Metricom and The "Iridium Model"

August 17, 2001
by Derek Kerton

As I promised in my newsflash last week, I will now lay out my hopes for what's left of Metricom's Ricochet service.

There is a certain business algorithm near and dear to my heart, which I have called the Iridium Model, after the ill-fated Motorola-backed satellite telephone service. My definition of the algorithm is:

10 A group of well-meaning technological enthusiasts come up with a neat new solution in an expensive infrastructure-based market
20 They convince management to fund the expensive proposal
30 The solution is built out, at great expense and debt
40 Although a technological marvel, the solution cannot earn enough revenues to support its massive debt load, nor provide a positive return on the capital.
50 Prices to users are raised, lowering the value of the service and reducing adoption.
60 The business goes bankrupt.
70 Someone new buys the assets at 10 cents on the dollar, and re-launches
80 Lo and behold, the prices can be lowered, adoption rises, and revenues can support the smaller investment and debt.
90 Consumers benefit.
100 end

I love this model since it reveals the flights of fancy which characterize the human entrepreneurial spirit, and since I end up with cheap access to a great service, in this case satellite phones. (It is somewhat less palatable for original investors in the first effort.)

As soon as Ricochet filed for bankruptcy, I saw the potential for the Iridium Model. A better-run company could buy up the assets at a discount, and offer the service at slightly better rates, and possibly have access to more capital to speed expansion.

Sure enough, today I read that an auction had been declared, and that for as little as $80 Million, you could buy Metricom's Ricochet patents, spectrum, and assets, for which Metricom invested $1 Billion. Now the question is who will step up and buy...