Subject: Re: Miscellaneous
Date: Mon, Jul 20, 1998 20:28 EDT
From: Readware
Message-id: <1998072100284600.UAA25734@ladder01.news.aol.com>
Any possible interest in Primestar would not have to do with delivering content, but rather deploying certain of P*'s transponders for multimedia/internet delivery systems, whether under the C* or Orion banner. Loral is not entering the content-delivery business.
Given the recent acquisition by AT&T of Telecommunications Corp. (which has an interest in Primestar, and in turn the @home network) and the, what one can consider to be, reasonably informed talk in trade papers about New Skies' capitalization as a soon-to-be publicly traded company (and no longer an Intelsat property) a Loral alliance with Primestar would now appear less likely.
Subject: Re: Miscellaneous
Date: Mon, Jul 20, 1998 23:05 EDT
From: Readware
Message-id: <1998072103054000.XAA17813@ladder01.news.aol.com>
No, I do not think that Loral will buy New Skies.
I have read through some of the FCC filings and ITU memoranda regarding the privatization of the Intelsat assets. Extraordinarily "legalese", to say the least.
Ex hypothesi it would make sense in this privatization discussion, one could argue, for LOR to buy (1) Comsat International, (2) ownership in Teleglobe's 3 sats (Teleglobe beams off Orion F1 anyway), (3) transponder access to Intelsat's IOR fleet (or at least ownerships of the slots to 62 and 63 degrees East for their [Loral's] own sats), and the rights to the two slots opening up in Intelsat's AOR.
Ownership in Teleglobe would enhance C* [the Teleglobe sats are ATM efficient], ownership of Comsat Int'l would enhance Orion, as would ownership of the Indian Ocean and Atlantic Ocean region slots of Intelsat.
Will this happen? I think something more than a faint resemblance of what was written above makes economic sense. But it is one of a number of possible scenarios and, as I suggested, hypothetical. As for timing, I think this scenario (or its similitude) would unfold in steps over the next year, and not be something all at once.
Subject: ICO Gloabl andG* Price
Date: Wed, Jul 22, 1998 16:34 EDT
From: Readware
Message-id: <1998072220345100.QAA23914@ladder01.news.aol.com>
It occurs to me that the softening in G*'s price is a function of the ICO road show which has been in effect for the past two weeks. I attended the ICO briefing.
It is my opinion that my impressions on Iridium 2nd generation pricing (and the ability to finance a second system thereby, even at a cost 40% lower than the first) that I posted here a while ago were in fact not uncalled for afater all. There is one engineering fact that says it all to one who is in the satcom industry: total capacity.
Each ICO MEO has 4,500 satellite channels, which can handle 60 minutes/hour each. Total ICO Global capacity is 24 billion minutes/year.
That figure is an answer from the ICO Chief Executive Officer Olof Lundberg in direct response to my question on ICO's total capacity.
While other variables enter into the overall finacial table of a satcom telephony company, total capacity allows break-even flexibility which I suggested Iridium's second generation looks not to have-- at least as far as I can see relative to G* and ICO. It occurs to me that "break-even" is the beginning of all "return on equity": ROE is an increasing function of break-even.
In any event, ICO will be priced I believe next Tuesday or Wednesday. I do not see ICO as a competitor to G*. The three systems together at total capacity perhaps number 7 million subscribers for ICO, 6 million for G*, and 1.5 million for Iridium. That leaves room for systems to fill a demand for some 17-18 million more users in the year 2002. It appears to me that we are looking at a per minute retail price for ICO in the neighborhood of $1.95.
which is nearly equivalent to G*.
The genuine question, it occurs to me, that an investor needs to calculate in his decision now is to pivot that decision off the break-even number of all three systems.
These are my initial impressions from the ICO meeting yesterday. I am not going to comment really on ICO, any more than these initial impressions. ICO will be operational in August 2000, and it appears to me that we are looking at somewhere in the proximity of $180 million in net profit in the year 2002 (as a benchmark against which to measure G* and Iridium World), accelerating rapidly thereafter.
