Jacob:
It would appear that you did not read my post very carefully.
(1) Regarding whether Iridium and Globalstar are in the same business. In an attempt to achieve contextual brevity, I presupposed an educated readership. As I indicated, both Iridium and Globalstar are satellite-based telecommunications providers. Iridium combined the network function and the marketing function, striving for a greater level of integration than GSTRF. IRID's strategy was, first and foremost, directed at international roaming and was intended to displace cellular. While nothing prohibits a Globalstar service provider from marketing to the international, roaming, business traveler, such is not the primary marketing thrust. Globalstar service is designed to complement traditional cellular service, hence the phone's cellular/satellite architecture.
As I said in my first post, IRID's failure removed a competitor and a competing marketing message. To the extent that worldwide mobile telecommuncations customers overlap to some degree, this is a significant positive for Globalstar. To the extent that the failure muddied the waters, and gives credence to uninformed naysayers, the IRID debacle is a negative.
(2) You are being pretty cavalier with your characterization of Globalstar's marketing partners. The service providers (Airtouch, for example) have a significant direct investment in Globalstar L.P. and have poured in excess of $1 billion into terrestrial infrastructure, regulatory licensure and marketing expenses. Your glib conclusion that it is preferable for companies to control their own destiny glosses over the fact that customer constituencies differ dramatically from region to region and country to country. Globalstar’s architects believe that the business flexibility and insight gained from having local service providers offsets the loss of autonomy and lack of direct control. The company’s capital structure was purposely constructed to ensure mutually of interest. You seem to presuppose that the structure is a bug, I view it as a feature. One of the principal reasons for my optimism derives from my decade long experience working with wireless service providers. If you took the time to contact management at the service providers, you would learn that their view of Globalstar differs markedly from yours.
(3) You seem to believe that it is commendable for D-T to overpay for an asset simply because the demand equation is proven. I must disagree. For D-T to ever earn a reasonable return on capital the U.S. terrestrial wireless competitive equation had better remain forever benign, penetration will need to exceed par, i.e. multiple units per subscriber, and ARPU better climb steadily...good luck. You posit that GSTR is broken and untenable simply by referencing Iridium. A tad superficial in our analysis aren’t we?? By my best estimates, Iridium’s fully loaded, i.e. replacement capital adjusted, costs approached $2.00 per minute-of-use under fairly aggressive utilization models. This coupled with a TDMA-based air interface architecture, and a satellite design that put the network intelligence in the clouds, resulted in abysmal quality and a horrendous challenge to do anything about it. In contract, I estimate GSTR’s marginal cost per minute to be in the low teens, i.e. $0.13-to$15, debt adjusted, with similar loading assumptions...and the network works splendidly. Do you really believe that you have competently referenced the competitive differentials?
(4) Globalstar has more time than you think. Such is not my opinion; such is not the opinion of Bernard Schwartz; such IS the opinion of the people at Airtouch and Alcatel and France Telecom and so forth to whom I have spoken. As I tried to articulate clearly in my prior post, the only people who truly understand the marketplace’s receptivity to the service are the people actually selling the service. When I speak to them, I am hearing a story that contrasts dramatically with that which derives from Wall Street and the short-seller community. The service providers are continuing to roll-out gateways, at $8mm to $10mm per pop, they are signing up distributors, purchasing phone inventory in excess of $125mm, designing vertical market strategies, creating attractive new rate plans, subsidizing phone costs, so forth and so on. This behavior is absolutely inconsistent with the premise that these same service providers are about to pull the plug. I am sure you will be surprised to learn that the service providers view Globalstar as an important component of their service portfolio and a product that they will be marketing to their most valuable customers, i.e. high minute consuming business customers. As I noted in my prior post, the dollars necessary to keep GSTR L.P. afloat are not particularly significant given the financial wherewithal of its partners. To state the obvious, since they are all aware of the company’s financial condition, why would they continue to buy phones, engage in marketing efforts and spend millions to deploy gateways only to allow the network to die on the vine?
(5) I love your comment that “people who can afford satellite phones spend little time away from the road network”. Hilarious. Please tell this to people in the oil business, or the forestry business, or any natural resources-based enterprise. Try telling this to someone in the shipping industry, or someone living say south of the U.S. border. Ever been to Mexico? Do you believe that everyone there rides a burro to work and lives in an adobe hut? Ever been to Brazil or Venezuela or Argentina or Australia or how about Saudi Arabia? I guess we don’t have natural disasters in the U.S. that can knock out wireline and wireless telephony? I guess this concept cannot be extrapolated to other governmental agencies elsewhere around the world? Yep...everything that needs to be invented has been invented and the world’s telecomm infrastructure is complete as is....
(6) yes, there is an ELT (emergency locator transmitter) in my airplane. Bet you didn’t know that there is an initiative pending within FAA to require replacement of the devices with GPS-based products because of problems with false alarms and triangulation inaccuracy? Let’s think about it for a second, I am tooling around in a $400,000 aircraft, but the incremental safety of a $1,000 satellite phone is prohibitive? By the way, try calling the destination FBO on an ELT or its GPS-based replacement.
You have bravely articulated the bear case, which I might add is conventional wisdom around Wall Street. I find this quite encouraging. |
