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http://www.startribune.com/stories/535/3343817.html Teledesic shuts down, dimming a dream Helen Jung Associated Press

Published Oct 7, 2002 NET07

Envisioned by cellular pioneer Craig McCaw, backed by Bill Gates — and financed in part by their bottomless wealth — the idea of delivering high-speed Internet via a constellation of satellites seemed almost a sure thing.

But after 12 years of management changes, network design revisions and, most recently, telecommunications industry turmoil, the vision of an Internet-in-the-sky has come crashing down to Earth.

Teledesic’s board has halted work by a contractor building two satellites, effectively putting the ambitious idea into deep hibernation.

“Obviously by suspending work on the contract, the board of Teledesic is saying, as we see it today, it’s not feasible to do this,” spokesman Todd Wolfenbarger said.

The recently announced decision means layoffs for 25 people. Another 10 or 12 employees will stay on, evaluating “possible alternative approaches,” a company press release said.

Teledesic, started in 1990, was envisioned as a network of space-based satellites that could deliver high-speed Internet to businesses and consumers anywhere in the world. The network would relay voice and data over a portion of the radio spectrum, with Teledesic hoping to offer full service by 2005.

It was the latest brainchild of one of Seattle’s favorite sons. McCaw almost single-handedly had spun together the new industry of cellular telecommunications. His company, McCaw Cellular, impressed telecom executives, Wall Street investors and customers alike and was bought by AT&T Wireless in 1994.

And Teledesic, although it never had more than 200 employees, certainly had its star power.

The company, based in Bellevue, Wash., had McCaw for a founder, Microsoft Chairman Gates as a backer, a $100 million commitment from Boeing Co. and $200 million from Saudi Prince Alwaleed Bin Talal. With some of the richest men in the world behind it, the company wasn’t hurting for money.

But despite the promise, the vision and the war chest, Teledesic had its issues.

Management changes

The company went through several management changes, including rotations through chief executives and co-chief executives.

“It’s hard to have consistency and hard to develop your road maps and service with different types of visions that are being replaced every so often,” said Sean Badding, vice president of the Carmel Group telecommunications research firm.

The designs and scope of the project changed as well through the years.

Ultimately, even men with very deep pockets have their limits.

“Really, for the people who have already invested money in this thing, it really doesn’t make sense,” Wolfenbarger said. “The risk is not outweighing what they think the reward is.”

Teledesic still owns rights to a portion of high-frequency spectrum.

But under agreements with the Federal Communications Commission, the company would have had to meet a series of deadlines with the ultimate goal of offering service by 2004, which it could not do under the current financial climate, Wolfenbarger said.

With no big customer lined up ready to commit, the board opted to put the project on ice.

“[McCaw] was supposedly a genius who could see the future and see around corners,” said O. Casey Corr, who wrote a biography of McCaw. “This proves that he’s mortal.”

Other companies, including McLean, Va.-based StarBand and Hughes, already offer Internet connections through a satellite network, though their service is far less ambitious than what Teledesic had planned.

StarBand recently filed for bankruptcy, joining other troubled satellite ventures, including Iridium. Backed by Motorola Corp., it built a satellite network offering voice and data service but, crippled by debt, ended up cutting off service two years ago. A new venture, Iridium Satellite, took over the bankrupt company’s assets.

Too much, too soon?

Teledesic, with its grander vision of high-speed connectivity, might have been ahead of its time, Badding said. “At this time, there are more questions than answers about the viability and the economics for these types of services.”

McCaw isn’t out of the satellite business altogether, either.

He still is a major investor in London-based ICO, which similarly hopes to offer satellite-based wireless communications in the future. At one point, McCaw sought to merge the company with Teledesic and issue new stock in the combined company. But he abandoned that effort early last year due to the sagging market.

Badding said he remains hopeful that McCaw one day will revive Teledesic.

“Teledesic still has tremendous amounts of potential in the future,” he said. “In the next seven to eight years, it clearly is going to be a different story.”

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