As always my impressions will be tested by the facts, which will either disprove them or confirm them.
Subject: Re: ICO Gloabl andG* Price
Date: Wed, Jul 22, 1998 18:16 EDT
From: Toothog
Message-id: <1998072222163500.SAA08099@ladder01.news.aol.com>
hOW IS THE WEAK g* PRICE AFFECTED BY ico?
I thought it may be a launch delay rumor of something
From what you have been hearing is demand still seem as strong or is it just normal market crap
Subject: Re: ICO Gloabl andG* Price
Date: Wed, Jul 22, 1998 19:16 EDT
From: Readware
Message-id: <1998072223160300.TAA16331@ladder01.news.aol.com>
Because, those with a profit in G* and Iridium will sell them to buy ICO at a lower price. In fact, this is what a number of money managers (4) have told me is being done.
The capacity for the demand is very inadequate. The 5 systems approved (Iridium G*, ICO, Ellipso, ECCO) will not meet the demand for even 30 million users. That was acknowledged in the ICO presentation by Olof Lundberg, ICO CEO.
As I mentioned there are no more non-GEO systems that will be approved. The bidding is closed, done. The 5 systems that have been approved may expand, but no more systems will be allowed.
You have a number of GEO systems, therefore, that are being developed, which will probably get us up to 25-26 million capacity by 2003. For Quality of Voice demand, however, the LEO systems (no latency) will be the choice of those sensitive to latency.
Subject: G* brokerage report
Date: Wed, Jul 22, 1998 19:06 EDT
From: Readware
Message-id: <1998072223063700.TAA15034@ladder01.news.aol.com>
A New York based brokerage today began G* with a "neutral".
A reading of the report seems to indicate that the craw in it is the broker's caution about G*'s lack of timely launching by Zenit and G*s launching 75% of its sats on the Zenit.
That opinion derives from this: his G* subscription numbers for 1999 are 900,000 with a higher subscription number for 2002, according to the writer, than G* mangement's (though the number is not given by the writer).
He puts a $28 value on G for 1999, which his published G* subscriber assumptions for 2002 do not support. He assumes 140 minutes of usage per month (we assume 100), and a 75% mobile user market. Should one be baffled at his pricing model? It would be interesting to see what others who read the report think of the calculations he hasmade.
Discounting back to 1999 his 2002 subscriber number for G* (which he says are above G* management's) and minutes of usage per subscriber per month, one gets to almost $57/share at the end of 1999 for earnings of G* in 2002 (using G* management's pro forma 2002 numbers) and assuming 86 million fully diluted shares. He uses $.47/minute as G*'s per minute revenue (87% margin).
Going out to 2007 (for which the broker puts numbers), use a 30% discount rate, and a terminal multiple in 2007 of 9 (which is the broker's terminal multiple). His EBITDA for G* in 2007 is $4.8 billion, with an EBITDA margin of 92%. Assume 86 million fully diluted shares. You have earnings in excess of $44/share in 2007, with a stock price (terminal multiple of 9) of $396/share.
Fascinating (I think the adjective is appropriate): taken from this broker's analysis in his report today, G* will appreciate, according to him, from $28/share at the end of 1999 1,500% by 2007.
One can suggest that the G* launch scenario would have been abetted by usage of other launch vehicles [2 Zenits, instead of three, with more Deltas perhaps. (Can one really say though? If the G* launches on Zenit are all successful, what difference would it have made?]. I think, after reading the report, it is the launch scenario, the "high roller stakes" he perceives in it (while others may not), that has the broker "miffed". For his numbers that he
presents in his report for G* simply do not bear out his year-end 1999 target.
Subject: Re: G* malaise
Date: Wed, Jul 22, 1998 22:33 EDT
From: Readware
Message-id: <1998072302330700.WAA17114@ladder01.news.aol.com>
The notion that Hyundai wanted "out" of G* is not exactly correct. Their Asian and Korean financial crush induced by whatever the causes resulted in its management needing to devote all its efforts to meeting IMF reorganization demands, which just three years ago Hyundai could never have envisioned. The effect of the new capital requirements it faced could be likened to a cement pile driving through a glass window.
