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Stars align in satellite-Net deal

In an effort to speed success to the struggling satellite sector, Craig McCaw's ICO-Teledesic and Boeing-backed Ellipso team for a worldwide satellite-communications system.

In an effort to speed success to the struggling satellite sector, two nascent space-based Internet companies agreed Wednesday to collaborate on a new worldwide satellite-communications system.

Noted cellular industry entrepreneur Craig McCaw's ICO-Teledesic Global Limited and the Boeing-backed Ellipso signed a definitive agreement to jointly plan, fund and build a satellite system capable of delivering a variety of communications and Internet services globally. The pact clears the way for a potential merger of the two companies' assets, the companies indicated.

"It's good for all these companies due to the up-front capital costs of these satellite systems," said Sean Badding, an analyst at The Carmel Group, a satellite-research firm. "It was almost a necessary strategy given the current market conditions and how hard it is to raise capital, especially in the communications space."

The move signals the continued commitment of McCaw, a Seattle-area billionaire who made his money in the cable and cellular industries and who owns significant stakes in XO Communications and Nextel Communications, among other investments, to make something in the satellite industry work.

The satellite sector is notorious in recent years for spectacular failures that include the bankruptcy of Iridium, the world's first satellite-based mobile phone service, and ICO Global Communications, which McCaw later acquired for $1.2 billion.

McCaw considered acquiring Iridium's assets in a bankruptcy court sale but backed away. Similarly, Globalstar Telecommunications, an Iridium-like satellite phone carrier, is facing financial problems and class-action lawsuits.

Other satellite-industry incidents have included a major U.S. paging system foul-up and other technical problems. These blunders and financial failures have raised serious questions about the economic and technical viability of satellite technologies for consumer services.

Still, several companies believe a market exists for satellites, which have the potential to provide high-speed Internet access and other advanced services almost anywhere on Earth.

XM Satellite and Sirius Satellite Radio are both trying to offer in-car music and talk radio to consumers via satellite--with strong support from automakers. DirecPC and StarBand both already offer broadband Net access via satellite and some of the world's largest satellite- and defense-industry names are backing future projects such as Astrolink, SkyBridge and Spaceway, among others. But most of these proposals are several years away from fruition.

For example, Teledesic, which also is backed by Microsoft co-founder Bill Gates, was originally slated for a 2004 start. But the company now believes a 2005 time frame is more likely. And Teledesic executives have said they are considering trimming the company's proposed network back from 288 satellites to a more manageable number.

Ellipso, based in Washington, D.C., has patented what it believes is a unique orbiting path for its satellites. In addition to aircraft giant Boeing, Harris Corporation and L-3 Communications back Ellipso.

ICO-Teledesic Global is a holding company that oversees Teledesic and the assets of the former ICO Global Communications, which has been renamed New ICO. McCaw plans to merge Teledesic and New ICO, pending regulatory and shareholder approvals. But the pact between ICO-Teledesic and Ellipso could lead to a new strategy.

"The mobile satellite industry has failed spectacularly in delivering on its promise to users," McCaw said in a statement. "We continue to be compelled by the scope of the market and the importance of providing services for the under-served in the United States and around the world. We look forward to pooling our talents and creativity with our peers in the industry to overcome the challenges that have dragged down those who have launched before us."