Unterberg's Research Report: Part I
GSTRF PROGRESS REPORT: STILL SOME LOOSE ENDS
* Key financing remains unclosed: Active negotiations with bank group over $250 million facility continue; Vendor financing for $500 million is not quite final. Globalstar has until June to renegotiate its maturing $250 million (undrawn) bank facility. It is our perception that Globalstar counts the facility as a source of funds when it asserts that it is fully financed for 2000 even if the company had zero revenues. We believe the real question
is who will secure the facility, Lockheed or Loral, and not will the facility be obtained. However, without the facility, Globalstar will likely need additional funds by late third quarter. In addition, the company is still working to finalize $400 million of a $500 million commitment in vendor financing from Qualcomm. Management indicates that it is optimistic it will secure the financing but a final agreement still remains. Overall,we are somewhat surprised by the current status, as we believe tangible progress on both of these facilities should have already been made.
* Local service providers are not taking advantage of Globalstar's pre-purchased discounted-minute offer. On December 12, 1999, management indicated that four local service providers, Globalstar do Brasil, TE.SA.M.,Elsacom and Vodafone AirTouch, had pre-purchased $25 million worth of minutes (implies 53 million minutes) at a 25% discount from Globalstar. At the time, management indicated that other LSPs were considering similar offers. It is now our understanding that a portion of the first $25 million offer still remains unsold today and that similar offers have not
materialized. The fact that additional LSPs have not taken advantage of the discounted minute offer may indicate that they lack demand to warrant pre-purchasing minutes in bulk.
* Global roaming appears to be another month away. As late as yesterday morning, TE.SA.M. France informed us that global roaming is still not possible between North America and Europe. TE.SA.M believes global roaming will be possible by month-end. When we inquired, Globalstar management explained that although the gateways are now equipped for global roaming, TE.SA.M. and AirTouch have not yet finalized roaming agreements. An expeditious resolution to the impasse is important, as global coverage is the product's most compelling feature. Consequently, its absence has likely contributed to slow handset sales.
* Vodafone Australia begins commercial service as of March 31. The Australian market is an important market for us to watch because it has many of the prime characteristics necessary to accurately judge demand for satellite telephony: 1) the company appears adequately prepared, 2) GSM service is well entrenched but has gaps (covers 94% of the population but only 5% of the country), 3) the LSP has been diligently priming the market with an informative marketing campaign, 4) Vodafone will market directly to its wireless subscribers, and 5) the need for telecommunications service outside of metropolitan areas (the Outback) is quite obvious. Australia represents the ideal Globalstar market but unfortunately our research
indicates that it may be an anomaly and does not reflect the majority of Globalstar markets. We believe this market can provide a glimpse of satellite telephony's potential. Separately, Vodafone Globalstar's subscribers will be able to use a single phone number for both GSM and satellite, which is a positive considering that the single phone number feature is still not available elsewhere.
* Ericsson handsets ready. On March 27, Ericsson finally received type approval from the European Telecommunications Standards International (ETSI). According to Globalstar, Ericsson began shipping phones immediately. Local service providers indicated to us that they expect to receive the first of these phones by month-end. Ericsson handsets should help sales given their strong brand recognition and physical attractiveness relative to the Telit first generation unit. The announcement also should put production issues in Globalstar's past.
* Reiterate Neutral.
___________________________________________________
C.E. UNTERBERG TOWBIN
William Kidd
Managing Director, Satellite Analyst
(212) 572-8008
(212) 688-0456 fax
Patrick Fuhrmann
Associate Analyst - Satellites
(212) 572-8053
Joshua Steiner
Associate Analyst - Satellites
(212) 572-8021 |
