*IBD tomorrow. Loral Seeks Smooth Takeoff Where Iridium, ICO Faltered
[Looks like Bernie's on the offensive once again...]
Date: 8/31/99
Author: Reinhardt Krause
Next batter up.
Globalstar Telecommunications Ltd. is ready to step up to the plate. It
hopes to hit a home run where others so far have struck out: provide a
global satellite phone service.
Iridium LLC filed for bankruptcy in mid- August after attracting far
fewer customers than expected for its service. Backed by Motorola
Inc., it's trying to restructure.
ICO Global Communications Ltd. filed for bankruptcy Saturday. It had
planned to launch service next year.
The third big player is New York-based Globalstar, which plans to roll
out service in mid-October. Globalstar's chief investor is Loral Space &
Communications Ltd. Other partners include cell-phone operator
Vodafone AirTouch PLC and China Telecom.
Globalstar Chief Executive Bernard Schwartz recently spoke with
Investor's Business Daily about the unproven satellite phone business.
IBD:
Should investors paint all satellite phones with the same brush?
Schwartz:
There are big differences between Iridium and Globalstar and ICO.
Mostly it has to do with assessment of the market and the satellite
technology used.
Iridium started out (marketing to) the VIP traveler. They thought that
type of user wouldn't be price-sensitive and would be
convenience-oriented. Their service wasn't designed to complement the
cellular terrestrial networks around the world.
In Globalstar's case, we came up with a system that was significantly
less costly and required less investment than Iridium. Therefore, the end
service is considerably lower in price.
We don't think Iridium was really a good marketing test of a satellite
phone. They prematurely initiated advertising. We want to make sure
we introduce the service when (phones) are totally available in the
distributor pipeline.
IBD:
Does Loral's approach differ from Motorola's?
Schwartz:
Loral has other satellite services. Globalstar was created as a telephone
service organization. It's the only concept we had, whereas Iridium saw
themselves as equipment providers. It was never calculated we would
make money on the hardware (phones). It's fair to say that
Motorola/Iridium had a strategy of making money on the hardware.
When we looked for partners, instead of looking for financial backers
we only chose established cellular phone operators. Our partners are
our customers. They are the retail distributors. We are the wholesale
distributor.
We have a price structure that allows the retailer to have plenty of
flexibility setting end-user prices. In some places they might be able to
get $1 or $1.25 (per minute). The wholesale price is between 35 cents
and 53 cents. They mark it up from there.
IBD:
Who will be Globalstar's customers?
Schwartz:
There are at least three kinds. One is a mobile VIP person that has
adequate (cell-phone use) in his city but loses coverage 20, 30 miles
outside. It may be someone in Sao Paulo, Brazil, or Bombay, India.
That's an extension of the cellular service.
The largest group is the unserved market around the world. Villages of
10,000, 20,000 or 30,000 people who don't have cellular (or wireline)
service at all, and it's unlikely they will any time soon. If you give these
people - small-business people or distributors - communication ability,
you increase their productivity. It may be a trucker making $12,000 a
year. It's not a farmer in a rice paddy working for 30 cents an hour.
There's also fixed service - where we put a telephone booth in an
unserved market, say in a police station or general store. People come
to that stationary phone and make calls with a prepaid card. It may be a
less expensive service.
IBD:
How many satellite phone players will there ultimately be?
Schwartz:
Someone has to put $700 million more into Iridium. Their fleet has a
life-design of five years. Iridium has to think in terms of providing
enough funds to replenish the fleet again. As a businessman, that sounds
like a tough sale. The question is whether they can get the cost down to
compete against Globalstar. That's problematic.
ICO has to complete their financing. Iridium hasn't made that easier for
them. ICO's partners represent tate- owned carriers) in most of the
under-developed countries of the world, and that's a good market for
them. Ellipso (another potential rival, owned by Mobile Communications
Holdings Inc.) has a very elegant engineering idea, but it's still very much
in paper form. It's a question of funding.
IBD:
Does Globalstar have all the money it needs to launch service?
Schwartz:
All funds have been spoken for. The last $500 million bank credit
completed the financial requirements. We have sufficient funds to
introduce the service, advertise it and support it in every which way. If
we're on plan, or close to plan, it won't be necessary to find any more
funding.
We're prepared to roll out service at Geneva Telecom in October.
(C) Copyright 1999 Investors Business Daily, Inc.
Metadata: GSTRF IRID MOT ICOGF LOR VOD E/IBD E/SN1 E/TECH |
