Merit Studios Hopeful for Its Iridium Rescue Plan

SAN FRANCISCO (03/23/2000) - The head of Las Vegas media company Merit Studios Inc. said today he's hopeful that Iridium LLC can be saved following preliminary talks Merit has held with Motorola Inc., the principal investor in the failed satellite venture.

"I am already in discussions with the legal department of Motorola," Merit's Chairman and Chief Executive Officer Michael John said in a phone interview today. John's plan is to use the Iridium system of 66 satellites as a vehicle for data transmission, instead of its previous role as a substitute for cellular telecommunications.

Using Merit's Wormhole compression technology, the Iridium satellite system could function using a single gateway instead of the multiple ones that had been in operation round the world to provide Iridium telephone service.

Motorola has yet to confirm the discussions with Merit.

"Every party is interested," John said. "Of course, it's complicated, it's not something you can get together in five minutes. I want to keep it alive."

Iridium went out of business last Friday, effectively ending its satellite phone system, after failing to find a buyer willing to take on the company's debt estimated at US$4.4 billion. As principal Iridium investor, Motorola Friday said it would start liquidating Iridium's assets while maintaining a limited Iridium service in some areas of the world for a matter of weeks rather than months. [See "Iridium to Cut Service Tonight," March 17.]Merit's John agreed today that the discussions do need to move rapidly in order to save Iridium's 66 LEO (low-earth orbit) satellites. "You need to fly low-orbit satellites like a plane, correcting their location to keep them in their orbit position," he said.

In order to rescue Iridium, a new company would be established to buy the satellite company's Washington, D.C.-based network operations control center, Merit said in a statement issued today. The company would be funded by a group of private investors headed by Merit's John. The group of investors would own 10 percent of the new company, and Merit would hold 30 percent, with the other 60 percent ownership being shared out among Iridium creditors and shareholders.

"We want to reorganize Iridium and make it profitable so that over the next 10 to 15 years Iridium secured creditors, unsecured creditors and shareholders get a chance to get something out of it," John said. "If they shut it down, there's nothing left."

The new company would pay all the costs to run and operate the satellite system and would hold the licensed rights for wireless data transmission via Merit's Wormhole technology, the Las Vegas company said.

Eddie Hold, principal analyst for wireless services at Current Analysis Inc., based in Sterling, Virginia, wasn't impressed by the Merit Iridium rescue plan.

"I don't see it -- it's time to let Iridium die," he said in a phone interview today. "Motorola doesn't appear to want to continue; their position seems to be, now it's time to let go and give up."

Hold pointed out that the Iridium system was designed to handle voice services, not data, and is a very expensive way to offer data transmission. Not only that, but the Iridium satellites will need to be replaced over the next couple of years, which will be extremely costly. "The lifespan of those satellites is five years; they'll start burning up soon," he said.

When asked about the failure of Iridium, Hold cited a number of reasons.

"The Iridium handsets were expensive and larger than a small brick, and you needed to add in all kinds of plug-ins to make them work in the different parts of the world," he said. "People today complain about the cost of cell phones, that pales into insignificance with Iridium's permanent rate of more than $5 a minute."

When Iridium launched, it wasn't possible to get a decent phone signal in different parts of the U.S. and the rest of the world, Hold said. However, during the years it took to develop Iridium, that problem went away, and getting a decent phone signal became much less of an issue, so one of the company's reasons for existing vanished, and its likely market shrunk significantly, he added.

Merit Studios, based in Las Vegas, Nevada, can be reached at +1-702-804-2616 or via the Internet at Motorola, based in Schaumburg, Illinois, can be contacted at +1-847-576-5000 or at

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