Our buddy Quentin Hardy with a somewhat positive article on GSTRF (see below)
9/6/99 Forbes. Surviving Iridium. For Globalstar, conquering space may be easier than mastering customers' perceptions
(via G* yahoo thread)
forbes.com
By Quentin Hardy
BERNARD SCHWARTZ always needled the
archrival to Globalstar, his space-age
satellite phone system. Now he's brutal.
"There is no Iridium," he says, calling that
$6 billion venture "an irrelevancy" as
Globalstar braces for its commercial debut
next month.
Nasty, but he has a point. Ten months into
service, Iridium has few customers for its
pioneering satellite network and expensive
phones. Hounded by bankers and
bondholders, Iridium progenitor Motorola and
other backers pushed the firm into a
Chapter 11 restructuring last month. But
even with dramatic alterations to its
balance sheet, it's unclear whether Iridium
can survive.
Schwartz may wish Iridium didn't matter,
but it does: Its descent has pulled down
Globalstar, too. Fearful that one network of
low-orbit birds is as bad as another,
investors had lopped 30% off Globalstar's
stock value by early August before shares
rebounded a bit. Its executives once
jeeringly offered prizes to anyone who could
locate an Iridium phone; now they are
spooked by Wall Street's dark mood.
"Iridium has really disturbed our market,"
says Globalstar Chief Operating Officer
Anthony Navarra, who keeps a doll knotted
in a Motorola necktie and an Iridium
badge-holder in his office. "They set
everybody's expectations way too high."
A worried Schwartz recently spent a million
bucks on ads targeted to Wall Street.
Theme: Globalstar has the right technology,
with the right marketing. Read: We're not
Iridium. He plans to preview the system to
his investors in September, staging lots of
phone calls via Globalstar's 48-satellite
network.
That underscores the high stakes in the
Globalstar gamble, not just the $3.8 billion
invested in the venture so far, but also the
ego and legacy of 73-year-old Bernard
Schwartz. As the chief executive of Loral
Corp., the New York native took the
defense contractor from a market value of
$7.5 million in 1972 to $15 billion in 1996.
Then he sold off the defense businesses for
$9 billion in 1996, holding on to the
satellite-making business, renaming the
company Loral Space &Communications and
acquiring a worldwide portfolio of
satellite-based carriers.Loral (1998 sales,
$1.7 billion) owns 45% of Globalstar;
Schwartz is chief of both companies. Now
the venture could cap Schwartz's
career--or end it in a fiasco.
Despite fears that Globalstar will be another
Iridium, Schwartz's business model may
suggest a brighter fate. Globalstar has its
roots in a 1989 plan at Ford Motor Co. to
use satellites to aid motorists. The old Loral
acquired Ford's satellite unit in 1990, and
Globalstar emerged in its present form
through an alliance that Schwartz struck
with a few engineering firms and, most
importantly, several large wireless providers.
That service orientation is critical, because
wireless carriers stress revenue generation
over cost recovery. Globalstar will start at
half Iridium's initial price, with phones
costing $1,500 and calls pegged at $1.50 to
$3 a minute. If consumers balk or
competition rises, Globalstar is ready to cut
prices 50%. Letting the carriers drive
Globalstar, even though Loral Space holds
the biggest single stake, was "a major pain
in the backside," Schwartz says now, "but
it's been a critical differentiation."
Iridium, by contrast, operated out of a
manufacturer's mindset. It's ruled largely by
Motorola (which owns an 18% stake) and
Japanese components maker Kyocera and
affiliates (11%). So Iridium had tried to
push high-priced handsets and costly calls
to quickly recoup the costs of parts, labor
and distribution. Iridium also inherited a
retired Motorolan named Edward Staiano,
who personified the hardball, controlling
leadership that got Motorola into trouble
earlier this decade. His first major act at
Iridium was to ban all vacations.
Staiano, who relaxed by pumping iron
aboard his Gulfstream jet, was fired in April.
He had tried to exert full control over
Iridium's loose confederation of marketing
partners, publicly sniping at the
competence of its regional distributors.
Staiano also matched Schwartz in
competitive carping; at an industry dinner
he bet Schwartz $200 that Globalstar would
fail to start service on time this year.
Globalstar distinguishes itself from Iridium in
technology as well as personality. Each of
Iridium's 66 satellites has its own
phone-switching system, boosting coverage
and performance at a cost of complexity
and weight.
Globalstar's 48 birds act more like flying
antennas, carrying calls to switching
systems on the ground that are simple to
operate and are linked into local phone
networks. By flying higher and lighter, they
can last seven years, compared with five
years for Iridium (with the first year already
gone).
Schwartz's partners say all these
distinctions matter plenty, but the Iridium
flop has made them cautious about how
fast they can sell the phones. For now the
target is at most 10,000 customers by
year-end, only half of what Iridium has (it
planned to have 300,000 by now).
Iridium remains a $6 billion case study in
how not to launch a satellite network. It
waged a $140 million global ad campaign
that created brand awareness long before
the phones or the satellites were ready.
Globalstar will spend a more modest $40
million by June of next year, hoping to
capture customers in narrow markets like
fishing fleets and oil rigs. "I spend every
waking minute being 180 degrees opposite"
from Iridium, says Andrew Radlow,
marketing chief at Airtouch Satellite,
Globalstar's U.S. provider.
Despite his partners' caution, Schwartz,
never short on bluster, insists Globalstar
can sign up 3 million users in three years.
Never mind that Inmarsat, a forerunner
satellite service, has just 140,000 users for
its laptop-size phone after 20 years in
business.
Schwartz hopes to get 15% of his business
from sales of fixed-location phones in
remote, unwired regions. But customers of
Gilat Satellite Networks of Israel are already
buying fixed phones tied to geostationary
satellites (which hover 23,500 miles above
the earth, versus 850 miles for Globalstar).
The quality is uneven, but calls cost just 15
cents a minute.
Schwartz also will have to contend with
other satellite networks that may survive
the Iridium effect. ICO Global
Communications withdrew a $500 million
rights offering in late July but raised the
money from large investors. ICO is
cost-cutting its network from ten to eight
big birds and plans to start next year.
Even a revamped Iridium will pursue the
same customers as Globalstar. Iridium's
regional investors want it to act more like a
service provider, and new chief John
Richardson has set prices similar to
Globalstar's. To his staff's relief, he also
took a week's safari in Tanzania in July,
staying in touch by using an Iridium phone.
Loral's Schwartz says he is unfazed by the
challenges and that his service partners are
ordering more phones in anticipation of a big
buildup next year. Now to get customers to
buy into this dream.
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Table:
Iridium vs. Globalstar
forbes.com
?¸ 1999 Forbes.com |
