(FORTUNE Magazine) – My friend Albert is a globe-trotting TV producer. On long trips, he takes three cell phones, each capable of working in only one area of the world. I tell him I'm writing an article on Iridium, the satellite network that lets you send and receive phone calls and pages anywhere. He says, "If I could have one phone I could take anywhere, I'd be the happiest man on the planet." What if it resembled a brick with a baguette sticking out of it? "Umm ... I'd rather stick to my little Nokia."

Iridium's clunky phone (shown left at actual size; the baguette-like antenna wouldn't fit on the page) is actually the least of its problems. The company's $5 billion fleet of 66 satellites has been plagued with software glitches, failed launches, and costly delays. Motorola and Kyocera, which manufacture the handsets, have been having production problems. Worse, Iridium announced in March that it would miss first-quarter revenue and customer targets dictated in its loan agreement. Even an optimist like Merrill Lynch analyst Tom Watts is predicting that the company will lose $1.68 billion this year.

The word "carnage" comes to mind. Iridium, which hit a high of $72 last May, is trading at around $20. Short-sellers now hold 23% of its shares, making Iridium the third-most-heavily shorted small-cap stock, according to Short Alert, a research service. "I don't think the system is viable under its current cost and capacity structure," says Robert Kaimowitz, an analyst at ING Barings.

Iridium's defenders--and there are many--say Wall Street is overreacting. (Iridium wouldn't comment for this article.) With deep-pocketed backers like Motorola, they say, the system can't fail. "In the long run," says John Coates, a Salomon Smith Barney analyst and Iridium enthusiast, "Iridium will prove that the stock's drop was a classic overreaction of the market." Boosters will also tell you the company is facing the steep fixed startup costs of any new phone network, and that now that it's completed, the network will gracefully pass a call originating in the Gobi Desert through a series of satellites to its destination in Fargo.

The problem is that Iridium won't be the only worldwide system for long. The cellular industry is working on its own land-based global network, which should be available in the near future (see Techno File, "The Battle to Control Your Cell Phone"). Iridium will also face challenges from four other satellite systems, the most notable of which is Globalstar, scheduled to open for business later this year. All told, these players will fight for a pretty small market: itinerant executives (like my friend Albert) and people in remote locations, like sailors and airline pilots and Sudanese goatherds. But it'll be hard to capture even these customers. Many airplanes and ships have existing systems, so there'd be little point in buying a $3,000 Iridium unit that costs $4 to $7 a minute to use. For the average executive (let alone Sudanese goatherd) it's an even tougher sell.

Motorola plans a smaller, cheaper phone. But a new handset--a new anything--to make this service more marketable can't come soon enough. Iridium's satellites last six years or so before they run out of fuel and burn up in the atmosphere. (Cool, no?) The company needs profits before it launches its next network around 2003, or it risks a disintegration of its own. "Iridium will be recognized as a pioneer that others will be able to learn from," says Mark Lowenstein of the Yankee Group, a consulting firm in Boston. "Think about Apple--I bet they make an Apple-like comeback." Of course, Iridium could also go the way of another pioneer: the Betamax.

--Henry Goldblatt