Bennett, Mike Doyle and all, this discussion about demand perplexes me. The basic problem is that the supplier of the goods thinks they set the price. That is not true. It is true in the narrow sense that they can say they will not sell below such and such a price. But if no customers show up, then they are not going to sell very many.
In the normal course of events, a supplier has an incremental cost in supplying a bit more of a product - another handset means another chip and assembly cost and all that, another print of Windows 95 costs the price of a CD-ROM and packaging, plus distribution costs. But with Globalstar, the whole thing gets built in one go. No marginal costs of production for another customer to come on line. If they own a handset, they can use another minute and there is zero marginal cost. Until the sytem reaches capacity at which time there is another constellation needed.
At the end of 1998 there is going to be about $6bn worth of satellites, earth stations and development cost all sitting there, humming away, waiting for a customer to show up. So the question is, how much to sell a minute for? The old idea is that you hang a sign out saying $1 per minute and hope somebody comes along. You are all wondering if there will be enough demand? Just how many people will buy the service.
This is all arse about face, to use some local idiom. The way to do it is start at a really low price, like US$0.05 per minute and keep it low until the system is full. Then raise the price until the system is always operating at capacity - dearer at busy times, cheaper at quiet times. That way you fill the system really fast, you get millions of happy customers chattering away at the cheapest possible price, you get money for the next constellation, you are the most competitive so Iridium and others don't get a look in, you make the most money because your system is fully used at the maximum price acceptable to subscribers.
Of course demand is there to totally fill the system. The only question is at what price will the system be filled. Handsets should be produced extremely fast initially and at a really high price, because the early adopters would get the cheapest minutes. After the system is filled, handset prices would drop and minute prices rise.
My guess is that the system will easily fill at $1 per minute. But if Globalstar try to tell subscribers what they have to pay, then they will take much longer to fill the system, they won't get so many customers, competitors will make inroads, shareholders will enjoy reduced profits, potential subscribers will remain unsatisfied.
Whether Globalstar likes it or not, understands it or not, the price they get will be that which subscribers are happy to pay. NOT what they tell subscribers the price is. So yes, the demand is there sufficient to fill 10 Globalstar systems, very profitably.
Sorry that this is a lecturing type "address", not directed at you Bennett, because I expect you are one of the people who would most easily see the point, but just in frustration that Globalstar and investors seem to want to "control" the market. Decide how many fixed and how many mobile. How much subscribers will pay. The designers of the system decided all that - their design defined the system, the subscribers will vote with their money how it is used.
In the land of democracy, you'd think it would be a simple concept that people vote with money to decide who gets what service where and the people do the deciding, not the supplier. If a supplier doesn't come up to scratch, the voters vote somebody else in.
Maurice |
