LOR done good today...maybe this helped?
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McCaw Sets Sights Higher
Cellular Maven Aims To Build Internet, Satellite Phone Network
By Peter S. Goodman
Washington Post Staff Writer
Tuesday, April 24, 2001; Page E01
NEW YORK
If he were anyone but Craig O. McCaw, wireless telephone pioneer, his plans might be dismissed as fantasy.
He is building a network of satellites that will encircle the Earth, beaming high-speed Internet connections and telephone calls to any point on the globe.
He is doing this, though other such ventures have failed on a cosmic scale.
First, there was Iridium LLC. Its brick-size $3,000 phones did not work indoors. The company nearly scrapped $5 billion worth of satellites, tipping them into a fiery plunge back to earth, before it was bought out of bankruptcy for $25 million. A similar business, Globalstar Telecommunications Ltd., could yet meet that fate.
In the view of most analysts and industry players, they are victims of cheaper, terrestrial technology. As the satellites were being built and launched, cellular towers were proliferating down below, taking away part of the market the space-based services hoped to serve. A futuristic technology had become obsolete.
McCaw cringes at such characterizations. He is loading the rockets for another try. He plans to shrink the phones and expand their range by combining satellites with a wireless network on the ground -- a step that requires a controversial rule change from the Federal Communications Commission. Then, he says, the model works.
"It's often very small things that make a difference," McCaw said in an interview this week in his hotel suite on Manhattan's Upper East Side. "There has never been somebody successful. Not because the need isn't there. There's a crying need. But speaking as a user of these services, they all stink. The service quality is poor. It's extremely expensive."
Despite the pessimism enveloping the satellite telephone business, McCaw is moving forward with New ICO, a system he rescued from bankruptcy last year. He plans to launch his first satellite in June -- the second, if you count the one that crashed last year. He aims to begin service in 2003.
He is pressing ahead with a scaled-down version of Teledesic, his still vaguely defined "Internet-in-the-Sky," a project he shares with childhood friend Bill Gates, the Microsoft Corp. chairman. It features an intricate constellation of satellites -- 288, as first contemplated -- capable of delivering enormous amounts of computer data essentially anywhere.
Given the backdrop, some think McCaw is blasting his wealth into oblivion, chasing after a market too small to pay the considerable freight of satellites.
"McCaw tends to be captivated by the satellite sector," said Andrew Cole, an analyst at Adventis Corp., a Boston-based communications strategy consulting firm. "He's a little -- excuse the pun -- starry-eyed."
But McCaw says his critics misconstrue the nature of technological innovation: It moves by fits and starts. Those who fail leave behind critical lessons for those who eventually succeed. They also leave valuable assets at sharply discounted prices. In taking control of ICO, McCaw captured a nearly $5 billion investment for $1.2 billion. Iridium, rescued for pennies on the dollar, is back in business as well.
"We're taking advantage of those pioneers having a lot of arrows in their back," he said. Iridium and Globalstar "have basically, between the two of them, invested $10 billion and been able to create almost no revenue. . . . This doesn't work the way that they did it. We need to find the right value proposition."
McCaw's own history is intertwined with that of modern communications. His father, Elroy McCaw, assembled a nationwide group of commercial radio stations in the 1930s and 1940s from his base in Seattle. Then he branched out into television broadcasting and cable. When son Craig took over the family business, he expanded the cable holdings and entered the paging business early on.
And when the FCC opened the airwaves for the first cellular telephone licenses in the early 1980s, McCaw positioned himself at the center of the new industry. Through successful license applications and shrewd purchases, he created the first national wireless telephone network, selling it to AT&T Corp. in 1993 for $14.5 billion. Then he rescued a floundering mobile telephone business, Reston-based Nextel Communications Inc., turning it into a national network.
While that history may seem neat and linear in retrospect, McCaw emphasizes the uncertain steps and failed ventures along the way; the lag times between sound ideas and sound businesses. AT&T offered the first mobile telephone service in 1946, but it did not sign up millions of customers until a half century later, when cellular technology shrunk the phones and lowered the prices.
McCaw recalled his first job -- a summer stint selling cable service door to door for his father's business in Centralia, Wash., in 1966. He was 16.
"They all told me, 'I don't need it. Why would I want that?' " McCaw said. "Well, today, 95 percent of the people who said no to me have cable TV."
More recently, satellite television services evolved into a credible alternative to cable, despite years of skepticism.
