re: Globalstar:
I'm reading Chernow's "The House of Morgan". I am struck by how similar investor's behavior was, during the railroad buildout of 1870-1900, to today's telecom buildout. In both cases, huge capital investments had to be made, before anyone really knew that a market existed. In both cases, there was massive overbuilding. In both cases, lots of infrastructure got built to places no one wanted to go.
Then, a New York banker would go to a European investor (whose knowledge of American geography was very vague), and sell him bonds in a U.S. railroad company. He'd say, "The potential is limitless. We have no profits and no sales today, but that doesn't matter. We're going to build a rail line from Point A (the edge of civilization), far out to Point B. Then, we'll sell farmland to immigrants along the line, who will ship their grain on our line. A city the size of London will be built at Point B. You'll get rich quick."
Sometimes, it happened that way.
But, sometimes the city at point B didn't get built for 50 years. Sometimes there was a market panic, just as the railroad required financing to finish the rail line. Sometimes there wasn't any good farmland along the route (and nobody had checked before they started building, they were in such a hurry to Get There First). Sometimes the rail management stole the money, or lost it in complicated ways. Sometimes a parallel rail line was built by the competition, and a price war bankrupted both of them (Morgan hated competition, and got rich by eliminating it, till Rooseveldt made him stop). Over and over, periods of euphoria (when money got thrown at any scheme) alternated with panics (where no one could get any financing). In retrospect, it is clear that these investors were making a series of hopeful assumptions about the future, and if any one of them didn't pan out, the whole business was in trouble. Eventually, the continent got crisscrossed by rail lines, but few of the original investors got rich.
Re: Globalstar: Hopeful assumptions, not based on any track record:
1. more financing will be found when it is needed
2. the marketing partners will ignore the history of failure in this concept (and it is still just a concept, not an industry), and enthusiastically spend money marketing it.
3. the marketing will be wildly successful (creating that "subscriber count turns asymptotic")
Re: that post's reasoning:
1. He seems confused about whether Iridium and Globalstar are in the same business. First he says, their "target customers are completely different". In the next sentence, he says, "Iridium’s failure was a significant positive for Globalstar since it eliminated a competitor". Both statements can't be true.
2. He says that it will be the partners, rather than Globalstar, who come up with the money for marketing. How much money is spent, and when, will decide whether Globalstar gets enough customers before the money runs out. So, the success or failure of their business is out of their control. Odd that this should be considered a positive aspect of their business plan. I always thought businesses liked to be able to control their destiny.
3. Yes, DT is willing to pay an absurd price for Voicestream. They have several recent failed attempts at buying into new markets, and they are desperate. But Voicestream is in a proven market, not selling an unproven concept. A better analogy would be with Iridium. In the end, no one (no one at all) would bid anything for those satellites, so they are going to be burned up in the atmosphere. That is a powerful, unforgettable image (all those billion-dollar shooting stars).
4. Globalstar does not have time. Their latest (unwillingly given) cash infusion was the last, unless the market takes off. They have to rapidly ramp subscribers (by late 2001, at the very latest), and prove their concept, or no one is going to throw good money after bad.
5. cellphone use vs. landline: people pay a premium to use their cellphone, even when a landline in nearby, because they can continue doing what they are doing (driving a car, picking out a ripe cantaloupe at the grocery) while using their cellphone. That's the advantage of a cellphone. We are rapidly reaching a point of total coverage near paved roads. People who can afford a sat-phone spend very little time away from the road network. So what advantage does that leave for sat-phones?
6. doesn't your plane already carry an emergency beacon, which would tell rescuers where you were if you went down?
7. I'm going to start a museum, around the theme of Amazing Technology That Nobody Bought. Will you send me your sat-phone next year? |
