*Tero's still at it. WashPost. Iridium Files for Chapter 11 Phone SystemTo Keep Working
By John Schwartz
Washington Post Staff Writer
Saturday, August 14, 1999; Page E01
Iridium LLC, the pioneering global satellite telephone company that once
ranked as one of Washington's most promising technology firms, filed for
bankruptcy protection yesterday.
The company's customers still will be able to use their brick-sized handsets
from Towson to Timbuktu; the revolutionary $5 billion network of 66
satellites and ground-based equipment will continue to operate as Iridium
tries to restructure its debt, said chief executive John Richardson.
"It's business as usual," he said, but he also said it's "a great shame" that the
once-highflying company has come to this.
Iridium's tale is one of a company that spent years getting a product to the
market, and then found the market very different from what it had
expected. The company was conceived at a time when conventional cell
phones were expensive and rare. When it finally switched on its service last
fall, cell phones were cheap and plentiful the world over and few people
wanted costly, heavy Iridium phones.
Shares of Iridium World Communications Ltd., the company's public
investment entity, lost more than a quarter of their value yesterday, falling
$1.18 3/4 to close at $3.06 1/4. The stock had traded at more than $49
per share in the past year. The Nasdaq Stock Market halted trading in
Iridium's shares at 2:04 p.m. yesterday and issued a statement that the
stock would not resume trading until the company provided "additional
information" to the exchange.
Shares of Motorola Inc., Iridium's largest investor, ended the day at $93,
up $5.25, in a strong day for the stock market.
The company repeatedly has missed deadlines on payments on about $1.5
billion in bank loans and another $1.5 billion in bonds, and has spent
weeks in intense negotiations with its investors and creditors. The
immediate reason that the company filed for protection under Chapter 11
of the U.S. Bankruptcy Code, however, is that Iridium was hard up against
a Sunday deadline for a $90 million payment on the bonds--a payment that
the company could not possibly meet.
Motorola had announced recently that it would not pour any more money
into the company without an agreement that involved all of its major
investors. With the bond payment coming due, "we really had no
alternative but to seek protection of the courts," Richardson said.
In the hours before yesterday's bankruptcy filing in Delaware, a group of
the company's bondholders filed their own petition in New York to force
Iridium into bankruptcy reorganization.
Richardson, a blunt Australian who became head of the company after
founding chief executive Edward Staiano resigned abruptly in April,
blamed prior management for the crisis. He believes the company's basic
concept is sound and that it will find a way out through recently slashed
costs of the phones and improved marketing.
He said he spent last week touring Africa and was pleased with his phone's
performance. More important, he said, "people were buying the phones,"
Richardson said. "They want the product. It works."
In Richardson's view, Iridium and Motorola "excelled" at "all the tough
things"--the engineering challenges of creating and operating a global
satellite telephone and paging network. The other part,
however--"commercial skills"--he admitted "we singularly failed in. Our
marketing was inept . . . and the products didn't work" at the time of the
company's very public launch of service.
Much has changed since the days when the company launched its last
satellites in May 1998. Enthusiastic analysts foretold a brilliant future for
the fledgling network, with analysts predicting that stakeholders would see
a 100 percent return on their investment in just three years. The company
said it would have 500,000 customers this year and 5 million customers by
2002--and estimated it would show a profit after signing on 650,000
customers.
But the last time Iridium released figures, it had only signed up about
20,000 customers.
Potential customers expecting the dependability and ease of use they had
come to know with cellular phones were unhappy to discover that satellite
phones are a quirkier technology; Iridium units, for example, only can be
used outdoors, where the fat black antenna has a clear shot at the open
sky. The one-pound handsets looked like behemoths compared to
pocket-sized cellphones.
Some market observers question whether the millions of potential
customers for phones by Iridium and other companies with names such as
ICO and Globalstar really exist. They say that, like the DeLorean sports
car, satellite phones are a product of the future that was overtaken by
events.
Business travelers, they noted, have decreasing need for a satellite phone
that works anywhere; the impoverished Third World communities that
might benefit the most from a connection, they argue, probably cannot
afford one.
Since the company's slide began accelerating, it's been open season on
Iridium. Columnist Herb Greenberg of online site TheStreet.com criticized
the company in increasingly arch terms--and called the investors "Iridiots."
Commentator Tero Kuttinen, whose acerbic views on the satellite
telephone industry have appeared on TheStreet [djane note: never in TSC to my knowledge] and other financial Web
sites, called the diehard satellite enthusiasts "futurama clowns." "I'm
expecting Iridium to become a chronic disease for Motorola," he said.
Iridium's long slide has cast a pall over all of the firms that have promised
to ring the globe with telecommunications satellites.
London-based ICO Global Communications, which contends that its
satellite network will be cheaper and more dependable than Iridium's, tried
to raise at least $600 million by issuing new stock this summer and found
too few takers. It withdrew its offering and is exploring other investment
alternatives.
Tony Trujillo, spokesman for the Intelsat consortium that for decades has
operated a fleet of conventional telecommunications satellites in high orbit,
suggested that the Iridium story is a cautionary tale about new technology.
A pioneer's life is inherently risky, Trujillo said: Some trailblazers end up
dominating their markets, but "sometimes you pave the way for others, but
you're not successful yourself," he said.
Some analysts retain hope for Iridium's future. "The company has filed to
restructure--the company hasn't filed to turn the system off," said Timothy
O'Neil, an analyst with Soundview Technology Group. "Motorola still has
a vested interest to keep the program alive," he said.
¸ Copyright 1999 The Washington Post Company
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