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Iridium no harbinger
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August 16, 1999: 5:37 p.m. ET
Despite woes, analysts say satellite networks are still smart investments
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NEW YORK (CNNfn) - When Iridium filed for bankruptcy protection last Friday, no doubt a collective groan emanated from ICO Global Communications' headquarters in London.
At the time, ICO -- slated to roll out its fully integrated satellite telephone service worldwide beginning in August 2000 -- was attempting to salvage negotiations with strategic investors to provide a critical $600 million in additional funding.
But a bankruptcy filing from a key competitor quickly put the kibosh on ICO's fundraising plans, raising concerns about the overall health and future of the handful of firms racing to provide global satellite communications networks.
"These companies won't necessarily suffer from getting subscribers, but they will suffer from getting the rest of their investment, which we saw last week with ICO," said Elizabeth Harr Brickson, director of international wire practices at the Strategis Group, a Washington, D.C.-based research and consulting firm.
By Monday, however, many analysts and industry experts were promising brighter days ahead. Despite Iridium's and ICO's financial woes, analysts believe there are still wise investments among satellite telephone firms.
"There is a market here for satellite telephony, you just have to find the right price for it," said John Bensche of Lehman Brothers, who lowered his rating on Iridium's stock to "neutral" from "buy" Monday.
That right price has been an agonizing quandary for investors, who have seen Iridium's stock lose nearly 90 percent of its value since being spun off from Motorola (MOT) in March, while ICO Global has shed more than 72 percent from its January high.
But analysts note the cost and debt problems that forced Iridium's hand are largely individual concerns. At least two of its competitors -- ICO Global (ICOGF) and Globalstar Telecommunications (GSTRF) -- are much better equipped to avoid financial pitfalls, they said.
Critics complain that in addition to its massive debt load, Iridium also suffered from distribution and marketing problems that failed to generate enough subscriber interest to support its extensive satellite network.
"Iridium was basically two freight trains heading straight for each other on a collision course," said one analyst who asked not to be named.
Besieged by more than $1.5 billion in outstanding bank debt, Iridium finally succumbed to market pressures and sought bankruptcy court protection Friday. Twenty-four hours later, ICO announced it would substantially scale back a proposed financing plan after receiving commitments for far less than the $600 million it was seeking.
However, ICO carries substantially less debt net of cash than Iridium and already has received $3.1 billion to date from investors, including Hughes Electronics Corp. (GMH), which is building the satellites for ICO's network.
Likewise, Globalstar, which features smaller handsets and faster data capabilities than Iridium's system, has largely avoided the financial troubles of either company and has the rising stock price to prove it. Globalstar's chief investor is Loral Space & Communications (LOR).
Unlike ICO and Iridium, Globalstar has avoided severe financial problems and maintained investor confidence.
The key now, experts say, is convincing investors and potential subscribers that Iridium's problems are not contagious. If these networks cannot be successfully deployed within the next few years, some believe cellular systems will gain an insurmountable upper hand.
"The longer it takes satellite to come on the scene, the farther cellular is able to get to areas where they haven't been," Harr Brickson said.
Iridium's (IRID) stock closed unchanged Monday at 3-1/16. ICO Global rose 3/8 to 5 while Globalstar inched ahead 7/16 to 28-3/4.
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