Berenard Schwartz relayed in a conference call in April to institutional investors that Globalstar management in late March began becoming somewhat concerned about Hyundai's resultant lack of focus on its G* commitments, as well as becoming edgy over Dacom's also. Globalstar and the two companies mutually began discussions about what the best course for both would be.
You will note that AirTouch, which experienced none of the financial uncertainties that faced Hyundai and Dacom, sold none of its Globalstar stock. In fact, there was talk here and there in the industry that AirTouch wanted to increase its stake.
I bring this up because the brokerage report referenced earlier by me today in a prior post mentioned misgivings about Hyundai's withdrawal as possibly representing a lack of faith in future substantial upward pricing possibilities for the shares of Globalstar. The brokerage report did not mention AirTouch's decision to not sell, nor the rumors (which I think have credible basis, otherwise I would not have posted it here) of its desire for more
ownership, nor the George Soros investment.
More likely than not, as I think of the brokerage report I referenced earlier, it appears that the writer has a point of view to press-- which is fine, so long as all the facts are presented in a report. When they are not, as I have indicated above that they were not, the report loses cogency. That sometimes, though, is because the writer has a point of view to press and some facts just don't fit that point of view.
***
As I attended the ICO conference, if I may post a fully personal (but hopefully not totally subjective) observation, I was astonished at the almost total lack of understanding exhibited by the questions of those in attendance. These were "money managers" who seem not to realize that some 10,000 hours of work goes into each satellite from start to final orbit, that the delivery of communications from space so far away is an absolute miracle of human
ingenuity, that the capabilities to deliver a new technology so difficult and exacting as satellite technology is represents an enormous capacity of mind, that just to even begin to understand frequency doctrine requires a discipline of study habits that express commitment and resolve not characteristically displayed in everyday commerce. These money managers seem so "bent on the next quarter-- will the earnings be there in time"-- totally oblivious
to the largesse of the revolution unfolding before their eyes. I would venture that given the impatience of these individuals to see earnings, they would lack the patience to see any satcom project through.
I have not been to a Wall Street satcom "IPO road show" in quite some time, nor to any Loral conference for that matter (except for the secondary in May since their business plan had been substantially emended), since our east coast office attends and sends me transcripts from them. I was just struck with the difference between their impatience, and the actual excellence of skill and time required to effect the revolution in technology that satcoms
present to the populated world. It was quite an eye opener.
Subject: Re: G* malaise
Date: Thu, Jul 23, 1998 11:22 EDT
From: Readware
Message-id: <1998072315221100.LAA19284@ladder01.news.aol.com>
I can't address "short-term" movements in stocks at all, davkar529. I am baffled, personally, how some stocks can trade a 7% spread in one day. I just don't understand how that occurs.
I do not know all the individual ownerships of LOR, G*, or Iridium. In trying to ascertain the cause (if there are causes in the short-term) of G*'s price decline over the past few days I had been told by a number of portfolio managers that "hot money" was probably selling G* (since they made their profit) to buy into ICO, with the expectation of realizing a "quick" gain as was the case in Iridium and G* in the past. I heard nothing from ICO's
principals at their breakfast that would have caused a long-term investor to suddenly sell stocks in ICO's competitors. Quite the contrary, the ICO principals spoke well of both G* and Iridium.
Subject: Re: ICO Global andG* Price
Date: Thu, Jul 23, 1998 12:02 EDT
From: Readware
Message-id: <1998072316021900.MAA23758@ladder01.news.aol.com>
ICO has a spectrum advantage over G*, but that is offset, one can argue, with the latency of a MEO (about 1/4 second) relative to a G* LEO. One can go back and forth on these issues, e.g., one can say that ICO management has never really been in a free market environment (what with all the governmental oversight), while Loral has been. The launch of a MEO is somewhat more important than that of 4 LEOs at a time since it takes longer to
manufacturer a MEO, and on and on as that affects possible launch mishaps. I think it's best one do a lot of research on the company and then make the about it. I would need to spend at least 200 hours on the company before I could pretend to have a reasonable estimate of it. And I have only glanced at ICO, and have not a scintilla of competence in it at all.
