Kyros, it's too good a day to sit inside, so I'll have to do a single rant on <I think that G* will be unable to lower prices quickly and deeply enough to avoid bankruptcy or a BK-like reorganization, because there are too many players with different agendas and priorities involved in the pricing decision. Bankruptcy could have been avoided, if G* could make its own pricing decisions without having to coordinate and persuade a bunch of SPs. These elephants are highly unlikely to act in the few months remaining before BK-like conditions arise.
A BK-like reorganization is the only sufficiently strong jolt to prompt a drastic change of the pricing plan, and has the additional advantage that the elimination of most debt will make a deep price cut much more palatable. >
As the shorts in May have learned, it isn't when the present money runs out which determines a bankruptcy. It's when the NPV goes too low to attract more sustaining money from investors. Globalstar was supposed to be bankrupt 3 months ago, but the share price just tripled [I know that's just a blip in the grand scheme of things and means nothing on low volume and no information on the sales to the end of December].
If Loral, QUALCOMM, Vodafone, me, you or others see a good return over a 10 year period at a particular price, we'll put more money in. 7 minute investors tend to look ahead 7 weeks and feel faint if they don't see a booming business. They might look ahead 7 months. But any more than that and most people who started 'investing' in the past 5 years think it's some Never-Never land where dreamers live. Dreamers who are not long for this world.
Speed is mainly relevant in that we are spending money at $120 million a quarter, so every month that goes by means we are another $40 million worse off than we were. With an asset worth $2bn a year revenue [assuming subscribers value it at 20c a minute - remembering that subscribers are the people who do the valuing, not the owners or the marketers] and over $1bn a year profit which would give a market capitalisation of about $20bn, we need to go a few months before we chew up that $20bn.
Speed is also relevant because the service providers are sitting on a time bomb. If they don't sell enough minutes or pay enough money or whatever the contracts are, then they will lose their exclusivity and they will face competition from the new Vogon-built off-ramps and on-ramps or nearby competitors with existing gateways.
If the service providers lower prices a lot, and soon, there will be huge demand and suddenly the market will be proven and the share price will zoom up to the NPV of that subscriber-defined value. There will then be no difficulty selling more shares to fund operations until profitability. If they don't prove that demand, the service providers will lose their business to competitors who will undercut them.
PCSTEL has argued that the service providers will face no competition or not enough to matter, so the exclusivity is their's anyway. But while that's true in some countries, plenty of places will NOT leave service providers with an abusive monopoly [I'm just quoting the mindset of people like Joel Klein and others who think free market monopolies exist which justifies to them the removal of that monopoly - I don't think it would be an abusive monopoly]. The Globalstar spectrum was agreed by WARC [the world spectrum-governing body] to be shared spectrum. It wasn't to be the exclusive preserve of Globalstar. Individual countries license individual companies so although theoretically the spectrum is shared, I imagine that in places like China, the Korean or Russian gateways would NOT be allowed to supply minutes and nobody but China Telecom would be allowed to offer service.
So the Chinese gateways would be dead and competitors impotent if Globalstar couldn't come to some agreement with China Telecom. PCSTEL's theory would be right if that situation applied everywhere. But Globalstar minutes are not fixed in one place - they can be carried around the world by the satellites to be used in another country. To a certain extent anyway. The first 100 or more posts in this stream covers that.
The satellites are limited by battery storage, photovoltaic output, circuits available and cooling. Any one of those can mean the satellite can't do more. If there is huge demand in the USA, the batteries could be recharged over China and the satellite allowed to cool while leaving the circuits quiet. Then, as the satellites come over Alaska and down over Canada and the USA and Mexico, they could be running flat out! Circuits full, batteries running down, photovoltaics at the limit [if they are in sunshine and not night-time they would be able to do some recharging], satellite getting hot at 2 kilowatts. Then, it could cool down and recharge over the South America, the South Atlantic and so on. Of, if the USA doesn't want the minutes, they could be saved for Brazil, Colombia [PCSTEL's wife's family could enjoy some Globalstar Gabbing [GG]] or elsewhere.
Or, China could use the minutes, overfly USA with few being used [goodbye GlobalstarUSA] while cooling and recharging, then sell the minutes in South America.
That's one answer to PCSTEL's Exit 1 problem!
The debt is irrelevant to the pricing of Globalstar minutes. The pricing is decided by the subscribers who understand the value of Globalstar to them. Sure, Globalstar service providers do actually set the prices at which they will sell, but they can't force subscribers to use them.
As PCSSTEL pointed out in regard to the out of town high-priced gas station, people buy enough to get back to town. They don't fill 'er up. The customers set the price. That's why at tomato auctions, the auctioneer just records the bids - the auctioneer doesn't tell people what to bid. If there are a LOT of tomatoes, the bids are lower and people buy a lot more and eat a lot more.
The debt being written off won't make the minutes any more or less valuable to subscribers. It will just make a difference to who owns the constellation and who makes the profits when subscribers pay money. The debt should be irrelevant to the price charged [let's hope the marketing people at Globalstar can understand that - I'm not hopeful as I suspect most people don't 'get it']. The cost of the constellation should NOT figure in the price charged.
What should matter is the price received for the minutes which have been speculatively built in consideration of the next constellation. If we get heaps of money, we should build a new constellation quickly. If we get not much, we should defer the next constellation until the market and technology is worthwhile. But for the first constellation, the deed is done and all we can do now is sell the minutes for what the market will bear to maximize NPV. So far, they have done a very bad job of that.
Well, that's it for the day!
Mqurice
PS: I don't think the little price rise on low volume was a short squeeze. More like wishful thinking on no information. |
