
details would be released within three months following a
joint analysis that must be completed before the deal is final.
Teledesic also said it selected Lockheed Martin's
developmental Proton M and Atlas V heavy-lift rockets to
launch a "significant portion" of Teledesic's planned
constellation of several hundred low-Earth orbit satellites.
Motorola stock rose 1.875 to close at 99.81 while Lockheed
Martin was unchanged at 38 on the New York Stock
Exchange.
Motorola joined Teledesic last year, pledging $750 million for
a 26 percent stake and taking over as prime contractor from
Boeing, which remains an investor.
Owens said Motorola's equity stake has been diluted by
subsequent investments in Teledesic, which has raised more
than $1.5 billion in private capital.
As part of the latest agreement, Motorola made a $150
million cash payment to Teledesic, which in return made a
down payment of $250 million for Motorola's work as prime
contractor.
Analyst Marco Caceres of the Teal Group said Motorola and Teledesic had been at odds
not only about the architecture of the system but about the price, which he said was likely
to go far higher than $9 billion. "They have been going back and forth, and finally they've
come to some sort of agreement, which is pretty significant," he said. "I was concerned
Motorola was going to be leaving the program."
He and others said Motorola was skittish after its disastrous investment in Iridium, which
has struggled to sign up subscribers and has been unable to pay its debt service. Motorola
owns 18 percent of the venture.
"I think what we're seeing is Motorola hedging its bets a bit," said Mark Zohar, senior
analyst at Forrester Research. "Teledesic is a completely different model, and probably
one that at this point makes more sense."
But he said he had doubts about whether Teledesic could make money in an increasingly
competitive market, particularly with an emerging new generation of cheaper wireless
technology.
Owens of Teledesic said he had no doubts on that score.
"The business plan is so strong and the market is so good out there as we become
operational there isn't any question that the prices we are talking about will set us up for a
very successful business here," he said.
McCaw, the cellular telephone pioneer, and Gates, chairman of software giant Microsoft,
founded Teledesic in 1990 and have drawn funding from corporate and individual investors
including Saudi Prince Alwaleed bin Talal.
"If anybody can raise the billions and billions of dollars that are needed it's Craig McCaw,"
said Caceres.
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