Motorola Wavering on Teledesic?
updated 7:30 a.m. 19.May.99.PDT
by Joanna Glasner
3:00 a.m. 19.May.99.PDT
Teledesic, a US$9 billion satellite network
that's scheduled to be in operation in
2003, is facing a snag in its plans to build
a broadband "Internet in the sky."
The company's main contractor,
Motorola, still hasn't signed a contract to
build the satellite system after about a
year of negotiations.
Last week, Motorola (MOT) told several
subcontractors to stop working -- at
least temporarily -- until contract
negotiations end. The company also
moved some workers on the project to
other areas and eliminated some
temporary positions.
The move was a "a small, internal
realignment," carried out so that Motorola
would focus on other areas of the
telecommunications business, said Robert
Edwards, a spokesman for Motorola's
satellite telecommunications group.
Satellite industry executives, however,
saw the move as a sign that Motorola
may be wavering in its commitment to the
Teledesic project.
"Everybody in this industry is gun-shy at
the moment," said Alden Richards of
Space Machine Advisors, which sells
insurance to satellite companies.
Motorola's last big satellite venture -- the
$5 billion Iridium phone network -- has
generated huge losses for the company.
Meanwhile, shares of most satellite
companies have been suffering on Wall
Street, dampening investor enthusiasm
for another satellite venture.
In addition, the US launch industry is in
crisis. In the past year, several rockets
have exploded or failed to put expensive
satellites in the correct orbits, raising
concerns that upcoming satellite projects
will have bigger-than-expected losses.
Teledesic, founded by Bill Gates and
cellular-phone mogul Craig McCaw, plans
to put 288 satellites in low-earth orbit to
transmit data at speeds up to 2,000
times the speed of a dialup modem.
The disappointing performance of Iridium's
business shouldn't affect the broadband
network's ability to make money.
Although both projects involve networks
of low-earth satellites, Teledesic's
business plan doesn't have much in
common with Iridium, said Roger Nyhus, a
company spokesman.
Teledesic said that its system will be able
to support a few million simultaneous
users. The company expects most of its
money to come from business customers
who need high-speed Internet access in
suburban or rural areas or in developing
countries.
But building the satellite system will take
longer than Teledesic expected. The
company now says that it plans to launch
commercial service in late 2003 instead of
its original launch date of 2002.
And Teledesic won't be beaming
broadband to anyone unless it hammers
out an agreement with Motorola, which is
a key investor as well as a contractor.
The last time Teledesic disclosed the
level of participation from its main
investors, Motorola was still the biggest
stakeholder, with a 26 percent share of
the venture.
"I don't think they're skittish about the
satellite project, but they don't want to
have the same amount of risk that they
have with the Iridium project," said Luke
Szymczak, an analyst with Prudential
Securities.
Even if Motorola backed out, Teledesic
would still have a lot of big-name
backers. McCaw and Gates each own 21
percent of the venture. Billionaire investor
Prince Alwaleed Bin Talal has 11 percent,
and Boeing is in for 4 percent.
Neither Teledesic nor Motorola set a date
for when they expect to sign the
contract. Industry watchers said that it
makes sense for Motorola to take its
time.
"They've got to be nervous as hell,"
Richards said. "They're thinking, 'Do I
really want to get into another
multibillion-dollar satellite system?'"
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