Teledesic Set to Fulfill Its Sky-High Goal for Satellites

WASHINGTON — It was barely a year ago that Teledesic Corp. seemed like a costly pipe dream: Neither investors, regulators nor scientists took seriously the company’s plans to spend $9 billion to launch an 840-satellite global communications network.

“A lot of places we went, people’s eyes would really glaze over,” said W. Russell Daggatt, president of the Kirkland, Wash.-based company, which was founded in 1990 by Microsoft Chairman Bill Gates and cellular phone mogul Craig McCaw.

But people are paying attention now. After a remarkably effective lobbying campaign in which Teledesic hired a top Federal Communications Commission official to press its case and, separately, set up a $25,000 fund to subsidize international travel for the FCC’s top brass, the company is now on the verge of gaining crucial regulatory support for its project.

Critics say Teledesic has stepped over the line in its efforts to secure the rights to the radio frequencies needed for the system. Rep. John D. Dingell (D-Mich.), ranking member of the House Commerce Committee, last month sent a letter to FCC Chairman Reed Hundt expressing misgivings about the Teledesic fund for FCC travel.

Potential Teledesic rivals say the frequencies, which have twice the capacity of those currently set aside for radio and television, should be shared rather than granted exclusively to one company. Communications officials in Europe, whose support will ultimately be crucial to building the global system, are also wary about granting so much spectrum to a single company that does not yet have the financing to go forward.

Nonetheless, barring a last-minute breakdown in negotiations, the FCC is expected to grant Teledesic its spectrum sometime in the next few months. And this fall, the World Radio Communications Conference will decide whether Teledesic gets the rights to use that spectrum around the globe.

Teledesic’s regulatory battle--nearly a dozen companies have tried to block its spectrum request--stands in contrast to the experience of several other proposed global satellite systems, who faced little opposition because they sought smaller slices of the airwaves that were relatively free of incumbent users.

“I don’t think they walked into it blindfolded . . . but perhaps they could have possibly misunderstood the extent to which they had to push the regulatory noodle up the hill,” said John F. Windolph, an executive with Iridium LLC, a Washington-based rival that next month will launch the first three of 66 planned satellites to handle a satellite-based wireless telephone system. “But they were quick students of the process and were, consequently, able to be as effective as any company I’ve seen” in overcoming regulatory hurdles.

A key factor in that turnaround was Teledesic’s hiring of the law firm Gibson, Dunn & Crutcher to represent it in Washington.

The firm is home to Scott Blake Harris, a popular and gregarious Washington communications lawyer who worked with Hundt on Vice President Al Gore’s 1992 election campaign and was chief of the FCC’s International Bureau when Teledesic originally submitted its global satellite proposal to the agency.

Harris has been an omnipresent Teledesic strategist--frequenting public FCC meetings and winning a plum appointment from Hundt to chair the FCC industry advisory committee preparing for the upcoming international radio conference.

Harris has also helped Teledesic burnish its prospects at the FCC by helping to set up the controversial nonprofit organization to support international travel by FCC officials. Teledesic made its $25,000 contribution to the organization in September. Harris said the FCC’s general counsel’s office reviewed and approved the arrangement. But he said he could recall only one other firm that had contributed to the fund.

When Dingell got wind of the fund, he fired off his letter to the FCC, which asked the agency to reexamine its ethics rules that, he said, appeared “ridden with sufficient loopholes so as to permit” Teledesic to make a $25,000 contribution to the FCC “to fund the travel of U.S. officials to international meetings to negotiate agreements that are of direct and material concern to that company.”

Dingell said the fund created the “appearance of a conflict of interest, if not an actual conflict.”

But Teledesic’s Daggatt praised the fund as a way to advance U.S. interests overseas: “With the upcoming International Telecommunications Union Policy Forum, the World Trade Organization talks and the 1997 World Radio Conference, it is vital that the FCC have the funds necessary to travel and advocate effectively on behalf of the U.S. telecommunications industry.”

Teledesic certainly needs a global full-court press.

Its ambitious satellite system is a world apart from other satellite phone networks such as the 48-satellite system of San Jose-based Globalstar LP and Iridium’s 66-satellite network. Those companies aim mainly to provide phone service to globe-trotting business people and out-of-the-way places.

Teledesic, by contrast, is billing its system as global Internet access for the common man. Bouncing signals to, from and among its constellation of 840 satellites, Teledesic’s network would connect even the most remote villages with Main Street at data transmission speeds 60 times faster than today’s computer modems.

“It’s truly a stunning technical proposal,” said one FCC official who has reviewed Teledesic’s 172-page license application. “It’s like Al Gore’s dream information superhighway.”

And it’s a dream that’s now attracting some moneyed interest.

Giant British Telecom, for instance, has reportedly approached Teledesic about investing $3 billion in exchange for a 17% stake. Computer chip maker Intel Corp. has offered $1 billion, and several South Korean investors have also expressed interest in investing, sources say. Teledesic executives declined to identify any companies or individuals they have talked to but said both Gates and McCaw recently have doubled their investments in the company.

“We believe what they are proposing is doable,” said Allen Ashby, vice president for business development at Boeing Co.’s space systems division, which is bidding for the right to build and launch Teledesic’s satellites. “Certainly the economies of scale and the rapid learning curve reduction you get when you start cranking up to launch a whole bunch of satellites” augurs well for reduced satellite costs in the next few years.

However, others say that even if financial and technical problems can be overcome, there may not be much of a market for Teledesic’s high-flying services.

James F. Moore, chairman of the Cambridge, Mass., consulting firm Geo-partners, says Teledesic’s two-way, high-speed links may be overkill since the vast majority of people have little content to publish or upload to computer networks.

And William F. O’Brien, a former GTE Corp. executive who now heads his own international telephone company, thinks Teledesic’s services will be a tough sell in developing countries with little cash. “The per-capita income in a place like Uganda is only $250 a year, so it would amount to a huge percentage of someone’s earnings just to make a one-minute phone call,” O’Brien said.

Yet Teledesic remains undeterred.

“This is definitely a high-risk project,” said David Twyver, a onetime Northern Telecom Co. executive who recently replaced McCaw as chief executive of Teledesic. “But I’m working with two of the greatest entrepreneurs ever. And I think this has the potential to change the world as much as the first transcontinental railway.”