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Telecom company's satellite plan may hinge on L.A. jury

September 15, 2008|Martin Zimmerman | Times Staff Writer

A legal battle that could play a key role in the future of wireless phone pioneer Craig McCaw's dream to provide video and other services to mobile users around the globe is now in the hands of a Los Angeles jury.

The dispute pits billionaire McCaw and ICO Global Telecommunications against aerospace giant Boeing Co. and stems from a decade-old plan to launch a network of satellites that would transmit an array of mobile services, including TV programming, navigation and roadside assistance to earthbound users.

The venture stalled, and ICO is now seeking more than $2 billion in damages and interest from its former contractor.

The trial began in June before Los Angeles County Superior Court Judge Emilie H. Elias, and attorneys for ICO and Boeing delivered their final arguments Thursday and Friday. The eight-man, four-woman jury was expected to begin deliberations today.

A win in the courtroom would provide a significant boost for Virginia-based ICO, which was revived from bankruptcy eight years ago by an investor group led by McCaw, who is chairman of ICO.

The court battle dates to the company's origins in the 1990s, when ICO contracted with El Segundo-based Hughes Electronics Corp. to build and launch a dozen satellites that would form the basis of its globe-girdling network.

Only two of the satellites were ever finished. One of those was lost when the rocket carrying it into space exploded. The second made it into orbit but is of little use without the 10 others, which sit almost completed in a local warehouse.

Boeing inherited the problem when it bought Hughes' satellite business in 2000 and, according to ICO attorneys, made matters worse by demanding that ICO pay an additional $400 million to finish the job it had originally hired Hughes to perform.

Moreover, ICO contends, Boeing itself had gotten into the satellite-based communications business and now viewed its erstwhile customer as a competitor.

"Despite the damage inflicted by Boeing, we're still here," ICO attorney Barry W. Lee told the jury last week. "But that's not what Boeing wanted. Boeing wanted ICO dead and gone."

Boeing originally sued ICO in 2004 after ICO terminated its contract for the satellites. ICO countersued, accusing Boeing of breach of contract and fraud, among other things. ICO is seeking around $1.5 billion in actual damages -- more than $2 billion with interest -- and unspecified punitive damages.

Boeing denies any wrongdoing. The company contends that ICO, struggling to weather the telecom bust of the early 2000s and unable to raise additional financing, sought an extension of the satellite delivery schedule in an effort to conserve cash.

Boeing said it was agreeable and reached an agreement that, according to the aerospace company, should have settled the matter. Instead of wanting to dispose of a potential competitor, Boeing said, it actually wanted to keep ICO afloat so the satellite deal would be completed.

But ICO later balked at the higher price tag, the aerospace company contended, and lawsuits ensued.

"They're coming in here and saying they want to walk away from their contractual obligations and get something for nothing," Boeing attorney Brad Brian told the jury on Friday.

The outcome of the trial could be crucial for ICO. Although this year the company got a working satellite into orbit over North America -- using a different contractor, Loral Space & Communications -- it reported no revenue and a net loss of $60 million for the first six months of 2008. Its stock is down 23% this year, closing Friday at $2.43, down 7 cents.

With a satellite now in orbit, ICO said it expected to begin beaming down TV programming to cars and other mobile locations next year. It faces a growing pack of competitors, such as Qualcomm Inc.'s MediaFlo service, although analysts have noted that ICO's satellite may enable it to cover more territory -- and reach more customers -- than its ground-bound rivals.

In an interview last week, McCaw said the company's survival wasn't at stake in the Boeing case. But he said he considered a ruling in ICO's favor important to the company's international expansion plans, which depend in part on getting the 10 warehoused satellites completed and aloft.

"The company is very much moving forward, regardless of the outcome of this case," ICO General Counsel John Flynn said Friday.

McCaw, who divides his time between the Seattle area and Santa Barbara, won fame as the founder of McCaw Cellular Communications Inc. The company, operator of the first national cellphone network, was sold to what was then AT&T Corp. in 1994 for $11.5 billion.

Since then, McCaw has been involved in a number of ventures, including XO Communications Inc., which went through a bankruptcy in 2002, and Nextel Communications Inc., which was acquired by Sprint Corp. in 2005 for $35 billion.

More recently, he founded Clearwire Corp., which is building a national wireless broadband network and went public in March 2007.


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