Bankrupt Ricochet Rises Like a Phoenix After Sept. 11
Kenneth Li
09/09/02 - 08:39 AM EDT
Amid the rubble, Ricochet bounced back.
In the aftermath of Sept. 11, few companies can claim the
fortunate circumstances with which Ricochet owner Aerie Networks has met. In the
months after the tragedy, not only did Aerie survive, it finally uncovered
a credible post-bubble business opportunity.
"I think Sept. 11 increased awareness, a need for other types of
public safety [technologies]," said
Aerie Network CEO Mort Aaronson, whose company was renamed Ricochet Networks this year. "It made the market receptive to it, without question."
Ricochet's rise from the ashes of insolvency of its former owner
Metricom (MCOMO.PK Quote - Cramer on MCOMO.PK - Stock Picks), provides a poignant leitmotif to the country's healing. Just as hundreds of companies recouped, rebuilt and returned to lower Manhattan, Ricochet, a high-speed wireless data service, found new purpose.
It's also an important footnote to the country's urgency over
fortifying its communications network. Defense contractor
Raytheon, for instance, is creating a mobile command center for emergency
workers to address some of the communications incompatibility among the
different services units. Separately,
IBM(IBM Quote - Cramer on IBM - Stock Picks) and government agencies are building
an emergency wireless network to link 40 Washington, D.C.-area police, fire
and safety services agencies called the Capital Wireless Integrated
Network, or CapWIN.
Closed Before the Attacks
Just last August, Ricochet's former owners Metricom were forced to file
for bankruptcy, buckling under the weight of a crushing debt load related
to its expensive nationwide buildout and the overall depressed market for
telecom products. At its high point, Metricom, which spent more than $1 billion building out a nationwide network of radios tacked onto traffic
light pole tops and buildings, never attracted more than 51,200 subscribers
in 21 cities. These fiercely loyal customers paid
$70 to $80 a month for the privilege of surfing, sending and
receiving wireless data in its limited coverage areas. The service
officially shut down on Aug. 8, 2001.
At the same time, Aaronson's Aerie Networks was in the process of winding
down its own money-draining operations of laying fiber across the
country. The company was casting about for a lifesaver after a $500 million commitment from
Nortel (NT Quote - Cramer on NT - Stock Picks) to provide equipment financing fell through in April 2001, and, according to the
Wall Street Journal Aerie had less than $10 million of its original $147 million venture capital investment left. "We were in the middle of pulling the plug from [the original business]," said Aaronson in an interview.
In the weeks after the attack, with wireless switches and transmitters
in virtual disarray in the lower downtown area, New York City officials
contacted Metricom to relight the networks temporarily. To their surprise,
most of Metricom's Ricochet equipment had escaped unscathed. As a result,
nearly 1,000 emergency service workers were able to send building
schematics and disaster area photos from the site back to Federal Emergency
Management Agency headquarters.
By the end of the year, Aerie Networks picked up the remaining assets
from Metricom for $8.25 million. Metricom's recent partnership with New
York City bolstered Aerie Networks' new strategy to relaunch the service
and be profitable, a tall order given Metricom's recent demise.
Apparently, according to Aaronson, a relatively large chunk of
Metricom's expenses was earmarked for paying city governments across
the nation for rights to build equipment on city-owned properties.
"There was too much in fixed operating costs," Aaronson explained. "We
thought of a more efficient way to sell."
In the new plan, Aerie Networks would strike barter deals with city
municipalities for the right to operate its radios built on city property
in exchange for free and subsidized Ricochet services for city agency
employees.
Early evidence suggests it's working. Since August, Ricochet has
relaunched in its hometown, Denver, with a 20-year contract to
operate its radios built on city property in exchange for about 1,000 free
Ricochet service contracts. The service, which now costs regular consumers
$44.95 a month, offers residents who live in areas where neither cable nor DSL
service is available a rapid alternative roughly equivalent to more than double dialup speeds.
Other markets including San Diego are slated to be served by the end of
this year. Earlier this August, Agostino Cangemi, New York City's deputy commissioner of technology and telecommunications, said New York City is in negotiations to reintroduce Ricochet service.
Ricochet's happy ending has an ironic edge for investors: Because bankrupt, publicly traded Metricom was acquired by closely held Aerie in November 2001, it's rise from the ashes didn't translate into stock-market riches.
