Mending fences: Shy Motorola tiptoes back to Teledesic

Motorola may be hedging its bets by moving forward with its Teledesic investment. After initially pledging $750 million to Teledesic, Motorola in May reportedly pulled an undisclosed number of engineers - some say as many as 600 - from the project. Speculators believed Motorola was growing shy of the satellite business because of the poor performance of satellite voice provider Iridium, also backed by Motorola. But on July 9, Motorola signed a system agreement with Teledesic and made a $150 million cash payment.

Why the turnaround? "Motorola wants one foot in the voice camp and one in the data camp," said Mark Zohar, senior analyst at Forrester Research. Because the Iridium satellite voice project is failing, Motorola may be hoping that a data venture, such as Teledesic, will succeed.

Few have hope for Iridium. "We see no way out of bankruptcy for Iridium at this point," Zohar said.

During last week's earnings announcement, Motorola said that bankruptcy liquidation is an option for Iridium - a comment that annoyed Iridium execs. Iridium responded by refuting the claim.

If Iridium doesn't file for bankruptcy soon, it might try to find a buyer - but at a "bargain basement" price. Vodafone Airtouch could be a suitor, Zohar said.

Although some believe that Teledesic may have a better chance than Iridium, it doesn't have a smooth road ahead. Like Iridium, Teledesic may be rendered less valuable by the passage of time and the progression of technology. When the concept of Iridium was born, terrestrial wireless systems weren't ubiquitous or high quality. Now terrestrial wireless systems are more reliable and widely used, threatening Iridium's market. And, broadband wireline and wireless systems could satiate the need for broadband data, threatening Tele-desic's potential market.

For now, Motorola is taking tentative steps with Teledesic. As part of the recent systems contract, the companies will embark on a three-month detailed technical review, during which they will work through the details of the complex project, said a Motorola spokesman. Only after that review is completed to the satisfaction of both parties will Motorola redeploy the personnel to the project, he said. "This is the right approach to take to be sure that everything is the way both companies want it," he added.

Teledesic views the system agreement more positively. It's a pledge, said a Teledesic spokesman, that the companies will work together and that Motorola will be Teledesic's prime contractor. "The key point is that we've resolved all our major issues with Motorola," he said, and called the technical review period an opportunity to "wrap up the final details of the system."