Funding stabilizes satellite firms

Money, if not widespread confidence, is finding its way back into the satellite industry.

Money, if not widespread confidence, is finding its way back into the satellite industry.

ICO-Teledesic Global Limited, the holding company created by cellular phone entrepreneur Craig McCaw's takeover of the former bankrupt satellite phone service ICO Global Communications, today announced additional investments potentially totaling more than $1 billion.

The new investments follow a similar cash infusion for Globalstar, a competing satellite voice and data service backed by commercial space giant Loral Space & Communications and Qualcomm, a major wireless technology firm. Globalstar earlier this month exercised an option giving the company access to $250 million in corporate loans.

Flush with newfound funding, the two satellite ventures can forge ahead with their fledgling business plans, working to establish themselves as potential new competitors in the cutthroat communications market.

Not long ago, industry experts forecast the death of many advanced satellite-based communications services after the high-profile flameout of Iridium and ICO's later bankruptcy and ensuing rescue. But the latest round of funding will stabilize the companies, for the time being, and could serve to put skeptics at bay.

Analysts say satellite technology boasts some inherent advantages over other methods of transmitting voice and data, namely its cost-effective ability to reach remote locations. But satellites also carry certain disadvantages, including their higher cost structure for delivering services to a mass market.

"There's still a good chunk of the country and the rest of the world that will only be economically viable to serve with satellites," said Michelle Abraham, a satellite industry analyst with Cahners In-Stat Group. "I think that's why you're seeing the cash infusions."

Abraham said ICO-Teledesic and Globalstar would be well served to learn a lesson from Iridium's woes. Iridium's phones initially cost up to $3,000 each with per-minute service charges of up to $7 per minute.

"There's demand for these (satellite) services, but it depends on the cost and the price of the equipment," she said. "There's still a lot of uncertainty."

Teledesic, a much-anticipated satellite Internet access service backed by McCaw and Microsoft chairman Bill Gates, expects to launch its high-speed Net service around 2004.

Under today's new plan, McCaw's investment unit Eagle River will contribute $500 million to the holding company, while Gates will chip in $100 million via his personal Cascade Investment group. Clayton, Dubilier & Rice, a private equity investment firm, will invest $150 million with an option to contribute another $200 million later.

For its part, Globalstar's newfound cash is expected to keep the company afloat until next February or March, according to the firm. The company, which has quarterly operating costs of about $125 million, now has $340 million in reserve and could add to that with any substantial revenue.

"Right now this $250 million should completely reassure people that we are here to stay and there are no more remaining problems with our liquidity," Globalstar spokesman Mac Jeffery said.

Separately, Globalstar today launched its commercial service in Peru and expects to provide coverage to most of South America within the next month.