Tech Industry

2HRS2GO: Good tech still needs a good price

Business may be global, but after the failure of one effort, the bankruptcy of another and hardships at a third, it ought to be clear by now that no one wants to pay a lot for global wireless service.

Bill Gates and other investors committed another $315 million to Craig McCaw's ICO-Teledesic Global project, designed to provide high-speed Internet access through satellites. The collapse of Iridium, the bankruptcy of ICO Global Communications (acquired by McCaw and added to Teledesic) and financial difficulties at Globalstar Telecommunications (Nasdaq: GSTRF) haven't deterred McCaw from pressing ahead with his Internet-in-the-Sky dream of 288 satellites to handle the world's data.

The investments announced today come on top of previous infusions of $200 million from Prince Alwaleed Bin Talal and $121 million from an Abu Dhabi firm, among others. McCaw's Eagle River Investments company also chipped in $500 million to complete the $1.2 billion rescue of ICO from bankruptcy.

McCaw began Teledesic in 1994. Gates was an investor from the start. Bin Talal and the Abu Dhabi folks came on a couple of years ago. Other well-known stakeholders include The Boeing Co. (NYSE: BA) and Motorola (NYSE: MOT), although that last one has had a somewhat testy relationship with Teledesic. Besides, Motorola was already burned by the aforementioned Iridium.

I shouldn't stretch the comparisons, because ICO-Teledesic is different from Iridium and Globalstar in at least one significant way. While the latter two feature voice-oriented systems, the former is touting high speed Internet access -- up to 2,000 times faster than a dial-up connection, though I'm not entirely sure what kind of dial-up connection they're comparing to.

Still, it sounds like Teledesic promises maximum speeds well in excess of cable and DSL, currently the top two broadband solutions. No way Iridium was going to match that kind of performance, which is why McCaw decided against buying it earlier this year.

On the other hand, McCaw revived ICO from Chapter 11 because he saw a New ICO, with its non-broadband wireless phone and data offerings, as a way to ease into his grandiose scheme.

The New ICO now plans to formally begin service in 2003. To get there, the company reportedly needs another $2.1 billion, in addition to the investments unveiled today.

The Teledesic side of things seems to be constantly undergoing revision, although after six years, you'd think designers would have settled on something concrete by now. The last estimate I saw put an estimated $10 billion price tag to develop the Teledesic "constellation" of satellites. That estimate was from last year; don't be surprised if the price has increased since then.

ICO-Teledesic says it has enough money to operate for at least a year right now. But you can bet the company is eyeing an IPO at some point. It's hard to raise more than $12 billion from bank loans and bonds alone.

When McCaw & Co. take their child public, I hope they can provide some pricing details by then. Because no matter how good the technology is -- and it better be very good after the glitches experienced by the other satellite guys -- it will fail if it costs too much.

That may sound obvious, but obviously it isn't, or else technology companies wouldn't keep making the same mistake.

Ultimately, pricing sealed Iridium's fate. Though the company eventually worked out many of its technical problems, few people outside of the U.S. military -- gee, what a surprise -- felt like paying per-minute charges measured in dollars on an Iridium system. Especially when those fees are measured in cents on a ground-based wireless network.

You can find other pricing failures, recent and past.

One reason (though not the only one) why Apple (Nasdaq: AAPL) never secured a commading lead for MacIntosh was because in 1985, you could buy an IBM-compatible PC at a much lower cost.

DRAM from Rambus (Nasdaq: RMBS) remains more of a concept than a reality for most people for the same reason. Take two Dell PCs and configure them exactly the same way, save for the type of memory; the one with SDRAM will be more than $1,000 cheaper than the one with RDRAM.

Judging by its early advertisements, ICO-Teledesic plans to target corporate and government users. But even big businesses are cost-conscious; most won't pay more for satellite broadband than they would for business DSL (which is currently a rip-off at hundreds of dollars per month).

Yes, new technology always costs more. But in the case of network systems, satellites or otherwise, you want to build a sizable audience quickly to recover those expensive capital costs. That requires a competitive price.

And by the time Teledesic's birds fly, you can bet ground-based broadband will be cheaper, perhaps faster, and certainly much more available than it is at the moment. DSL and cable also will have the tag of "proven" technology, whatever that means.

So when Internet-in-the-Sky finally launches in a few years, it will face even stauncher obstacles. The least ICO-Teledesic can do is make sure price isn't one of them, especially when billions of public investor dollars will be at stake. 22GO>