McCaw Drops Iridium Bailout; 50,000 Face Service Loss Monday
Cellular phone magnate Craig McCaw on Friday withdrew his bid for the bankrupt satellite communications system Iridium, a move that risks turning the $5-billion system’s 66 existing satellites into space junk and ending service to its 50,000 subscribers as early as Monday.
McCaw’s Eagle River investment arm said it concluded that the already-aging system made a poor “strategic” fit with its plans to build a high-speed data network in the sky.
McCaw will go ahead with plans to pursue that business through ICO Global Communications, another bankrupt satellite network he is acquiring, and Teledesic, a partnership he formed in 1990 to launch a $10-billion network of 288 satellites.
McCaw’s withdrawal leaves only one known bidder for Iridium, which was designed and backed by Motorola Inc. That bidder is Gene Curcio, a Rolling Hills-based telephone entrepreneur who said he hopes to continue existing service and expand the system’s business into providing long-distance service to Latin America.
Curcio would not disclose the amount of his bid and would not specify the source of his funding, beyond attributing it to “brokers out of Chicago.” His lawyer said he filed proof of financial backing worth “several hundred million” dollars with the Iridium creditors committee this week.
It was unclear Friday whether Iridium would go ahead next month with a scheduled auction of its assets, which had been expected to be won by McCaw. A hearing on the auction set for Friday afternoon in U.S. Bankruptcy Court in New York was postponed until Monday. That is the day that Iridium’s last round of temporary financing, a $5-million advance put up by McCaw and Motorola, will run out.
“At this point it’s kind of a mess,” said Neil Forrest, the lawyer for Curcio. He did say that, after weeks of stiff-arming Curcio, Iridium has begun to consider his bid in earnest.
Many industry analysts regard Iridium as scarcely worth acquiring at any price, in part because its plan to provide mobile phone service in remote parts of the globe has been outdated by advances in conventional cellular service.
“[Iridium] is likely to be some of the most expensive space debris ever,” said William Kidd, an analyst at C.E. Unterberg, Towbin.
Motorola, whose engineers conceived the system, took a nearly $1-billion write-down of its interest in Iridium after it filed for Chapter 11 bankruptcy last August.
The Kirkland, Wash.-based McCaw built a family cable television business into a nationwide cell-phone network, which he sold in 1994 to AT&T; for $11.5 billion.
By then he had already turned his attention to satellite telecommunications, founding Teledesic as a partnership to build a satellite network to provide global phone and data services. Earlier this year he completed a deal to acquire ICO for a total of $1.2 billion, on expectations it could be folded into Teledesic to get the service operating within two years.
Iridium was to be a third leg of that network, but satellite professionals regarded it as the weakest. Iridium’s satellites are already technically obsolete because they were designed to carry only voice transmissions and cannot be reconfigured to handle the higher-speed demands of Internet service.
Nevertheless, observers said, McCaw could gain some operating experience and access to Iridium’s customers by acquiring the system at fire-sale prices. He offered last month to provide nearly $75 million in temporary financing--enough to keep Iridium operating until June, when he would decide whether to take over the company. He later abandoned that plan in favor of the $5-million infusion with Motorola that expires Monday.
