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To: Jeff Vayda who wrote (6407)	8/10/1999 8:28:00 AM
From: Jeff Vayda	Read Replies (1) \| Respond to of 29987

I* ICO and G* comments from Financial Times. Handsets to retail for $500? ft.com TELCOS: Satellite phones fall to earth Iridium and ICO seek further backing to stay in orbit, writes Christopher Price The struggling satellite mobile phone industry faces two crucial tests this week as investors and banks weigh up whether to sink more money into the multi-billion dollar projects. Iridium, the Motorola-backed group, faces the sternest examination when it announces on Wednesday whether it has reached agreement with bankers over restructuring $800m of its $2.7bn debts. Failure to do so could force the $5bn project into bankruptcy. ICO Global Communications, the UK-based group, will learn on Tuesday how much of the additional $600m it has been pledged by its 60-odd strategic investors turns into hard funding. The company has until the end of the month to make a $48m interest payment that was due at the end of July, or also face bankruptcy. The payment was postponed after ICO twice failed to raise $500m from a rights issue. The company also faces some large payments, totalling hundreds of millions of dollars in the next few months for building and launching its satellites. ICO blames the "Iridium factor" for its difficulties in raising fresh funds. Iridium launched its service last November, the first to offer a hand-held mobile phone that could make and receive calls anywhere in the world. However, supply and software problems in the handsets caused supply problems for many of Iridium's service partners, often mobile phone operators in different countries. More crucially, Iridium's marketing strategy proved disastrous. In the 10 years since the idea was first conceived, the mobile phone market had changed radically. Handsets had become smaller, sleeker and cheaper, call rates had tumbled, and in GSM, Europe had found a standard that enabled international roaming. Iridium came to market with handsets the size of a house brick, retailing at $3,000 and with call rates several times higher than those offered by other mobile operators. The company accused its service partners of failing to market the system. They in turn blamed Iridium for the wrong product at the wrong price. The result was just 10,000 subscribers after five months when the company had been predicting 100,000. The shortfall meant that crucial subscriber and revenue targets were missed and prompted the breaching of covenants on $800m of debt. ICO, which is still $1.7bn short of the $3.5bn its system will cost, has subsequently faced an uphill task convincing lenders and investors of the merits of its project, due to launch next year. Last week, Bob Growney, chief operating officer of Motorola, which holds almost a fifth of Iridium stock, sounded an optimistic note, saying a deal could be reached with Iridium's lenders. He also said Iridium's new marketing strategy, including lower prices for calls and handsets, was beginning to work. There has been speculation that Motorola, together with other strategic investors, will put a further $500m into Iridium in return for the banks swapping some of their debt for equity. However, Iridium's financial position is bleak and the short-term outlook far from rosy. It lost $1.25bn last year and analysts are forecasting a similar figure this year. In addition, the group owes $1.6bn in senior notes and $1.1bn in bank debt. Iridium also faces competition from next month with the launch of Globalstar, the Loral-backed system. It claims that with subsidies from its service partners, handsets will cost less than $500, while call rates will be competitive with existing terrestrial operators. Unlike ICO and Iridium, Globalstar's share price has not suffered to the same degree, mainly because its $3bn funding is already in place. Analysts estimate Motorola's exposure to the project at $2bn, a figure they cite as the principal reason it will not let Iridium go under. This is perhaps one reason why Iridium has been attracting the attention of so-called "vulture" funds, which specialise in investing in companies where they believe value can be retrieved. Reports suggest that up to $800m of its $1.6bn of public debt has swapped hands in recent weeks. "The principal investors have got too much to lose to let either Iridium or ICO go under," says John Coates of Salomon Smith Barney in New York. Of the three operators, he is most optimistic about ICO. "It is the lowest cost provider, has the best access to market and the most coherent strategy." However, even if agreement on restructuring and funding is reached this week, it is unlikely to lift the cloud of gloom hanging over an industry analysts believe has too many operators chasing too few customers. With the western business market unresponsive to Iridium's launch, both ICO and Globalstar have declared Third World villages to be among their key targets. It would be ironic if some of the world's poorest people were to come to the rescue of some of Wall Street's most glamorous projects.