Iridium on the verge of bankruptcy

The project in which many countries including India are investors is likely to show enormous losses both for its investors and the creditors. Iridium shares were trading at $ 6.75 a share on Wednesday. Last year, the shares peaked at $ 70 a share.

Disagreeing with Motorola’s comment, Iridium’s new executive officer, John Richardson, said he was "irritated" by Motorola’s comment and that bankruptcy, "from our perspective, is simply not on the radar screen."

But he admitted: "we have to do betterthan in the past." The poor performance of Iridium has made the industry concerned about the fate of other similar global satellite phone systems that have been planned, the Wall Street Journal reported.

Iridium had planned to add 50,000 new subscribers a month this year but got only 10,294 customers for the first quarter, according to the Journal. The company lost $ 1.25 billion last year and appears to be losing money at close to the same rate this year.

Iridium’s banks, which are owed $ 800 million in a secured line of credit, would demand the Iridium partners’ $ 2 billion of equity as part of any restructuring. Bondholders have already lost most of their stake, with the issue maturing in 2005 trading this week at 20.50 dollars per 1,000 dollar bond, down from 108 early last year.

Iridium has a total of $ 1.62 billion in senior notes outstanding, and $ 1.1 billion of bank debt. Motorola has written off its $ 365 million equity interest in Iridium but its non-equity exposure amounts to $ 2.2billion.

Analysts, said the Journal, estimate that Motorola has established a reserve of about $ 1 billion against these potential losses. Other planned global satellite phone systems, such as Globalstar Telecommunications Ltd, Bermuda and ICO Global Communications, may encounter similar problems, the Journal said.

Even the fate of more ambitious high speed networks planned for the future like the Teledesic, an internet in the sky project supported by wireless tycoon Craig McCaw and Microsoft chairman Bill Gates, looks uncertain. "There are too many other projects at risk if the problem is with the concept and not Iridium’s execution," says Timothy O’Neil, an analyst.

One Iridium consultant told the Journal: "Motorola is probably scratching its head, trying to decide whether it is throwing good money after bad."

Teledesic last week chose Motorola to build the 288 satellites it wants to put in low-earth orbit by 2003, and Lockheed Martin to launch them. However, says the Journal, Teledesic, likeIridium, faces rapidly increasing competition, in its case from a huge expansion of global fiber networks that can operate at higher speeds, and from new terrestrial wireless networks that will offer relatively high speed data service within three or four years.