Motorola: another nail in Iridium's coffin?

You know you've got problems when your own parents are getting ready to disinherit you.

Troubled satellite-phone provider Iridium currently finds itself in this very situation. The money-bleeding system of 66 low-Earth-orbit (LEO) satellites has suffered threats from its lenders - who have twice extended the deadline for debt repayments, now set for August 11. But last week Iridium got an explicit threat from its original and principal equity investor: Motorola.

The electronics giant that spawned the Iridium project in the late 1980s said it would consider forcing Iridium into either bankruptcy reorganisation or even liquidation unless the Iridium venture can be restructured out of court.

Motorola also said it was recording a $US126 million write-down of its Iridium bonds for the second quarter and could take a charge against earnings in the third quarter to reflect the sinking of Iridium's stock. Iridium's stock now stands at $6.75 a share, down from a peak of over $70 early last year. Iridium's bonds are so far under water that they are trading for little more than 20 cents on the dollar.

Iridium offers worldwide mobile calling over a single handset by bouncing calls off a relay system of satellites several hundred to 1600 kilometres in space. It recently reduced its airtime charges from a maximum of $7 a minute to a range of $1.50 to $3 a minute.

But behind all the concern about Iridium - which has sold calling and paging plans to barely more than 10,000 subscribers - there was some good news for a rival LEO system that plans to use satellites for data communications. Undaunted by the Iridium nightmare, Motorola has agreed to design and construct satellites for Teledesic, a planned system of hundreds of satellites to provide high-speed global Internet access. The Teledesic venture, personally backed by Bill Gates and Craig McCaw among others, is slated for commercial use in 2003.

Other LEO systems, including those that will primarily offer voice calling, have moved to distance themselves for Iridium as well. The problem is not the demand for global calling, it was Iridium's execution, they say. For example, the pending Globalstar system is designed to price calls at around 80 cents to $1.50 a minute, Globalstar officials say.

Iridium rivals are also planning to avoid Iridium's massive solicitation of prospects until distribution channels and handsets are ready. During the second half of 1998 Iridium appeared to waste tens of thousands of requests into its call centre when it was unable to process orders, or even provide solid pricing and contract information.

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