Maybe it was just a matter of time before America's leading boy billionaires, software mogul William H. Gates III and cellular king Craig O. McCaw, joined forces. On Mar. 21, they announced a $9 billion venture that promises to revolutionize global communications.
Few had paid much attention to Teledesic Corp. until Gates and McCaw put up $5 million apiece and revealed their plans in a Federal Communications Commission filing. But the idea for Teledesic's satellite-based network comes from the labs of neither Microsoft Corp. nor McCaw Communications Corp. Instead, the company is the brainchild of an unassuming 62-year-old entrepreneur named Edward F. Tuck, who describes himself as "just a little guy who really likes to start companies."
Based in West Covina, Calif., Tuck is an electrical engineer who flies planes in his spare time--and has a number of high-tech startups under his belt. They include Magellan Corp., which makes small satellite receivers used by pilots to pinpoint their location, and Endgate Technology, an antenna maker. He won't disclose his net worth except to say that it's "substantial" on paper.
"SANITY CHECKS." In 1988, Tuck was between venture-capital deals when he dreamed up the idea of using a network of hundreds of satellites for worldwide communications. The inspiration came from Magellan, whose receivers rely on signals from 24 satellites launched by the Pentagon. By building and launching many hundreds more, Tuck figured, a company could gain large economies of scale. And there appeared to be a huge untapped market: Half the world's population lives two hours from a telephone.
Tuck began bouncing the idea off friends--"sanity checks" he calls the discussions--and developed a sketchy plan. After a few months, a friend who knew Craig McCaw said he thought the cellular entrepreneur might be interested. In late 1989, Tuck met McCaw in the mogul's room at the Beverly Hills Hotel. McCaw listened politely and asked a few questions, noting that such a system could be used for everything from video-conferencing to transporting medical images to and from virtually any spot on the planet. But he promised only to keep in touch. The scheme "was still pretty half-baked," Tuck admits.
By June, 1990, Tuck assembled his $20 million Kinship Partners II fund. He proposed a partnership with McCaw to set up the sat-ellite company, then named Calling Communications Corp. It was a sound choice: McCaw had the clout to arrange the international partnerships such an audacious concept would require--not to mention the construction and launching of 840 satellites. McCaw bit, instructing his development unit to buy a 27.8% stake for $3.7 million. Kinship took an 11.2% interest.
The seed capital went to hire engineers to develop detailed specifications. The plan relies on low-earth-orbit satellites operating directly over small receiving antennas on the ground. But each one can only provide service to a circle 450 miles in radius. That means many satellites are needed to blanket the globe--and without global coverage, the system probably will never generate the traffic to be economical. Says former FCC lawyer Richard M. Firestone: "If the costs are too high, they won't get the volume they need, but they can't get the costs down unless they get the volume. It's a vicious cycle."
While preliminary design work was under way, the project was kept secret, partly out of concern that if the world found out about McCaw's investment, others might file for the required 28-gigahertz radio band before the Mar. 21 FCC deadline. With the date nearing, McCaw and Tuck knew more cash was needed. McCaw called Gates, with whom he socializes, and proposed they each put up $5 million for 30% stakes. Gates asked Microsoft technology guru Nathan Myhrvold to review the plan. When Myhrvold signed off, Gates signed on.
SPECTRUM SQUABBLE. Gates, who won't discuss the project, is eschewing any operating role. Separately, he has agreed to invest $30 million of Microsoft's money, and $10 million of his own, in Nationwide Wireless Network Inc., a $150 million joint venture with Mobile Telecommunications Technologies Corp., to build a giant messaging service.
Teledesic's vision is similarly daunting. It may not get the spectrum it needs until the FCC makes its decision in late 1994, since wireless cable-TV operators want the same frequencies. Until such issues are solved, it will be tough for Teledesic to raise the billions it will need. But the marquee value of its principal backers could help give Ed Tuck's dream a fighting chance.