Satellite Telecom Operators Refocus
RELATED SYMBOLS: (MSFT)(GILTF)(IRIDQ)(GSTRF)(LOR)(ICOFQ)(PAAN)
New York, Nov 24, 2000 (123Jump via COMTEX) -- Eight years ago the idea of
global phone services, covering even places like the Sahara desert and Siberia,
captured the imagination of both satellite companies and venture capitalists.
Then, satellite phone systems seemed to be the technology of the future. Today,
this high-flying industry has been brought down to earth by the huge cost and
inherent risks of space technology, together with the incredible expansion of
land-based cellular networks.
The satellite voice has failed to meet terrestrial systems' price levels, but
the technology keeps its indisputable advantage of reaching remote locations.
There will always be parts of the country and the rest of the world that can be
served cost-effectively only via satellite. Plagued with nightmares related to
Iridium's and ICO's fate, and Globalstar looking like its incurably sick,
satellite telecommunications are trying to find new hope and opportunities in
the broadband data market.
Globalstar Struggles to Stay in the Market
After Iridium World Communications' spectacular bankruptcy, ICO Global
Communications (ICOFQ) has found a less painful end at the hands of Craig McCaw
and his Teledesic partners. The third player in this sector, Globalstar (GSTRF),
was a supposed last measure of whether the satellite voice business is at all
sustainable. Its third quarter was a critical last chance for the Bermuda-based
company to overcome amounting cash problems, demonstrate fast subscriber growth
and to show increasing revenue.
None of the above materialized. Globalstar's results were so discouraging
analysts started to consider only one issue - whether the company's network of
satellite, ground stations and licenses for the radio spectrum would be enough
to compensate bondholders and creditors in light of an inevitable bankruptcy.
Globalstar has launched 48-plus-4-spare satellite low-earth-orbit systems,
designed to offer digital telecommunications around the globe. It currently
sells phones and services in 46 countries and could potentially add 60 more
through its existing gateways, where distribution channels are still being
established.
"The rate of growth at Globalstar, in terms of both subscribers and usage, while
steady, is unacceptably slow," stated Bernard L. Schwartz, chairman and chief
executive officer. The estimated number of mobile subscribers was 21,300. The
growth is nearly 100% over the subscriber count at the end of the previous
quarter, but the company is too far from its "break-even" line. Globalstar needs
about 1.5 million customers just to cover the service's cost and manage its
debts.
In addition, the operator recorded a total of 2.3 million minutes of mobile and
fixed billable service, or a monthly average of 36 minutes per subscriber.
Industry analysts estimate Globalstar needs to reach at least 100 monthly
minutes per subscriber to start making any money.
Experts and investors alike are pessimistic about Globalstar's ability to reach
its major milestones. Nevertheless, the company is energetically struggling to
stay in business. Recently, it announced the introduction of new applications,
marketing initiatives and extremely aggressive prices for multi-phone calls.
At the end of the third quarter, Globalstar had 20 gateways in revenue service
covering 63% of the company's potential market. The company has almost completed
its gateways' installation process. The operational coverage of the potential
market is expected to reach 80% by year end. Three new gateways were brought
into service in the third quarter, helping the company expand to high-potential
markets such as Saudi Arabia, Brazil and Russia. Globalstar has virtually
covered the entire North and South American continents. In areas where no phone
service has ever been available, like Panama, Honduras and Nicaragua, fixed
phones are now in use.
Globalstar has started marketing data applications, such as Internet access and
e-mail services enabled by a portable PC or hand-held device connected to a
Globalstar handset. The company's system is viewed as more valuable than
Iridium's due to Globalstar satellites' better data-handling capabilities. Its
CDMA architecture and its global service availability provide good opportunities
for data services.
Currently all Qualcomm-produced handsets in use in North America are data
capable. Globalstar is trying to introduce a new breed of highly adaptable
modems, which are presently in pilot production. These products will be aimed at
utility companies' needs for applications, such as remote monitoring and
reporting.
