Yeah, I'm starting to have doubts about whether or not there will be enough demand for G* at $1.50-$3.00/minute (or a reduced $1.00-1.50) given:
-Faster than anticipated buildout of terrestrial cellular worldwide
-Higher powered cellular base stations/amplifiers to extend coverage in and around urban areas,
-Incredible growth of fiber optics cables to connect up countries and within countries
-Cheap handsets to access fiber using WLL at greater and greater distances from the fiber
-Much cheaper and fewer satellites required by GEO companies (ICO, Thuraya and others). Rocket Scientist has been very persuasive on this issue.
-Impending restructuring of ICO and Iridium (possibly with Teledesic assistance) with possible downward pressure on prices
-Huge size of the MSS handsets which make them very unattractive on an aesthetic/sales level. Whenever I've shown friends pictures of the G* phones, they've laughed and said, "Good luck."
-G* handset "chicken-and-egg" problem. G* needs lots of handsets produced and in subscriber hands to make enough money to make debt/interest payments. But, handset producers will wait until MSS demand is proven.
-G* debt/interest payments could strain EPS gains to shareholders in the future.
As I've done more research, I've become more and more pessimistic on a macro level on the mobile satellite telephony market prospects. In a sense, G* is squeezed on all sides. If prospective customers decide to wait for terrestrial cellular and fiber/WLL to get to their area to provide much cheaper service, G* will never make it. If the G* service providers decide not to strongly push G* as a solution for some of their high-end customers, G* is doomed. The SPs will have lost a little investment money (tax write-off?), but they have in effect neutralized a potential threat to their cellular biz.
On another negative note, I don't see how portfolio managers will be able to justify holding G* for their 10/31 report given the slower than anticipated G* roll-out, recent G* stock price decline, and Iridium and ICO problems highlighting a potential lack of demand for mobile satellite telephony services. And, given the expected Nov/Dec tax loss selling pressure and lack of initiating any new positions due to Y2K fears, I expect further pressure on G* stock price (absent G* press release temporary jumps) over the next couple months.
On a more positive note, when I examine the targeted countries, I see China as the big wildcard. If the Chinese govt decides to subsidize G* as a way to bring immediate telephony service to rural areas, G* will be a tremendous sucess and it would help their efforts to sell G* handsets and service in the rest of the world.
Consider me a bear on G* as a stock until 1/1 or so. I've been out of G* since the $28 range. I'll continue to post all relevant info as usual since the story is so fascinating. respectfully, djane |
