Metricom Will Shut Ricochet
Metricom Inc. of San Jose will shut down its Ricochet high-speed wireless Internet service next week after the company failed to attract a buyer or investor that could keep it afloat.
Although Metricom attracted 51,200 customers to its Ricochet service, they weren’t nearly enough to cover the cost of its massive investment in infrastructure. The company lost $188 million last year, while taking in less than $12 million in revenue.
Metricom’s transmission towers cost about as much as digital cell phone towers, and the company needed to build a large network before rolling out its service in Los Angeles, San Francisco, San Diego and 12 other U.S. markets. That left Metricom with a huge upfront expense that it was never able to recoup, analysts said.
Ricochet “was way too expensive to implement,†said Rob Enderle, an analyst for Giga Information Group. “They just didn’t have enough money to grow their service fast enough.â€
At the same time, major wireless carriers such as Verizon Communications Inc., Sprint PCS and AT&T; Wireless Services Inc. got busy building their own high-speed wireless networks that can handle data. By the end of next year, their services will be available throughout much of the country and will be just as fast as Ricochet, said Tim Bajarin, chief analyst at Creative Strategies.
Metricom said late Thursday that it will shut down its wireless services Wednesday. The company immediately laid off 282 employees and said it will retain a skeleton staff through October as it winds down its operations. An auction of the company’s assets will be held Aug. 16.
The company had struggled recently, despite pocketing $600 million from MCI WorldCom and Vulcan Ventures. The firm burned through the cash too fast and could not raise more.
Beginning late last year, Metricom began announcing a series of layoffs and started scaling back its network deployments. The company filed for bankruptcy protection in July, after spending months looking for a bailout.
Loyal customers of the service are heartbroken.
“I’m absolutely disheartened. . . . How could this be the fastest truly mobile wireless [system] in the world and not make it?†said Dee Dee McGann of Laguna Hills, who uses Ricochet extensively in her real estate business to post photos of listed homes on the Internet.
“Ricochet has become part of my life,†she said. “It will feel like I’m back in the Stone Age again.â€
The effect of Metricom’s meltdown also extends to more than a dozen suppliers and resellers, some of which had focused their entire business on the pioneering Ricochet service.
Sierra Wireless Inc. of Vancouver, Canada, made wireless PC cards that worked with the Ricochet service. Last quarter, it was forced to write off $5 million to$10 million worth of inventory and “questionable receivables†for which it might never receive payment from Metricom, Sierra said. Sierra also laid off 30 employees as a result of Ricochet’s shutdown.
“For a company such as ours, which generated $53.5 million in revenue last year, that’s a pretty sizable write-down,†said Andrew Harries, Sierra’s senior vice president of corporate development. Sierra still serves wireless phone operators and has 250 employees left.
Novatel Wireless Corp. read the writing on the wall and began striking deals earlier this year to supply wireless modems to more stable wireless carriers such as Sprint, AT&T; Wireless and Verizon. That will save the San Diego company from having to lay off employees.
“We’ve seen this coming for a while,†said spokesman Al Hernandez. “Obviously, it did affect us a little bit, but in the overall picture it wasn’t earth-shattering.â€
Internet service providers that offered Ricochet service have begun notifying end users that their connections probably will go dead Wednesday, and they are scrambling to come up with options for their customers.
For the “very, very small fraction†of EarthLink Inc.’s 5 million subscribers who use Ricochet, there is no direct substitute, said Dan Greenfield, a spokesman for the Atlanta-based Internet service provider. “We are working to provide them with alternatives,†he said.
Analysts said Metricom might have been able to survive if it had conserved cash by focusing on heavy mobile users in fewer geographic markets.
“Their service was very expensive,†said David Rivas, managing director of InternetFundManager.com in New York. “Most people are pretty happy with having their Internet service at home, and they don’t need to be mobile. It was basically a bad business model.â€
