Tero you are quite right in all you said. However, the implied conclusion is that Globalstar will go the way of ICO and Iridium. At the moment, Globalstar is in limbo as much as ICO and Iridium - waiting to find out just where price elasticity curves go for the different systems.
It would be annoying if both Iridium and ICO go ahead and remain operational though I've added up possible handset profits and minute profits for Iridium and I can't even keep the system operational unless the USA military think they need it for their intelligence and use OPM to keep it going. OPM is Other People's Money. Even with all equity and debt gone, a scaled back operational and maintenance operation and no further constellation development the continuing costs seem to be too high, especially when Globalstar is going to be getting a LOT of customers very soon.
ICO is still a couple of $$bn short of being operational so it's an easier decision for them to can the system, but again, OPM from the many government bodies who wouldn't know a ROI if it collapsed under them could keep ICO in business.
Back to the price elasticity business. Everyone has their own price elasticity curve but rich people have a curve at a high altitude, but there are few of them. Iridium tried to make their system work at a high price. Lowering their prices from extremely high to very high hasn't made much difference, especially when they continue to ask subscribers to carry the risk of the constellation closing by selling the handsets rather than leasing.
So just where is the 'take off' point for minutes to be used by the 10s of billions by 6m subscribers?
We can start with terrestrial handsets. Mass markets really only took off when handsets got down to about $500 with near majority use only when handsets were more like $100. Minute prices have come down too and at somewhere around 20c per minute, handsets are used at will. At 40c they are used a lot. At $1 a minute, people are not in a hurry to be on the phone and disconnect after short conversations. I'm sure there are very precise curves in the Airtouch computers these days because those curves define precisely whether more money can be made by lowering the price and increasing demand.
20c a minute is $12 an hour. 40c per minute is $24 per hour and $1 per minute is $60 per hour.
Now, reasoning this through a bit. Notice how those figures range from your average Joe 6-Pack hourly wage to somebody on $120,000 per year salary. Notice also that when one is on a phone, one is using pretty much all one's being and the evidence for that is that people can't chew gum and walk a straight line at the same time and they can't drive a car and talk on the phone at the same time. Well, they can, but their driving performance tends to drop substantially and they go into autopilot mode even if they are very capable drivers. The not so good drivers simply crash!
My point there is that talking on the phone represents the total of a person's value at that particular time. Their only mental state is 'talking on the phone' state. So, if they can be doing something else, such as earning money, they could be earning somewhere between 20c per minute or maybe $1 a minute for real hot shots on their $120,000 per year.
Now, nearly all the time, talking on the phone is pretty ordinary stuff, not of specially high value. Mostly it's, "Meet you at the bank at 11.30." Or, "Would you pick up some lecithin at Trader Joe's?" Or, "Yeah, what a laugh, then Pete went round to Mary's thinking her husband wasn't back till the next day and bugger me if he wasn't home early and had dozed off in the bedroom. For a surprise, Pete let himself zzztttff**---... damn phone, we don't get good coverage out here. Anyway, he let himself in, went into the bedroom after taking off his clothxxzzztt***//---@@#####.--.......". Call dropped. Anyway, you get the picture, the calls are at the value of the person making the call.
Even when out of range and needing to get a tow truck, one is not prepared to spend just any amount. It's cheaper to walk 5 minutes and borrow a phone than pay $120,000 a year to use the $1 a minute phone. How about a $2 a minute phone? That's $240,000 per year, after tax!! I think I'd rather walk too, unless it was the one time in my life that I needed to phone for an ambulance which I might never need to make.
So to get over the lump of $1500 or $1200 for a handset then to face $350,000 per year before tax to actually use it, together with $1000 per year just to remain connected, I think I'd give it a miss and take my chances out in the sticks where there's no phone. I think the masses in Calcutta and Brazil, where they can't get phones and can barely get food in Calcutta's case, will give it a miss too.
So for this to sell 1m handsets a year, they are going to have to travel very quickly down the price elasticity curve to somewhere where normal humans live. Even those using OPM won't spend just any amount, though some will.
Since people have limited attention spans, it's easier to travel UP the curve than down. That means start cheap and work your way up to the balance between supply and demand. That keeps people's attention. Start at $2 per minute and $1500 and the whole world will hold their breath for a week, then count the handsets sold [on one set of fingers and toes]. Then they'll scream "Another Iridium!" across all the newspapers and it'll be game over. Nobody will be seen dead going near a Globalstar shop.
But no worries, we've been told over and over how brilliant the marketers are at Airtouch. They just haven't ordered many handsets because they have to um, you know, get some ads done for TV and because um, they, well, it takes a long time to order handsets and anyway, maybe Qualcomm should just produce them and stack them in a warehouse on the off chance that Airtouch might want to buy one...heck, maybe even 100. Anyway, Globalstar LP has ordered a few and if any are actually needed, Airtouch can buy some of those.
Tero, where I really agree with you is on this bit...<Iridium tried to keep the weight of the phone secret for as long as possible, whereas Globalstar's little secret concerns the battery technology. Here's the problem: when potential consumers finally figure out the racket, there's a backlash.> To me it is completely nuts to not give the potential subscribers an accurate idea of what it's all about from the beginning. They get really annoyed if they feel they are being flim-flammed. That means they won't trust anything they are told. That means assurances that Globalstar won't go the way of Iridium will be met with "Yeah, right! Yous didn't tell me that the ads showing the Globalstar handsets being used everywhere from deserts to icebergs didn't mean I could actually use it everywhere, but really I can only use it in parts of Argentina and soon I might be able to use it in the USA as long as I am outside or have a car kit installed".
I'm sure the Iridium marketers were top marketers and it's easy to claim that Globalstar or Airtouch marketers are much superior graduates from Harvard Business School for MBAs in Market Segmentation and Product Differentiation and that while they have never actually worked for a living out where people sweat and curse, they know that $2 a minute and $1500 for a phone are bargains which will sell millions.
We'll soon see whether Airtouch is on the money at $1.50 to $2 a minute and $1200 or $1500 for a handset [plus a monthly charge I suppose and probably with some stupid 3 year contract]. I say they are wrong and even if they are right, the free advertising and excitement of a bargain at 50c per minute would not cost anything in the long run because increased sales would make up for the small losses while the run up the price elasticity curve is played out.
I can hear the Harvard MBAs now worrying about another bit of jargon "price destruction" as consumers get immediately accustomed to a lower price and resist the higher price. Well, in the real world, people know that when OPEC doubles the price of oil, gasoline prices soon follow. They whine for a week then go on buying. Some people struggle with the idea, have one day boycotts and stuff like that. But people know what an "Opening Special" means. "For a limited time". They know to crowd in and not miss out.
Tero, you haven't allowed for the brilliant marketers at Airtouch! They'll sell these "Outside normal coverage", huge, unfunctional Globalstar phones with short battery life and big dorky aerials which you can only use outdoors and only where there happens to be a gateway in the area and as long as you don't have buildings or trees blocking the signal.
They have probably been adopting a carefully crafted strategy to put ICO, Iridium, Ellipso, Odyssey off the trail. As soon as those are out of the business, they'll unveil their true marketing plan.
Would you buy a Globalstar phone to use at $350,000 per year before tax? I won't.
Maurice |