Globalstar's difficulties reflected poorly on its largest shareholder, Loral
Space and Communications (LOR). Loral, with a 38% stake in the satellite phone
venture, has sunk more than $1 billion into the project, but it recently claimed
it would not provide any fresh funding. Globalstar should reach "commercial
viability" without Loral's support, according to chairman of both companies,
Bernard Schwartz. He expressed a belief that Globalstar has the necessary cash
to fund operations until May 2001 and need not look for bankruptcy protection.
Suprisingly last week, Loral purchased a $500 million Globalstar credit
facility, borrowed earlier by the satellite telephone provider. This move
preempts potential Globalstar worries about banks calling in satellites as
collateral, and basically changed Loral's role from one of GlobalStar guarantor
to lender.
Future Changes for the Losers
This week there is other interesting news, provoking a wave of mixed feelings
amid industry observers - Iridium's 72 satellites will remain floating high in
the sky. A New York bankruptcy court judge approved a $25 million bid for the
redundant satellite network from a group led by Dan Colussy, a former Pan Am
executive. Earlier, the bankrupted Iridium endorsed the deal after an advisement
from its major shareholder Motorola (MOT) warning it would finally bring down
Iridium's birds in a blaze of atmospheric fire.
Colussy intends to sell worldwide phone services to the U.S. government and,
eventually, to other agencies requiring phone services in remote locations, such
as mariners and oil rig operators. The bargain price paid for a $5 billion
satellite network might help Colussy and his partners reap a profit from
Iridium, provided they find a way to lower the huge $10 million monthly cost of
operation.
After finishing the deal Motorola will no longer operate and maintain Iridium.
That maintenance will become Boeing's (BA) problem, said company has agreed to
operate Iridium for Colussy's firm. Under the terms of the deal, Iridium will
receive $6.5 million when the sale is completed and $18.5 million balance during
the next several years. Motorola will provide a $30-million loan to the buyers,
covering the cost of the system's operation while the transaction takes place.
StarBand - New Two-Way Satellite Internet Access Service
While phone services providers are struggling to stay alive, the high-bandwidth
capacity and advances in broadcasting streaming media have made satellite
technologies an attractive Internet delivery medium. Popular satellite systems,
such as Hughes Electronics' (GMH) DirecTV and EchoStar's (DISH) DISH network,
offer only high-speed downloads while requiring subscribers to send upstream
information via dial-up modems and standard phone lines.
Gilat Satellite Networks (GILTF) hopes to beat the big names in satellite
business by introducing a two-way system capable of both sending and receiving
data via an 18- to 24-inch oblong satellite dish. Gilat, an Israeli-based
company, together with EchoStar and Microsoft (MSFT), formed a new venture
called StarBand Communications, which will provide high-speed Internet without
the constraints and congestion of land-based cable or DSL networks.
It has been estimated that approximately 55 million households do not presently
have access to cable modem or digital subscriber line (DSL) technology. StarBand
plans to target this under-served market. Its service is coming to the U.S.
consumer market in November. The offering is available virtually everywhere in
the continental United States and is distributed through two channels - all
7,000 RadioShack locations throughout the country and selected EchoStar DISH
Network retailers.
StarBand's service is based on very small aperture terminal - VSAT - technology
used for commercial data in the past. The service is expected to offer download
speeds of about 500 Kbps with uploads of roughly 300 to 400 Kbps, streams that
are comparable with many competing DSL connections.
StarBand has managed to be the first to market a consumer satellite service
capable of sending data up and down. Other companies, such as Loral and Hughes,
have similar plans but are not so far along. Others such as Tachyon.net, which
also offers a two-way system, are already available for businesses only.
Carmel Group analyst, Sean Badding, estimates that StarBand has every
opportunity to succeed as Gilat is right in the middle of the satellite industry
and has the big-name partnerships necessary to do business. EchoStar distributes
the service via its satellite television network, Microsoft provides Web portal
software as well as its MSN Internet brand, and Gilat is supplying the Internet
connection services. Yet it still faces many risks and uncertainties, associated
with space technology. The company, which recently filed for an IPO, operates in
a highly competitive market and substantial losses are expected for at least the
next few years.
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