Satellite players struggle against time
June 19, 2000
internettelephony.com
Similar yet different, the prosperity of Iridium and Globalstar
hangs in the balance
KELLY CARROLL
There is more that unites Iridium and Globalstar
Telecommunications than the fact that they both operate low
earth-orbiting satellite systems to offer worldwide commercial
wireless service. Their fates currently are at the mercy of the
financial markets and deep-pocketed investors.
During the last couple of months, Globalstar has rolled out
commercial service throughout the world-most notably, in
China and the U.K.-as it pursues plans to expand into 50
countries by the end of June.
Despite its positive rollout news, financial analysts and the
stock market have dogged the provider. Its stock has slipped
from a high of about $50 to a low of $7, sparked by a
disappointing first quarter earnings report.
The report states Globalstar generated just $609,000 in first
quarter revenue, well off the pace needed for the company to
reach its revenue target of $160 million for the year.
Globalstar?s lack of revenue means that the company could be
forced to repay a $250 million loan as early as the end of June
instead of in December, as originally planned. If the loan must
be paid this month, the company will have to raise additional
funds to continue operating, according to the first quarter
statement.
Globalstar officials maintain the company can withstand these
potential cashflow pitfalls, but its sunken stock price and
disappointing earnings may have barred its entrance into the
public market.
The company?s second quarter earnings, expected by mid-July,
could present a more favorable picture.
"When the time comes and our business has turned up as
expected, we assume we will be able to return to the public
markets for funding," said Mac Jeffery, senior director of
communications for Globalstar and Loral Space &
Communications. "We are not stressed in our ability to raise
funds."
Moreover, the provider is confident its investors-led by Loral,
Qualcomm, Vodafone AirTouch, France Telecom and China
Telecom-are not investing from quarter to quarter but for the
long term, Jeffery said.
Perhaps the most financially devastating result from
Globalstar?s earnings report was that it calculated service usage
at only 550,000 billable minutes after analytical firms such as
Solomon Smith Barney projected it would reach 3.7 million
billable minutes. As a result, the firm reportedly cut its
estimate of year-end subscribers from 350,000 to 80,000.
"The question the whole market is asking is whether there is a
need for a satellite phone," said Robert Peck, an analyst with
Lehman Brothers.
The main thing the financial world will be watching is the
change in the company?s subscriber base and minutes of use,
Peck said.
Although criticism was expected, Jeffery believes it is unfair to
judge a company?s progress after the first three months in
operation because most technologies cannot be measured after
such a short time.
Although Iridium has had similar financial struggles,
Globalstar maintains it is different. "If you strip out Iridium,
people would be clamoring all over this industry," Jeffery said.
The main thing distinguishing the two providers is that
Globalstar has more investors than just Motorola, which
bankrolled Iridium, Jeffery said.
In fact, until a couple of investor groups came forward as
possible saviors, Iridium?s satellites were destined to be
destroyed amid reports that Motorola wants to dissolve the
company by the end of June. But a U.S. bankruptcy court
recently gave merchant bank Castle Harlan until the end of July
to determine whether its $50 million acquisition proposal
would be viable.
Two weeks earlier, the IR Acquisition Group-consisting of
space exploration and satellite technology pioneers, military
professionals and organization restructuring experts-offered
$61 million for the Iridium assets. IR Acquisition Group
declined to comment on the Castle Harlan bid.
Although IR Acquisition Group?s announced bid was higher,
the court will base its decision on which bidder has a viable
plan for Iridium, not just the ability to purchase the system.
And there may be more bidders. Some analysts speculate some
investment companies may seek to buy the system cheap,
abandon Iridium?s global phone strategy and focus instead on
offering competitive service in the U.S. for about three
years-the estimated life of some of the satellites. |
