Motorola struggles with satellite ventures

The firm's decision to pull resources from Teledesic to buoy struggling Iridium raises questions about Motorola's commitment to future satellite ventures.

4 min read
Motorola's decision to pull resources from Teledesic to buoy its struggling Iridium phone service raises questions about the communications company's commitment to future satellite ventures.

Motorola, the wireless communications and semiconductor company, has sunk billions of dollars into several space-age satellite technologies, but has so far seen little return on its investments.

Motorola holds a 19-percent stake in Iridium, the world's first satellite mobile phone service. An ambitious $5 billion, 66-satellite project, Iridium has suffered from product delays and poor subscriber numbers, and has lost two top executives.

Now, Motorola plans to pull engineers from Teledesic, another broadband satellite company, which is planning an "Internet-in-the-sky" in the next decade.

Teledesic, which has financial backing from mobile phone magnate Craig McCaw and Microsoft chief executive Bill Gates in addition to Motorola, is planning to launch a constellation of more than 250 satellites for Net access and other data services.

A Motorola spokesman said the company remains committed to its satellite projects, despite the troubles at Iridium and the decision to move workers from Teledesic.

Motorola first invested in Iridium at a time when mobile phone networks were limited in their geographic coverage. Iridium's plan to offer a global satellite-base mobile phone system that would allow users to call from any point in the world would also give Motorola an avenue to sell more handsets and two-way pagers. Yet recent improvements in mobile technology have stolen some of the limelight from Iridium's offerings.

Teledesic, a similar satellite service, differs from Iridium in that it focuses more on data transmissions, rather than voice transmissions. Teledesic is one of several proposed satellite-based Net access services that also will offer virtual private networks, video-conferencing, and other broadband services.

Analysts note that Motorola wisely wants to focus its attention on Iridium, which began offering service last year, rather than throwing resources at another satellite venture that--despite its huge profit potential--is years from completion. After all, Iridium offers service today while Teledesic is still in the planning stages.

But not all the engineers Motorola had working on Teledesic have been transferred to Iridium. Many have been reallocated to other "new business opportunities," Motorola spokeswoman Karen Culver said.

"This is a small internal realignment...It's not uncommon for Motorola to move people with specific skills around," Culver said. "It's being blown out of proportion.

"We are committed to our contribution to the Iridium system and to Teledesic," she said. "Motorola remains committed to satellite technology."

But analysts say that even Motorola has its limits.

"I think there's only so much money you can spend," said Evie Haskell, a satellite industry analyst at Media Business, a communications consulting and research firm. "They've spent a lot on Iridium, and it's a good system in many ways, and they don't want to see it go down the drain."

Other analysts said that Iridium's woes won't sour Motorola on other satellite ventures.

"I don't think they're going to scrap Iridium. I don't think the system is a total flop, it just takes more than they thought at first," said Antonette Goroch, a senior analyst at The Carmel Group, a satellite industry consulting firm.

Analysts said Motorola likely will learn from Iridium's early mistakes, and by moving engineers away from Teledesic, Motorola realizes that project is still years from completion.

"They're not going to plow a lot more resources into Teledesic until they get a contract. They've been operating without a contract for some time now," said Ed Snyder, a wireless equipment analyst at Hambrecht & Quist.

Motorola's Culver said the company is still in negotiations with Teledesic for a final contract.

Snyder said he does not believe Iridium will survive without revamping its business model aimed at mass market consumers, but that Motorola's bottom line will not be negatively impacted by Iridium's troubles. Most Wall Street analysts have not factored Motorola's satellite ventures into earnings and revenue projections, he said.

"I don't think the satellite stuff will hurt them that much, although the stock could get jerked around," Snyder said. "Motorola will still do well this year. Their handset division is doing much better and their StarTac line will continue to grow well."

Haskell said she believes Motorola will try and salvage what it can of the Iridium service before jumping into another new and unproven technology--that of broadband satellite data services.

"Teledesic, while it is a fascinating project, is still many years away," she said.

Motorola has backed away from satellite ventures before. The company abandoned its own planned broadband data service, which was to be called Celestri, in favor of Teledesic when it signed on last May.

Meanwhile, Iridium executives today told Reuters the company intends to restructure its debt arrangements with creditors, including Motorola, rather than seek bankruptcy protections.

Iridium has until May 31 to renegotiate its loan agreements with creditors. The company recently hired Donaldson Lufkin & Jenrette to help advise it on how best to reduce its financing costs.

Motorola could stand to take a charge of about $500 million to $600 million if Iridium were to go bankrupt, Snyder said.

Reuters contributed to this report.