Subject: Lost Birds.
Date: Thu, Jul 23, 1998 09:50 EDT
From: TASTYCHAP
Message-id: <1998072313502600.JAA10199@ladder01.news.aol.com>
Readware.
What do you think the effect of the 2 lost Iridium Sats. will have on LOR.
TIA.
Best Regards & May the Schwartz be with you.
T.C.
Subject: Re: Lost Birds.
Date: Thu, Jul 23, 1998 12:40 EDT
From: Readware
Message-id: <1998072316404500.MAA28200@ladder01.news.aol.com>
I only hope its not the momentum wheels. From the report, it looks like it is, which would be an issue of attention to detail on the assembly line and at the testing facility. As fine a company as Motorola is, this looks really inexcusable and annoying. There are people who watch the Iridium sats through their telescopes (there are a lot of people who do that as a hobby, by the way). Once they start talking about flashes it's not a good
sign. You can follow any sat yourself by getting the software. It's called "clock tracking".
Subject: Thomas Watts, Iridium, and Merrill Lynch
Date: Thu, Jul 23, 1998 20:43 EDT
From: Readware
Message-id: <1998072400433200.UAA01772@ladder01.news.aol.com>
In his first research report on Iridium World in the Spring of 1997, the Iridium World analyst at investment bank Merrill Lynch (1) began research coverage of Iridium World with a "near-term accumulate rating", a "long-term strong buy" rating and target price in 1998 of $54/share and in the year 2002 of $215.
(2) On 16 October 1997, this same analyst cut his rating on Iridium World to "intermediate term neutral" and "long-term accumulate", with a 1998 target price of $66/share and a 2002 price of $178.
(3) On 24 March 1998, the same analyst announced a "near-term and long term accumulate" rating on Iridium World "updating our 12-18 month valuation to $82", and a $203/share price in 2002.
(4) On 23 July 1998 the same analyst lowered his rating on Iridium World to "neutral from accumulate but maintaining a long-term buy rating". No target price for the year 2002 appears in the report.
This analyst also covers Loral Space and Communications. He lowered his rating on Loral Space to "neutral" only some 40 days after rating it a "long-term buy" because he did not have the political/military/intelligence contacts who could explain to him the politics/mendacity/calumny of the China fiasco. Then, just four weeks later he raised his rating on Loral to a long term buy again from "neutral".
Can anyone explain to me how this individual keeps his job? Am I missing something?
Subject: Re: Iridium fallout
Date: Fri, Jul 24, 1998 17:39 EDT
From: AjitC
Message-id: <1998072421395000.RAA12202@ladder03.news.aol.com>
In my earlier years, I had project responsibility if offshore oil and gas platforms... which pale in comparison with the complexity with Iridium LEO project. One thing that did happen was that the more complex the project the more things went wrong. So I avoided the latest gizmos and kept things simple... had less problems. So, I have been feeling marginally better having invested in the dumb reflector in the sky G*.
Still there are too many things that can go wrong from the launches, satellites, gateways, handsets - and competition. Now I have to worry about ICO with its billion of minutes capacity. I know that Readware has not had the chance of doing his customary in depth assessment... but does anybody have an idea what the threats ICO pose to G*? Are ICO costs lower? What is their big picture?
Ajit.
Subject: Re: Iridium fallout
Date: Fri, Jul 24, 1998 18:53 EDT
From: Readware
Message-id: <1998072422534700.SAA14816@ladder01.news.aol.com>
Ajitc: While I have not done an in-depth assessment of ICO Global, I can propose a general answer to the questions you posed:
If satcom telephony demand in 2002 is 30 million subscribers, the total number number of all systems planned and to be in operation in 2002 (LEO and GEO) comes to 27 million user capacity. You get that number by taking all the proposed systems and finding the subscriber user capacity the satcom providers of them assert their system has. In that regard it would not appear that ICO would be a competitive threat to G* or Iridium-- all things held equal.
