AW&ST Market Focus on I* and ICO
aviationweek.com
ANTHONY L. VELOCCI, JR/NEW YORK
Iridium World Communications Ltd. shares advanced 2 3/4 to close
at 13 1/16 on the Nasdaq last Wednesday. Investors obviously were
heartened by the company's decision to reduce prices of Iridium handsets
and establish a lower, simpler uniform pricing structure for domestic,
international and handset-to-handset calls. But whether the troubled
mobile satellite service provider is truly in a sustainable recovery remains
to be seen. (Iridium's stock price recently plummeted to less than 5 from
more than 61 after investors suffered a crisis confidence in the
high-stakes venture; the number of new subscribers in the second quarter
didn't even come close to early projections by Iridium management.)
From Merrill Lynch analyst Thomas Watts' perspective, the pricing
moves signify a commitment by Iridium's handset supplier to the project,
and makes it more likely that Motorola--a principal investor--will
maintain financial support as Iridium attempts to restructure its substantial
debt. Effective July 1, Motorola and Kyocera are expected to lower
wholesale prices on handsets to $500-700, which probably will translate
into retail prices of less than $1,000--a drop of more than 65% from the
prior figure of $3,000.
The positive marketing moves notwithstanding, Iridium must provide a
smaller and lighter phone before it can capture the broader demand
necessary to achieve the volume of cash flow it needs, according to
Watts. For now, the company intends to focus solely on vertical markets.
These include maritime, military, agriculture, government, disaster relief,
aeronautics and forestry. The key to an increase in Iridium revenues will
be how much the more attractive pricing stimulates new subscriptions in
these vertical markets, he said.
While research has suggested customers in vertical markets could use up
to 400 minutes a month, and while we have assumed 100 minutes a
month, initial month's usage levels have been closer to 30 minutes, Watts
said.
Assuming Iridium now has the pricing right, the big question is whether
banks, bondholders, Motorola and other strategic investors can agree on
a plan that avoids bankruptcy. Iridium believes a restructuring could be
completed by June 30. Watts thinks it will take longer.
Meanwhile, potential rival ICO Global Communications Holdings
Ltd. last week announced that its rights offering, previously scheduled to
be completed on June 24, has been extended to July 27. As of June 18,
ICO had received subscriptions totaling less than the $500-million
minimum required to complete the offering. Several alternatives are being
considered for use in raising the additional money ICO will need to fully
deploy its satellite-based communications system. These include
amending the price of the offering and the number of shares involved, and
possibly seeking outside investors.
© June 28, 1999 The McGraw-Hill Companies, Inc. |
