While I am extremely negative on the prospects for Iridium's stock price, technology and system performance, there is one potential bright spot in the future for subscriber growth.
I believe the company will go through a painful restructuring later this year that will all but wipe out the publicly traded equity value. I am certain their technology and system design will make them vulnerable for the next two years. For various reasons, I view there first to market position as a liability, not an advantage. It would also be my contention that a mere growth in subscribers and phones sold will still lead to dissapointement since the phones won't be used frequently by a large percentage of the buyers or new subscribers.
The reason is simple, this phone is for situations where reliable wireless systems don't exist. As a corporate customer, I will deploy Iridium phones only when needed. I will keep my PCS or cellular corporate account and give my employee the Iridium phone only when circumstances warrent its use. In addition, I might buy several (even hundreds) Iridium phones as a back up or contingency plan in the event that circumstances such as land line failures occur.
This gets me to probably the only positive driver I can think of for Iridium. Many corporations throughout the world are in the process of spending billions to remediate their computer systems based on Y2K non compliance. The vast majority of these corporations will be finalizing contingency plans in the event they, their suppliers or their customers fail to address the Y2K problem. A major fear is that either utilities will have problems causing power shortages or telco companies will have service go down due to computer, switch, or router failures. Owning Iridium phones as an alternative communications system would make sense and will likely play a big part in the contingency plans of many goverment agencies and many corporations in several industries.
Although this would mean an increase in subs and phone sales, if the problems don't materialize in the fourth quarter of this year of the first quarter of next, it is likely these new subs and phones sales will generate little future revenue. Even with this Y2K bonus, I think Iridium will fall far short of their sub growth goals.
Globalstar could also benefit if their system is operational by year end. If I were a corporate customer, there is no way that I would make a long term commitment to Iridium knowing the potential price differential from GLobalstar. It will likely take several more months before Iridium will have many large customers sign phone purchase and subscriber deals. I believe they will dogged by more operaional problems and system performance degradation during the second and third quarter. The negative PR will likely have a big impact on their ability to sign new customers. Unfortunately, this will also be about the time that Globalstar starts to market their own system and competitivly priced service.
I think that the price of Iridium will diverge from the price of Globalstar. I would not go long Globalstar now, but would assume it will suffer for a period based on Iridium (which has been and remains a short). Then I believe Globalstar will be a huge bargain and I would look into the Iridium bonds, which will be in the toilet by this point. All this should create ample opportunity to profit. Most of the money in the sat sector will be made shorting in the second half of 99 or sooner. Good luck. |