Each will have a part of the market.
However: the following thoughts:
(1) Not all things are equal. ICO stated that its average retail cost/minute will be between $1.97/minute to $2.10/minute. ICO will, like G*, be a wholesaler to local telcos. Iridium World is not. It is a bypass system. ICO did not state at the breakfast I attended what its cents/share of wholesaling would be.
I say not all things are equal because while ICO's retail cost/minute is similar to G*'s, it is sharply different, as is G*'s, from Iridium's. I have seen two brokerage reports speak of Iridium lowering prices in the future to keep market share. We will see. Iridium, contrary to what one brokerage report wrote, did not lower their cost in the United States this year for per/minute usage. That had been their intended cost in the US after they decided
on a three-card capability for their phone in June 1997. If Iridium lowers its cost/call, it has the problem of break-even, which I have posted here in the past. Since its capacity is not even anywhere near G*'s or ICO's, the ability to lower costs with such undercapacity relative to G* or ICO is financially limited.
Further, we do not believe there will be a price war in satcom telephony till late in 2001. The cellular model that is used to argue for this decline, we believe, is inapt in this case. The reason is rather plain: the limited number of particpants that can deliver satcom telephony infrastructure (space and land) makes the supply side of the market somewhat constrained, as opposed to simply increasing supply relatively easy by building thousands upon
thousand of cells for land based cellular systems. However, it is supply that drives down cost, and we simply do not see a flexibility in supply of satcoms. It is no easy thing to develop such systems. They are not like putting up towers.
(2) Iridium, I believe, but am not sure, will be receiving some monies from the sale of handsets-- neither G* nor ICO shall, however.
(3) There is the meaningful question of why it is that ICO's 12 MEO constellation has a 24 billion minutes of usage/year capacity. It has only a capacity for 7 million users because of the orbital configurations and the resultant number of calls that can be received at the same time. When I asked the ICO CEO the question on total capacity he suggested at the breakfast not to be too attentive to that 24 billion capacity number. Their break even
number is not available since their equity dollar amount they were to raise from the road show is obviously not finalized.
(4) ICO has a 4 tier model: cellular roaming, basic mobile, specialty mobile, maritime.
(5) Because it is operating at a higher altitude, there are frequency (non-noise/interference) advantages ICO can claim over G* and Iridium, which in turn can claim absence of latency for their system. There have been some claims that Iridium does have a 1/4 second delay which I have read in three places, which Iridium denied when I asked them about it in December of 1997. I will take Iridium at its word, having no reason to doubt their veracity or
total professionalism.
(6) ICO has an advantage that G* and Iridium had to work years to acquire: licenses and connections. ICO has been delivering a form of satcom telephony for years, and thus has licensing and gateway accesses etc. in place.
(7) ICO will cost about $4 billion. A MEO is a far more valuable piece of machinery than a LEO. A MEO lasts about 11-12 years, which has some advantages if technology in satcoms does not change. However, it does rapidly so the life of a MEO as an advantage over a LEO is a two-edged sword. A MEO is in a probably more inhospitable orbit in space than a LEO but that is not a matter about which to be too concerned. Finally, like G*, ICO is a hybrid
system, unlike Iridium's ISL.
So there are 3 unique constellations emerging: G*-- a LEO bent-pipe hybrid lowest cost system. ICO: a MEO bent-pipe hybrid system with a better look angle than G* or Iridium, and conceivably has less of a hand-off problem (which G* and Iridium have presumably resolved in the engineering of their fleet). Iridium: a highly complex bypass system with no cooperation with earth stations that needs 66 sats at all times for global coverage, with a much
lower capacity than either G* or ICO, with the advantage over G* and ICO of being able to be free of terrestrial mishaps.
A demand of 30 million subscribers, then, should not make ICO a threat to any of the other systems believed to be available for the year 2002. |
