Friday March 3 6:55 PM ET
McCaw Abandons Iridium Bailout Plan
By BRUCE MEYERSON AP Business Writer
NEW YORK (AP) - Wireless magnate Craig McCaw is abandoning plans to expand his budding satellite empire with a bailout of Iridium LLC, the bankrupt operator of a space-based mobile phone network.
The unexpected setback for Iridium derailed a court hearing planned for Friday on a proposal to sell Iridium's assets through an auction that McCaw was expected to win.
Iridium, noting that other potential buyers have shown an interest in bidding, said it will proceed with the auction strategy.
``Much attention has been afforded the potential McCaw bid. Now that he has clarified his intentions, we believe that the quality of our system and the value of our assets should attract additional qualified proposals,' said Randall Brouckman, Iridium's chief operating officer.
Last month, McCaw partnered with lead Iridium investor Motorola Inc. (NYSE:MOT - news) to provide $5 million in operating cash for Iridium while McCaw's company, Eagle River Investments LLC, weighed a bid to take control of Iridium.
Analysts had speculated McCaw would use Iridium to build a customer base for his two future satellite ventures. The first is ICO Global Communications Ltd., a would-be Iridium rival that McCaw has already agreed to rescue from bankruptcy. The second is Teledesic LLC, a company he co-founded with Microsoft Corp. (NasdaqNM:MSFT - news) billionaire Bill Gates to build a satellite-based ``Internet in the sky.'
But in a statement issued Friday, Eagle River said it has determined that Iridium wouldn't make such a good fit with the other ventures after all.
The statement emphasized that Iridium's constellation of 66 satellites was designed primarily for voice service, while the networks envisioned for ICO and Teledesic would place greater emphasis on high-speed transmission of Internet traffic and other data.
``We've made a strategic decision to focus our resources and attention on the satellite-based data services that ICO and Teledesic can provide,' said Dennis Weibling, president of Eagle River, which is based in Bellevue, Wash. ``After careful examination of Iridium's technologies, we determined that there are closer synergies between ICO and Teledesic and the services they will provide customers worldwide.'
Notably, both ICO and Teledesic have yet to launch any satellites, and Eagle River has yet to declare whether it will actually join the two enterprises. ICO is slated to begin service first, perhaps in 2002, while Teledesic isn't expected to go live until 2004.
It was unclear whether Iridium, based in Washington, D.C., would be able to continue operations after March 6, when the $5 million package of interim financing from Motorola and Eagle River runs out.
Motorola, which owns 18 percent of Iridium, quickly reverted to its prior stance now that Eagle River is stepping away, asserting it won't provide any more funding without a substantial contribution by other key investors.
``We were disappointed to learn of Craig McCaw's decision not to bid on Iridium's assets,' said Motorola spokesman Scott Wyman. ``From our perspective, the future of Iridium now rests with the bankruptcy court.'
Iridium filed for bankruptcy court protection last August, unable to make payments on debts totaling about $4.4 billion.
Soon after, ICO was forced to seek bankruptcy court protection as Iridium's struggles zapped investor confidence in the market for satellite-based communications. But in October, Eagle River agreed to lead a group of investors who will provide up to $1.2 billion to help ICO emerge from bankruptcy.
At last count, Iridium had about 50,000 subscribers, more than triple its customer count last summer, but still well shy of the levels needed to keep the company afloat without another cash infusion from Motorola and its other hesitant backers.
Complicating matters, Iridium is now competing for subscribers with Globalstar Telecommunications Ltd., a satellite venture that launched service in the United States and Canada earlier this week.
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