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Iridium Seeks to Shut Down Service, Let Satellites Fall

The company, with $4.4 billion in debt, sought Chapter 11 bankruptcy protection from its creditors in August.

Updated from 3:39 p.m. EST

Iridium

said Friday that it planned to shut down its satellite-based telephone phone service and begin pulling its satellites out of orbit, ensuring their destruction.

The company told the

U.S. Bankruptcy Court

in Manhattan that it had been unable to find a qualified buyer. Judge Arthur Gonzales of the bankruptcy court gave the company permission to spend $8.3 million to shut down its operations.

A shutdown would cut off service to Iridium's 55,000 customers. The company plans over the next several months to have its 66 satellites fall toward Earth, where they would burn up in the atmosphere.

Motorola

(MOT)

, Iridium's largest shareholder, has said the system will shut be down at midnight EST Friday if no qualified buyer is found.

Analysts doubted that Iridium would be saved. "There have been flaws in the business plan from the get-go," said analyst Drake Johnstone of

Davenport & Co.

, citing phone calls that cost up to $7 a minute and phones that cost up to $3,000.

"In terms of reviving Iridium, I would not hold out much hope for that," Johnstone said.

Both Iridium and Motorola were reported to have considered several bids. Only one bidder, however, has come forth: Gene Curcio, chief executive of privately held

Crescent Communications

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.

Crescent set up an agreement with

General Dynamics Worldwide Telecommunication Systems

, a unit of

General Dynamics

(GD) - Get Report

, for that company to provide satellite operations and support services on a fee-for-service basis if Crescent acquired Iridium.

Iridium's main hope for a bailout vanished two weeks ago when the telecommunications pioneer Craig McCaw abandoned plans to buy the company after promising $5 million in financing. He had considered merging Iridium into his own proposed

Teledesic

network to build a global satellite voice and data network.

Johnstone noted that McCaw had an interest in seeing Iridium succeed because he is trying to set up his own satellite network, and "when high-profile companies fail, it's more challenging to line up investment for future satellite ventures," he said.

Though there may not be a place for satellite telephony networks because of the build-out of wireless terrestrial networks worldwide -- despite

Globalstar Telecommunication's

(GSTRF)

best efforts -- Johnstone pointed out that McCaw's is a larger vision.

McCaw's network "makes sense because of the dearth of two-way broadband high-speed Internet, data, wireless and voice networks for the home," he said. "It will also fulfill a role in giving access to customers in rural areas who are currently left out of the party."

Iridium started its service in late 1998, but consumer demand was weak. The company, with $4.4 billion in debt, sought Chapter 11 bankruptcy protection from its creditors in August.