2/25/99 Bear, Stearns CC notes (888-841-3475)
(thanks for the CC numbers, Valueman. Keep 'em coming...)
Bernie strong opening. "We are more confident than ever" about the G* project.
Current sats are working "absolutely perfectly"
"Great confidence" in Soyuz/Delta. Best reputation for reliability in the industry
"Very confident" about starting service in 3Q99
Gateways manufacturing and software are completed
300,000 handsets ordered, will ramp up to 40,000/month
58,000 handsets in service by 7-8/99
140-145,000 handsets in service by Christmas 1999
G* vs. I*. Distribution method is main difference.
G* service providers (SPs) have $1.4B equity participation
SPs need deployment to get benefit from system/investment
G* will have "long, robust testing period." SPs demanded it.
G* no "premature" worldwide ads. Will have handsets ready.
G* higher quality telco distributors are in cellular business, already send 100M bills to cell customers, have collection methods and service organizations in place, and have daily contact with users.
G* vs. I* capacity/costs
G* has exclusive use of QCOM CDMA. Major advantage. "4 times (or more) compression rate than TDMA"
G* capacity. 12B minutes/year or 1B minutes/month. 7.5M users at 160 minutes/month.
Bernie said G* has "no question about its ability" to get to 12B/year capacity and 7.5M users.
G* $.65 suggested retail price. G* .47 ($.35-52) by contract.
I* $3.00 and ICO $1.00-1.25
G* $3B total cost. I*4.5B total costs and 2M total user capacity.
ICO 2.5B capacity and Ellipso (paper system)
Potential target market is 40M users "right now" [Note: Higher than 30M figure mentioned previously by G* in CC's or press releases]
Bernie said G* cost structure leaves lots of room for pricing flexibility. Based on discussions with SPs, G* sees "no downward pricing pressure for some time (if at all)."
SPs interest in G* has "grown exponentially" over the last year due to ability to measure voice quality and dropped calls specs and as gateways, satellites and handsets manufacturing has been completed.
Significant point that SPs didn't want G* global brand ads last year. But, this year, SPs are now pressing G* for such ads.
In VOD/ATI merger discussions, both companies made presentations about G* importance to them.
VOD will market new G* service as satellite, all digitial with better encryption and service. $50 for new phone/VOD subsidy.
VOD estimates 7-10% of total customer base will be interested
VOD will charge $1.00-1.25/minute (instead of $.65) for this service.
France Telecom. More fixed phones demand so different deployment.
ATI says G* 110,000 US estimate is "too low by a certain multiple" (unidentified). Sees G* as "gap filler." But, ATI G* users will use fewer minutes than in earlier plan.
$600M financing need. Will go to market in Spring/Summer. LOR and SPs have invested $2B (including gateways and handsets). They are "totally committed" to G* project. Could do financing in parts or use different mechanisms (e.g., guarantees). As G* launches and system testing and I* does better, Bernie believes [high-yield] market will open to G*
Q&A starts here
Interesting discussion about how to measure demand.
G* did market research in each telco's territory.
40M target world market.
G* will have 3M users in 2002.
G* has the local provider distribution mechanisms and sales organizations to reach projected customers in each country/territory
China 225,000 in 20002
Brazil 200,000
US 110,000
India 80,000 [cool]
Thus, G* is not dependent on any one local SP to reach projections
G* constantly monitors SPs in each country.
No SPs have committed to alternative services
All SPs are building G* into their plans.
How SPs make money.
1. 40% ROI at $.65
2. New market. Regional, not VIPs. Create traffic by reaching customers just outside current areas.
3. G* investor.
SPs original equity payment based on the number of projected users in 2002. No SPs balked at payment amount. SPs actually said the amount was probably too low.
Hughes/China problem. No impact on G*. China already has a gateway.
Handset. $750 target price. SPs no markup.
$550 ERICY handset cost with volume.
I* $3500 handsets with no quality difference with G* handsets
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