Count one less player in the specialized mobile radio game. As of Oct. 18, Geotek Communications Inc. will be but a memory of yet another start-up with a good idea that just couldn’t make it work.
The company, which attempted to both provide the technology for and operate a Frequency Hopping Multiple Access enhanced SMR network, is laying off its 160 employees and selling off assets to recoup the $600 million it raised to finance the venture.
According to Geotek’s investment bankers at Rothchild Inc., the bulk of the asset sale will revolve around the company’s spectrum. Wilbur Ross, senior managing director at Rothchild, said the company is in the process of getting permission from the bankruptcy court to enact a parallel asset selling program, which he called the first of its kind.
He said Geotek is assessing offers for its spectrum assets as a whole and will determine the winning bid by this week. However, the company also is requesting bankruptcy court permission to conduct a parallel bidding process that would allow it to solicit bids for the same spectrum on a market-by-market basis, and then compare the aggregate to the winning bulk-sale bid.
Under bankruptcy law, Geotek must accept the best offer. Ross said he believes the aggregate of individual market bids will outweigh that of a single bid for all, but it requires bankruptcy court permission to pursue both.
“As far as I know, this is the first time a bankrupt company has run a process in parallel,” Ross said.
Regardless of the process chosen, many predict Nextel Communications Inc.will want to pick up the spectrum. “We would love to have [Geotek’s spectrum] in our portfolio, but we are forbidden from purchasing it because of the consent decree we signed” in a 1994 antitrust settlement involving the purchase of Motorola Inc.’s SMR properties, said Steven Shindler, chief financial officer of Nextel.
Ross said he expected the asking price to be in the nine-figures range to cover what it can of Geotek’s $600 million in financing. “Our objective is to get as much of that back as possible,” Ross said.
Geotek holds licenses in 14 major markets, which make up 80 percent of its total spectrum value. The markets include Atlanta; New York; Dallas, Houston and San Antonio; Washington, D.C.; Philadelphia; Boston; Miami, Tampa and Orlando, Fla.; Chicago; San Francisco; and Phoenix.
The company also owns 30 percent of an FHMA license in Korea and 70 percent of a similar license in Argentina, which will be sold off separately.
Aside from spectrum, all Geotek network equipment will be auctioned off piecemeal, Ross said. Geotek also owns a stake of GMSI, a systems integrator company that Ross said may have sufficient intellectual resources to allow it to survive independently.
According to Ross, there was talk of possibly selling the company with spectrum, equipment, applications and customers intact. Had Geotek been acquired, its customers likely would have been able to continue using the same applications on the same technology, just paying a different operator. But selling off Geotek’s assets was found to be a more lucrative choice.
“We examined that,” Ross said of a possible sale. But “we believe this is the best way to maximize value.”
This comes as bad news for the close to 14,000 Geotek customers reported before the company entered bankruptcy, many of whom had only positive things to say about Geotek service and applications.
Dan McGinnes, of Veterans Taxi in Boston, said he had more than 100 units using Geotek’s automatic vehicle location service, as well as group talk functions and two-way messaging.
“I’m very sorry to see it go,” he said. “We used all their features and integrated our dispatch system with them … They had a great product.”
For a start-up company, 14,000 happy subscribers seems like a good thing, but analysts said Geotek just tried to do too much with too little to survive.
Telecom analyst Steve Virostek at the Strategis Group blamed Geotek’s demise mostly on trying to be two start-up companies at once, both a manufacturer and a carrier, using an unknown proprietary technology. Geotek’s FHMA system aimed to commercialize a technology gained from Israeli military, developed for wide open battlefields, and apply it to an urban environment.
Roberta Wiggins, wireless data analyst at the Yankee Group, agreed. “It made (potential) users nervous,” she said. “You just don’t want to be locked into proprietary standards, especially in vertical markets.”
Another obstacle for Geotek was the competition it faced.
“They did have a good understanding of the data market. They had a good grasp of the applications and uses for data,” Wiggins said. However “it wasn’t a large enough market opportunity to compete with the incumbents.”
And Geotek technology was inflexible, said Patrick Sweeney, president of the Bishop Co. The wireless industry is moving toward more open standards and flexibility, such as dual-mode phones, which offer customers a choice of transmission methods. Providing a service based on a proprietary technology narrows customer choices, which can be difficult, Bishop said. “It’s tough even if you have all the money of a Motorola.”
Analysts didn’t blame the company’s failure on the market it targeted, citing the fact it gained so many customers in so short a time despite the issues raised above. “The concept remains attractive. They proved that AVL, messaging and data is possible,” said the Strategis Group’s Virostek. “I think they proved there was a market for this stuff … It’s just that the price they offered it at was too high for the market.”
Looking forward, the industry may see these applications reappear. “I hope the work they did on the applications carry over to other services,” Virostek said, speculating that regional players may pick up the applications and licenses. “The nice thing about their applications was they were all Windows-based and IP-based. In theory, that’s transferable to a CDPD or Mobitex” network.
