Neither McCaw Nor Gates Could Keep Internet-in-the-Sky Alive

But after 12 years of management changes, network design revisions and most recently, telecommunications industry turmoil, the vision of an Internet-in-the-sky has come crashing down to Earth.

Teledesic's board has halted work by a contractor building two satellites, effectively putting the ambitious idea into deep hibernation.

"Obviously by suspending work on the contract, the board of Teledesic is saying, as we see it today, it's not feasible to do this," said spokesman Todd Wolfenbarger.

The decision announced this week means layoffs for 25 people. Another 10 or 12 employees will stay on at Bellevue, Wash.-based Teledesic, evaluating "possible alternative approaches," a company press release said.

Teledesic, started in 1990, was envisioned as a network of space-based satellites that could deliver high-speed Internet to businesses and consumers anywhere in the world. The network would relay voice and data over a portion of the radio spectrum, with Teledesic hoping to offer full service by 2005.

It was the latest brainchild of one of Seattle's favorite sons. McCaw had almost single-handedly spun together the new industry of cellular telecommunications. His company, McCaw Cellular, impressed telecom executives, Wall Street investors and customers alike and was bought by AT&T Wireless in 1994.

And Teledesic, although it never had more than 200 employees, certainly had its star power.

The company had McCaw for a founder, Microsoft Chairman Gates as a backer, a $100 million commitment from The Boeing Co. and $200 million from Saudi Prince Alwaleed Bin Talal. With some of the richest men in the world behind it, the company wasn't hurting for money.

But despite the promise, the vision and the war chest, Teledesic had its issues.

The company went through several management changes, including rotations through chief executives and co-chief executives.

"It's hard to have consistency and hard to develop your roadmaps and service with different types of visions that are being replaced every so often," said Sean Badding, vice president of the telecommunications research firm The Carmel Group.

The designs and scope of the project changed as well over the years.

Ultimately, even men with very deep pockets have their limits.

"Really, for the people who have already invested money in this thing, it really doesn't make sense," Wolfenbarger said. "The risk is not outweighing what they think the reward is."

Teledesic still owns rights to a portion of high-frequency spectrum.

But under agreements with the Federal Communications Commission, the company would have had to meet a series of deadlines with the ultimate goal of offering service by 2004, which it could not do under the current financial climate, Wolfenbarger said.

With no big customer lined up ready to commit, the board opted to put the project on ice.

"Craig (McCaw) was supposedly a genius who could see the future and see around corners," said O. Casey Corr, who authored a biography of McCaw. "This proves that he's mortal."

Other companies, including McLean, Va.-based StarBand and Hughes already offer Internet connections through a satellite network, though their service is far less ambitious than what Teledesic had planned.

StarBand recently filed for bankruptcy, joining other troubled satellite ventures including Iridium LLC. Backed by Motorola, it built a satellite network offering voice and data service but, crippled by debt, ended up cutting off service two years ago. A new venture, Iridium Satellite LLC took over the bankrupt company's assets.

Teledesic, with its grander vision of high-speed connectivity, may have been ahead of its time, said Badding. "At this time, there are more questions than answers about the viability and the economics for these types of services."

McCaw isn't out of the satellite business altogether, either.

He still is a major investor in London-based ICO, which similarly hopes to offer satellite-based wireless communications in the future. At one point, McCaw sought to merge the company with Teledesic and issue new stock in the combined company. But he abandoned that effort early last year due to the sagging market.

Badding said he remains hopeful McCaw will one day revive Teledesic.

"Teledesic still has tremendous amounts of potential in the future," he said. "In the next seven to eight years it clearly is going to be a different story."

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