I agree, the prices are too high and I've been moaning about that for about 3 years. I'm hanging my hopes on the room to move downwards which Globalstar has and the service providers can very easily do since they are charging such absurdly high prices. When they find they are not selling much and their salespeople are sitting around with not much to do and their investment is dribbling away, they'll cut their prices. Or, if they are actually right, they will not cut their prices and demand will continue to increase and all the handsets they can make, they'll sell straight from the end of the production line.
Meanwhile, here's a PM commentary I received. There was more, but in discussing what I could post, my shy source wanted some comments edited out. The edited stuff was good stuff.
<Just to calibrate the situation, you should understand that I view GSTRF as public venture capital, with a concomitant risk-reward relationship. In my view, there are three relevant questions: (a) does the system work, (b) will the company run out of money before having a chance to execute on its business plan and (c) is there any real demand. While these questions are hardly profound, the answers certain will determine whether we get zero or $100/shr.
ANSWERS:
(a) The system works. From a telephony standpoint, the system works flawlessly. There HAVE been, and continue to be, wireline interconnect issues, that have slowed the commercial roll-out. Interconnection between the gateways, and various international wireline networks, have been slowed by politics and minor economic issues NOT technology. The problems are receding, and this should facilitate a more stable and consistent roaming footprint.
(b) I truly believe that the financing issues are overblown. Two months ago, for example, France Telecom funded $160mm into its Globalstar marketing JV...it is absurd to suggest that F-T would make this investment, not to mention the dollars tied up in terrestrial gateways, only to allow the network to shut down three months later. Seemingly intelligent people are failing to differentiate between Iridium's horrific structure and GSTRF's wholesale/local carrier approach. Between Loral, Qualcomm, Airtouch and the rest of the partners, an extra couple of hundred million is pocket change. We DO need to be concerned with dilution, but not near-term liquidation.
(c) Marketing results have been very uneven geographically. The North American launch produced dismal results in the U.S. and Mexico, but very encouraging take-rates in Canada. I have been told repeatedly that Airtouch Australia is doing quite well. The problem does not appear to be demand in-and-of-itself. Rather, the product requires a market-specific, product-specific sales approach tailored to a target audience. The Airtouch-Vodafone merger, compounded by ATI's decision to combine its cellular footprint with PrimeCo and BellAtlantic deprived ATI's Globalstar subsidiary of fairly critical resources. For example, ATI has an ability to 'mine' its subscriber base for customers whose use profile suggest that they would be potential GSTRF customer. This information has not yet been made available because ATI computer resources have been devoted entirely to merging billing systems with BANM and PrimeCo. The bottleneck will get broken over the next month or two, but this is a good example of why the launch was sub-optimal. These problems, while frustrating, remind me of CDMA's uneven launch in Los Angeles rather than Iridium's catastrophe.
The slow ramp is far more a function of focus and execution by the marketing partners rather than any permanent impairment of demand for the service.
Is Globalstar out-of-the-woods? No. Is it going bankrupt this summer? No. At current levels, is it a speculation capable of producing Qualcomm-esque rates of return? Yes. Current handicapping: 20% goose-egg; 80% home-run. Answer to be known before year-end. >
I'd just like to add that somebody should watch the institutional holdings reports this month because I believe there will be some changes with some large buys reported. There have been many other additions to portfolios over the past three months; Jon Koplik has pigged out, my Tonka-Truck is full, other people I know have gone guts on cheap GSTRF. The sellers, I guess, are bitterly disappointed George Gilder fan club members and others who bought the CDMA revolution on the back of vast Q! success last year without having a solid understanding of the business.
The analysts and critics predicting doom seem to me to have a very tenuous grasp of the facts. For example, there were comments that the satellites are in geostationary orbit. Analysts who have such a fundamental lack of understanding are NOT sensible people to follow.
Maurice |
