Motorola teams with Teledesic

Motorola is investing $750 million for a 26 percent stake in Teledesic, the "Internet-in-the-Sky" venture led by Microsoft's Bill Gates and wireless entrepreneur Craig McCaw, executives said today.

Although downplayed in the announcement, the deal also calls for Motorola to combine its own proposed broadband satellite system, dubbed Celestri, with Teledesic. Celestri, a nearly $13 billion network that was proposed last June with much hype, was considered a direct challenge to Teledesic. At the time, Motorola's competing plan drew a critical response from Teledesic executives, including McCaw.

Bill Gates

Caught in a financial slump, executives at Motorola denied that the decision to team up with Teledesic stemmed from any concerns that building its own network would be too risky at this time. The systems at stake--which provide Net access via satellite, videoconferencing, and other data communications--cost billions of dollars to build and face intense competition from other wireless and wired networks. Rather, Motorola said the decision fits with the company's preferred strategy of supplying the satellites, but not running the networks that support them.

The Motorola investment in privately held Teledesic is subject to necessary government approvals.

SkyBridge, a broadband competitor, said today's announcement will not affect its future plans in any way.

"It is, however, an unfortunate development for the consumer that there will be only two...providers of broadband multimedia services," said Phillip Spector of Paul, Weiss, Rifkind, Wharton & Garrison, SkyBridge's law firm. "Studies commissioned by SkyBridge show that there is a huge demand for these kinds of services."

Motorola's investment is valued at $750 million, including cash and the value of design and development work that is being redirected from Celestri to the new joint effort. The amount of the cash portion was not disclosed. Matra Marconi Space, which had teamed up with Motorola on Celestri, now will join the Teledesic group as well.

Teledesic executives said the low-orbiting satellite network is expected to cost $9 billion. It has raised about $1 billion of that total so far. The executives said they will continue to land more equity investors, and that a public offering is likely down the road. The network is expected to be commercially operational in the year 2003. (That's later than some earlier estimates, but Teledesic denied that the launch timetable had slipped).

"This is a natural fit of core competencies, know-how, and vision," Motorola chief executive Christopher Galvin said in a statement. "Rather than continuing along our separate paths, we're combining our best efforts to deliver a new generation of broadband communications services."

Christopher Galvin

McCaw said: "I have long respected Motorola as a leading communications equipment manufacturer."

Motorola joins a growing list of investors in Teledesic. In April 1997, Boeing committed to invest $100 million in Teledesic. In April 1998, Prince Alwaleed Bin Talal Bin Abdul Aziz Alsaud of Saudi Arabia invested $200 million in Teledesic through family trusts.

The Prince's stake stands at 11 percent, Boeing's is at 4 percent, and other investors--including Gates and McCaw--control the rest of the company.