Please see following also posted on QCOM Buy-range thread received e-mail from "James Krackorn":
"I'm currently not an SI member; however you're welcome to share this with the thread...an answer to your question regarding why GSTRF might not have succeeded:
1) Insufficient MOU revenues/no viable MOU business model. For the user segments that were identified, the total minutes of use wouldn't generate sufficient revenues for the service providers to recoup their costs of offering the service (customer service centers, warranties, operating the system, distribution, SG&A, overhead). The current global airtime revenues are only approxiimately $1M.
2) Status quo. For places where there is no phone service currently offered, the per capita income is too low to buy a $1,000 handset! Chicken and egg sort of thing. Guess why there isn't phone service in places like India? The government ain't stable enought to create the infrastructure. Will this improve? Probably so, but at the rate which the political/ethical issues are resolved (similar to Russia, et al).
3) Window of opportunity. Economic window of opportunity for high capex projects slammed shut about 24 months ago. Bummer for ICO, Iridium, Globalstar, ORBCOMM (can you name others?). These failed financial black holes might have contributed to the economic morass we now are experiencing (it's hard to evaporate trillions on projects that yeild limited economic benefit in only a few years, but it seems to have happened).
4) Lack of incentives/binding contracts. In order to sell the project to capital markets, KPMG did the original 'market study' to justify the viability of the market back in 1992; however, no real follow up was done to validate the existence of demand among service providers--it was assumed they would all be on board. Besides 'shorting the stock' the real money was 'made' in this project by selling 'rights to offer service' to respective service providers around the globe long before the project even got off the ground. The failure of IRIDIUM caused some to shirk their obligations at no loss to any but those who believed in the eventual success of GSTRF. Unless things turn around in a big way (so as to create a large manufacturing base/large number of subs) those that bought 'the right to offer service' bought a ticket to Tom Sawyer's "Royal Nonesuch".
5) Conflicts of interest. For example, QCOM switches used in gateways were 'remarkably similar' to the design as the switches used for QCOM's first CDMA terrestrial networks (remember the secret sauce for CDMA is the air interface, not the switch). Some speculate a great deal of QCOM's R&D expense for switch development (which may have been done to alleviate strategic supply risk from switch vendors that might have otherwise desired to delay CDMA deployment) may have been billed to GSTRF. Might have been why QCOM was so willing to swallow the $650,000,000 write-off--it was their expense anyways. Guess we could coin a new term--QUALCONOMICS. Some might further speculate that Bernie Schwartz was as much a strategic founder of QUALCOMM as those on the board--how many shares of QCOM did Bernie own, anyway? Hope he wasn't short GSTRF! :o)
6) Terrestrial wireless network growth. Terrestrial networks grew faster than expected (in subs and total coverage area). In hindsight, looking at how IRIDIUM only gained 50,000 subs (after extensive marketing, etc.) it shows that there really is not a significant market at the $1,000 handset price. Perhaps if handsets were the size of cellphones, offered in-building penetration, and were included in the monthly price of service, then and only then would people be willing to buy. Otherwise, it stands to reason that people usually don't want service when they are out hiking etc. (trying to escape civilization) except in the case of emergencies. Imagine your wife dialing up her friends "to chat" while you're out enjoying secluded nature somewhere--how annoying would that be?? Besides, most women are more intelligent than that--it might be some dork checking his portfolio when he's supposed to be relaxing. :o)
7) Lack of applications. Mobile data will need killer apps to justify the cost of 3G. Ever try driving/jogging/walking and surfing the Internet? How about looking at a tiny screen under bright sunlight? GSTRF/etc. are all cool technology--just gotta remember reality, too. I think we all want to believe in something--that's what the cult stocks of the 1990s were all about; fortunately, the bull market was in full swing and we could all take our pick.
It will be interesting to see how 3G plays out--a few years ago, it was a sure thing; today, who knows.
Cheers,
J.K." |
