Internet-in-the-sky dives

Posted: Thursday, October 03, 2002

SEATTLE (AP) -- Envisioned by cellular phone pioneer Craig McCaw, backed by software genius Bill Gates -- and financed in part by their bottomless wealth -- the idea of delivering high-speed Internet connections via a constellation of satellites seemed almost a sure thing.

But after 12 years of management changes at Bellevue, Wash.-based Teledesic, network design revisions and most recently, turmoil in the telecommunications world, 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,'' said spokesman Todd Wolfenbarg-er.

The decision, announced Monday night, means layoffs for 25 people. Another 10 or 12 employees will stay with Teledesic and evaluate ''possible alternative approaches'' to the business, according to a press release from the company.

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

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

And Teledesic certainly had its star power.

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

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

''It didn't help it by any means -- the turnover in management,'' said Sean Badding, vice president of telecommunications consulting and research firm The Carmel Group. ''It's hard to have consistency and hard to develop your roadmaps and service with different types of visions that are being replaced every so often.''

And the designs and scope changed as well over the years. Meanwhile, the employment level shot as high as 200 people, Wolfenbarger said, falling to about 40 until Monday's announcement.

The final straw, Wolfenbarger said, has been the turmoil and scandal roiling the financial markets, particularly affecting the telecommunications industry.

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.

The decision shows that McCaw, whose legacy as a cellular telecommunications pioneer remains intact, is not invulnerable, said O. Casey Corr, who authored a biography of McCaw called ''Money from Thin Air.''

''Craig was supposedly a genius who could see the future and see around corners,'' Corr said. ''This proves that he's mortal.''

There are companies delivering Internet connections over satellites, but Teledesic is ahead of its time, said Badding. ''At this time, there are more questions than answers about the viability and the economics for these types of services.''

But he remains hopeful that McCaw will come back to bring the concept out of hibernation.

''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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