forbes. Satellite woes
August 12, 1999
By Charles Dubow
NEW YORK. 01:45 PM EDT?Going on the old
theory that one bad apple spoils the bunch, the
recent problems faced by mobile satellite telephony
companies ICO (nasdaq: ICOGF) and Iridium
(nasdaq: IRID) mean only more hard times ahead for
the struggling satellite industry.
"Right now the capital markets are very reluctant to
get involved with any non TV-centric satellite
company," says William Kidd of C.E. Unterberg
Towbin, an investment bank in New York City. "This
is a setback to all emerging satellite businesses.
Not only will it be harder to raise money for mobile
satellite telephony but for broadband as well."
Kidd questions the wisdom of Hughes (nyse: GMH),
a leading satellite developer and parent of satellite
television provider DirecTV, to invest several hundred
million dollars into ICO. An announcement in which
Hughes formalized its commitment to ICO was
supposed to be made today but that announcement
has apparently been postponed for several weeks.
ICO needs $600 million by the end of the year or it
risks going dormant. Hughes already has a $94
million investment stake in the company and to
increase its investment would raise that stake from
4% to approximately 12% to 15%.
"A significant Hughes investment implies that in
order to avoid owning up to charges Hughes is willing
to back projects that virtually no other investor
would," says Kidd. Typically, prime contractors such
as Hughes provide seed money and then open
investment up to the capital markets. "Hughes is
already $500 million in the hole to ICO and haven?t
been paid. They?re betting that if they pump in
another $100 million everything will be all right. The
scary thing is that it leaves them open to keep
chasing the write-off and that $100 million could
easily jump to $150 million."
Iridium faces a different problem. Yesterday it
announced that it was forced to default on $1.5
billion in loans, a sign that sounded to many like a
death rattle. Once touted as the next big thing in
global communications, for most of the year the
company, a consortium led by Motorola (nyse:
MOT), has been skidding down hill faster than a hog
on skis.
ICO is not in as bad a shape as Iridium--not yet
anyway. The problems that both companies are
facing are related. The cost of putting satellites in
space has not been offset by the number of mobile
telephony subscribers both needed to get into the
black. Both have consistently missed their
subscriber numbers and their problems have
succeeded in scaring off potential business.
"ICO has nothing to fix," says Kidd. "They just need
money. They have a similar business model but a
radically different operating strategy from Iridium.
They have fewer satellites but they send them up
higher. These satellites also have more capacity
than Iridium?s, so, if they can build up critical mass,
they can offer much lower per minute calling
charges."
At the moment, satellite broadband is available
through VSAT (Very Small Aperture Terminal)
satellites, which are effective but much too
expensive for the consumer market. With the
increased rollout of broadband technology via, either
cable or DSL (Digital Subscriber Line), the two other
potential access avenues are wireless and satellite.
Of these two, two-way satellite is the furthest away
from being deployed in a meaningful way. "This is
going to delay the development of second-generation
satellite technology even longer," says Kidd.
?¸ 1999 Forbes.com |