As McCaw portrays it, the problem with Iridium and Globalstar was not a lack of demand. Large areas of the planet remain beyond the reach of cell towers. It will never be cost-effective for wireless carriers to serve towns tucked between the ridges of the Shenandoah, he argues. Oil rigs perched atop the globe on Alaska's North Slope are best reached from space. The first crop of companies aimed at these markets simply botched the technology and failed to satisfy customers.
"Making them carry around a brick all of the time isn't going to work," he said.
Iridium's phones were made heavier by the extra-large antennas and radios needed to send calls to the satellites. McCaw plans to makes his phones the size of a cell phone by putting the antenna and radio in a separate unit. Customers could mount these antenna units on their cars or carry fold-up versions in a jacket pocket or a purse, placing them near windows when they want to connect from inside buildings. A wireless transmission technology called Bluetooth would then connect the phones to the antenna devices.
McCaw has also opened up ICO's satellites -- still on the ground, in a Boeing hangar in Los Angeles -- and added systems to boost the data-transmission speed. Alongside voice telephone calls, high-speed Internet links are now a selling point.
McCaw aims to use standard wireless links to complement patchy satellite coverage. Where the phones cannot find an unimpeded path to a satellite, they would transmit via a cell tower. With some of the call traffic passing through these earthbound networks, McCaw said he can price his overall service slightly above today's wireless offerings.
But this alteration requires the blessing of the FCC. The airwaves ICO would use to transmit calls are now restricted to satellite links. Last month, ICO petitioned the FCC for permission to use some of its radio spectrum rights for a complementary wireless service on the ground.
This has placed ICO on a potential collision course with the wireless industry, which has had to pay billions of dollars for rights to spectrum. Verizon Wireless, the nation's largest carrier, recently paid more than $4 billion for the right to serve New York City alone.
The satellite companies, though, received their slice of spectrum for free. Congress took that step to help the satellite telephone industry get off the ground. Given that McCaw brings a reputation as a master manipulator of the regulatory process, an expert at arbitrage, some of the wireless carriers assume that his plans are really aimed at taking spectrum he got for free and turning it into the same commodity for which they have paid so dearly.
"One has to take a look at what they'll be doing," said Brian Fontes, senior vice president for regulatory affairs at Cingular Wireless, the nation's second-largest mobile telephone provider.
McCaw seeks to sell the FCC on the rule not as a means to compete with the wireless industry but as a way of bridging the "digital divide." Without the right to add the terrestrial component, he will not launch ICO, he says. That would deprive rural areas of high-speed Internet links.
"We're trying to serve niches, as opposed to going after the meat of the market," he said.
Moreover, he argues, the success of ICO is a crucial proving ground for satellite technologies -- a method of finding the best way to reach rural areas with services. Unless ICO is a success, Teledesic will stay grounded as well, further impeding the spread of services to the hinterland.
"We're sort of the last best chance for this segment of the market to work," McCaw said.
Whatever the merits of the spectrum debate, few would argue with that assessment. Globalstar explained away Iridium's bankruptcy as an isolated event, one that said more about Iridium's management skills than a lack of demand for satellite phone service. Iridium began marketing service before its phones were widely available. Its initial prices reached $7 a minute.
But then Globalstar failed to attract customers as well. The company this month warned that it may file for bankruptcy protection if it cannot negotiate new terms with its creditors. Today, doubts abound about the prospects for any global satellite phone service.
"They totally guessed wrong on how fast cellular would expand," said Michael S. Alpert, president of Alpert and Associates, a D.C.-based communications consulting firm.
But McCaw and his stature are not easily dismissed. As some see it, if he still believes space is a profitable pathway for telephone calls, there must be money up there.
"He brings a huge pedigree," said Robert Peck, a satellite analyst for Bear, Stearns & Co. "That's one of the big things holding the project together."
Still, the communications world has seen several billionaire entrepreneurs fail spectacularly. Two former highflying McCaw-backed companies, Nextel and Reston-based XO Communications Inc., are now struggling amid a general industry rout.
"His crest has fallen," said Cole, the Adventis analyst. "There's an emerging school of thought that says everything he touches is not necessarily a good thing."
Iridium's largest investor was electronics giant Motorola Inc. Globalstar's largest backer is Loral Space & Communications Ltd., whose chief executive, Bernard Schwartz, is an industry legend. Such lineage provided no immunity.
"If anybody can do it, McCaw can," said Jeffrey Wlodarczak, an analyst with CIBC World Markets Corp. in New York. "But people said exactly the same thing about Bernard Schwartz, too, and he bit off a little more than he can chew.
"Craig has a nice record of success. He seems like a pretty prudent guy. But this industry is littered with people who had a great reputation beforehand and left with tattered reputations."
© 2001 The |
