Satellite-Telephone Firm ICO Files for Bankruptcy Protection
Cash-strapped ICO Global Communications Ltd. on Friday became the second global satellite-telephone network concern to seek Chapter 11 bankruptcy protection this month, and analysts cast doubt on the fate of the industry’s other players.
The news of London-based ICO’s collapse came after the company defaulted on interest payments and scrambled unsuccessfully to raise more funds for its planned $4.6-billion satellite network.
ICO was founded in January 1995 and sold stock to the public last year. The company planned to build a global communications system using 10 low-orbiting satellites together with a wireless network on the ground.
ICO’s major backers and suppliers include El Segundo-based Hughes Electronics Corp., Japan’s NEC Corp. and Sweden’s Ericsson. The ICO system was supposed to start service next year.
Hughes Space & Communications, the satellite production unit of Hughes Electronics, won a contract in 1995 to build 12 ICO satellites, and Hughes Network Systems signed a contract to supply 100,000 satellite and cellular phones for the system.
Hughes has a 4% stake in ICO and has about $500 million in debt exposure to ICO, according to a Securities and Exchange Commission filing.
“We need to get some more info before we can really make an assessment as to what it means to us,” Hughes spokesman Richard Dore said.
In its Chapter 11 petition, filed in U.S. Bankruptcy Court in Wilmington, Del., ICO listed assets of $2.5 billion and debt of $1.1 billion.
ICO’s stock, which has lost more than half its value this year, fell 63 cents on Friday to $3.63 on Nasdaq before trading was halted.
“Our Chapter 11 filing should provide ICO with the extra time needed to reorganize, recapitalize, and complete our financing,” ICO Chief Executive Richard Greco said. “We believe that our actions will be successful, and that ICO will emerge as a very effective competitor in providing global mobile satellite-telephone services.”
But analysts were not surprised by the collapse of ICO, and they cautioned that the move will make fund-raising even more difficult in an industry that must spend billions of dollars before the first customer uses the network.
“This kind of ruins the whole [business] category,” said Phillip Redman, program manager for wireless mobile communications at Yankee Group, a Boston-based research group. “It focuses attention on the financial stresses that are on a satellite system right up front. It’s very expensive to build these networks.”
Globalstar Telecommunications Ltd., another satellite network company, weathered the bad news as investors pushed its stock price up $1.19 to close at $28.88 in Nasdaq trading.
Still, analysts worried that the double whammy of Iridium’s and ICO’s funding problems will hurt Globalstar, which is backed by Loral Space & Communications Ltd. and others.
Two weeks ago, Iridium filed for bankruptcy protection after defaulting on more than $1.5 billion in loans amid mounting losses.
“Iridium sufficiently scared investors so that it has become very difficult for satellite-telephone companies to raise funds in the debt or equity markets,” said Les Levi, a telecommunications analyst at Chase Securities Inc. in New York.
Iridium, Globalstar and ICO all planned their networks to provide wireless phone and data transmission service worldwide, especially in regions not yet served by wireless or traditional phone services.
Other ventures, including Microsoft Corp.-backed Teledesic, hope to create satellite networks for worldwide Internet access.
Iridium, whose biggest backer is Motorola Inc., built a 66-satellite communications network and last fall became the first of several similarly ambitious projects to launch commercial service. But sales were slower than expected and investors could not agree on a restructuring plan to prevent bankruptcy.
Bloomberg News was used in compiling this report.
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ICO Global Communications is the second global satellite-telephone network concern to file for bankruptcy protection this month. Iridium filed Chapter 11 two weeks ago. Weekly closes and latest:
Aug. 27: $3.63
Source: Bridge Information Systems
