Teledesic undaunted by satellite setbacks

But the ambitious project is focused on an uncertain and moving target. Teledesic won't be ready for commercial service until 2003 or later, while industry analysts expect that competing high-speed technologies--namely cable modems and digital subscriber lines (DSL)--will be widely available by that time.

Teledesic and some analysts say the company will thrive in niches not suited for these more common "broadband" technologies, such as in places where it's too expensive to lay cable or phone lines. Others aren't so sure, saying that the venture carries risks that seem as high as the altitude of its satellites.

The recent track record of satellite phone ventures Iridium and ICO Global Communications, both now seeking bankruptcy protection, bolsters concerns that commercial satellite services may be too costly and slow to deploy.

Teledesic and other satellite data companies differ from satellite phone firms because they use a spectrum of microwave signals that's more suitable for two-way data communications. Iridium and its peers primarily offer telephony, paging, and fax services; Teledesic and its rivals imagine a broader array of data services, possibly including email, stock quotes, and other information streams.

Analysys, a consultancy based in the United Kingdom, estimates that potential satellite data revenues will exceed $100 billion by 2011.

Still, data companies like Teledesic, SkyBridge, Spaceway, and Astrolink seemingly face the same race against land-based high-speed networks as their struggling counterparts in the satellite phone business. Satellite firms must also contend with high-speed fiber optic ventures by companies such as Global Crossing and Qwest Communications International.

Founded in 1990, Teledesic was spawned seemingly eons before cable modems and DSL lines became relatively well known. Publicly, the company remains optimistic that the broadband market will be large enough to support satellite companies.

"We only need to serve a small fraction of the broadband market to be successful," Teledesic spokesman Roger Nyhus said. "We don't see Teledesic competing with fiber," he added, and land-based systems "will only drive demand for our service."

Steve Blum, president of satellite consulting firm Tellus Venture Associates, said Teledesic and others like it will thrive by connecting far-flung remote offices, completing unfinished land networks, and other niche uses created by the world's increasing appetite for information bandwidth.

"It's not like you're looking for satellites to do the heavy lifting of trunk networks. It's going to be used for specialized applications," Blum said. "It'll be more expensive bandwidth on a per-bit basis when compared to terrestrial networks, but satellite can be very good at filling in gaps in coverage which can justify those higher costs."

Jimmy Schaeffler, an analyst at The Carmel Group, agreed. "Land-based systems will always be limited by the cost of deploying cable," he said. "There will always be smaller markets where a portion of users can't get service. It's a lot cheaper to put up a bunch of satellites, ultimately, than it is to wire the world."

The privately held Teledesic--which has backing by cellular phone magnate Craig McCaw, Microsoft chief executive Bill Gates, Motorola, Boeing, and Saudi Prince Alwaleed Bin Talal--will initially serve the large-business market in the United States. Eventually, the company expects the majority of its business to come from developing nations, according to Nyhus.

"You don't see people clamoring for fiber build-out in the developing nations because it's too expensive, and it's just not practical," he said.

Yet satellite networks face challenges of their own. The first of some 288 satellites are not set to launch until 2001--company executives admit they are considering reducing that number--and service is not likely until a few years later.

"Teledesic is not supposed to launch until about 2003. By the time they get to market there will be cheap DSL everywhere," said Iain Gillott, a wireless industry analyst at International Data Corporation. "The problem with satellite systems is they take too much money to build, and they take too long. By the time you do it the world has changed."

Gillott doubts that Teledesic ever will get off the ground--literally.

"I don't expect Teledesic to deploy," he said. "Teledesic is speculation. [McCaw and Gates] can't afford not to bet on it because if it pans out, playing catch-up will cost much more. It's a high-risk gamble."

The company contends that its backers are committed to the projects. "Even in the midst of Iridium's troubles we've raised several hundred million in private equity in recent months," Nyhus said. "We're fortunate to have investors with a long-term vision."

There have been signs of internal friction, however. Motorola pulled some engineering resources from Teledesic in May, though some analysts have suggested that the move may have been politically motivated because Motorola did not yet have a formal contract to design and develop the satellite network.

"The real question with Teledesic is: Is it a technology before its time?" Schaeffler said. If, like Iridium, Teledesic faces tepid demand, "they're going to have to lower their prices, or they're going to have to merge with somebody, or they're going to have to go out of business," he added.