A close look at the proposed, re-organized global, mobile, satellite company ICO Global Communications Inc. [ICOGF] makes it very clear that the company has its work cut out for it before it initiates commercial service, scheduled for late 2002 or early 2003.

Getting to commercial service launch will be a long, uphill battle, fraught with technological, financial and regulatory risks. Once the company begins offering service, its major challenge will be revenue generation amidst fierce satellite and terrestrial competition.

In the near term, an important step in ICO’s bankruptcy reorganization is for any parties that object to its new business plan to file them on or before April 26. Another key step is for a scheduled hearing on the confirmation of the plan to be held May 3 in the United States and for scheduled hearings and meetings to occur in the first week of May in Bermuda and the Cayman Islands.

Risks, Risks, Risks

The number and complexity of ICO’s risks and challenges before reaching commercial service are mind-boggling. For example, just in the systems integration slice of network development, ICO will have to “fully integrate its space segment, the ICONet, ICO user equipment and the BOSS (business operations support systems) with interconnecting fixed and mobile networks, and with the systems of ICO’s service providers,” according to bankruptcy documents. (See Chart 1 for a timeline of ICO’s network development and planned service launch.)

A good part of ICO’s network development challenge will be incorporating high-speed data and indoor usage into the existing system. For example, high-speed data requires twice the power of its low-speed counterpart.

Indeed, ICO’s regulatory challenges are equally as daunting. Here are just a few: Satellite ground station (SAN) operators need to obtain all necessary government and regulatory approvals, consents and licenses for operation of the SANs; ICO service needs to be licensed and user equipment frequency needs to be approved in each country where service is to be offered.

Additionally, ICO faces several bandwidth relocation issues in the United States, increasing the company’s regulatory uncertainty and, possibly, its costs. For example, relocation of existing fixed land-based services users in the space-to-Earth band could cost ICO $37.5 million to $150 million, according to the company’s estimates.

Meanwhile, ICO will need to raise an additional $2.1 billion to launch its commercial service and another $700 million to reach cash flow positive, according to the company’s estimates.

That’s a total of $2.8 billion of additional funding for a $7.1 billion project that will have several competitors in an as-yet-unproven market. (See Chart 2 for ICO’s sources and uses of cash.)

ICO also may need additional financing if certain events occur, such as a delay in commercial service launch, or two or more satellite launch failures. The second situation is troubling, given the explosion of ICO’s F1 satellite in March onboard a Sea Launch rocket.

ICO Will Face Increasingly Fierce Competition

ICO’s biggest competitive advantage is that it will be the only global, mobile, fairly high-speed voice and data system offering service both indoors and out. Also, the company plans on offering voice quality calls comparable to GSM using a high-bandwidth, global, ground IP network.

However, ICO will face competition from various direct and indirect sources. ICO’s closest head-to-head competitor is likely to be Globalstar L.P. [GSTRF]. With a nearly three-year headstart on ICO, Globalstar will have first crack at the best customers in markets such as maritime and oil and gas that both ICO and Globalstar are targeting.

But, ICO will have an advantage in data speed: 144 Kbps compared to Globalstar’s 9.6 Kbps (which could change by late 2002). And, of course, much will depend on how Globalstar does between now and late 2002.

Other satellite competition will include ACeS, Thuraya, Spaceway, Cyberstar, Astrolink and Inmarsat. ACeS and Thuraya are regional GEO systems focusing on voice. Spaceway and the like will offer high-speed, fixed services. Inmarsat currently offers data speeds up to 64 Kbps – on laptops, not on mobile handheld units – and plans to increase speeds to 144 Kbps-432 Kbps sometime after 2003.

Craig McCaw’s Impact

One of the best things going for ICO is Craig McCaw. McCaw’s Eagle River Investments devised the plan to reconfigure ICO to provide data as well as voice and allow the service to be used indoors.

McCaw provides existing investors the “cover” to stay in and for new investors to opt in, which is very important given the additional sums the company needs to raise. Under McCaw’s plan, ICO’s existing unsecured creditors would get back 60 percent to 67 percent of their investments by staying with the company as opposed to less than 4 percent if ICO were to be liquidated in its current form, according to Eagle River documents.

Finally, aside from the regulatory and technological risks, ICO’s biggest problem probably will be the $7.1 billion needed to get to cash flow positive. That could be particularly damaging if price becomes a major factor in the demand for global, mobile services.

PBI Analyst Karekin Jelalian prepared this report. He can be reached at 301 340-7788 x2122 or [email protected].