Outlook: Dialling up a corporate catastrophe

THE DEMISE of Ionica, the wireless telephony company, is a failure of epic proportions and it is a failure on many fronts. In the space of 15 months the company has taken pounds 600m of capital from banks, bondholders and equity investors, and squandered 95 per cent of it. Shareholders who bought SBC Warburg Dillon Read's sales pitch and paid 390p a share in July, 1997, will be lucky to see any of their money back.

The health warning in the prospectus was long and detailed enough to cover most eventualities, including the one that finally did for Ionica - namely the failure of its principal supplier, Nortel, to provide the software fast enough to allow the company to capture customers at a rate which would keep the banks happy.

So it is hard to see how aggrieved investors - and even more aggrieved bondholders - could be successful in suing the company for a false prospectus. Even so hard questions remain to be asked. Nigel Playford, the boffin who came up with the idea of building a national telephone network without the tiresome business of digging up the roads, managed to persuade an awful lot of people that he was onto a winner.

Ionica was a pure voice telephony business, aimed overwhelmingly at nabbing domestic customers from British Telecom through cheaper tariffs. Ionica was never going to capitalise on business and data traffic, which is where the bulk of growth in telephony is forecast to come from.

The Ionica story is also a salutary lesson in how not to structure a supplier relationship. Ionica was so securely in bed with Nortel in developing its technology and rolling out its network that it clean forgot to include penalty clauses.

SBC will deservedly get the flak for bringing Ionica to market on such a mountain of ill-researched hype and wishful thinking. Equally culpable is Nortel, which has let Ionica down a second time by refusing to go through with a mooted rescue.