Analysts Say Globalstar Faces Hurdles
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Telecom News
a report from the Telecom Desk of Federal Filings Business News
September 8, 1999
WASHINGTON (FFBN) -- Most things happen in threes, the old saying goes, and some
analysts fear Globalstar Telecommunications Ltd. (GSTRF) may be in trouble after Iridium LLC
(IRIDQ) and ICO Global Communications Ltd. (ICOFQ) both filed for Chapter 11 bankruptcy
protection last month.
Globalstar is preparing to launch its combination of terrestrial- and satellite-based wireless phone
service by the end of the year.
But the recent bad taste left in the mouths of consumers and investors by satellite-based global
phone services could hurt the San Jose, Calif.-based provider, analysts say.
"There are a lot of questions surrounding the demand for global services," says Eric Weinstein, an
analyst for Donaldson Lufkin & Jenrette Securities, in an interview with Federal Filings Business
News. However, "It's sort of unfair to judge Globalstar on [the other two]...especially with Iridium
whiffing so badly."
Globalstar has a few differentiating factors that set it apart from both Iridium and ICO Global.
Unlike the other two systems, Globalstar's network is not global at all, but offers regional coverage
with a hodge-podge of terrestrial systems backed by satellites to fill in the gaps.
Globalstar's phones, which are made by San Diego-based Qualcomm Inc. (QCOM), also are
cheaper and lighter, and airtime is less expensive than Iridium's.
Most importantly, Globalstar is fully funded. According to spokesman Mack Jeffrey, Globalstar
has a $500 million credit facility through Bank of America Corp. (BAC). It also is equity-owned
by service providers Vodafone AirTouch PLC (VOD), France Telecom SA (FTE), Alcatel SA
(ALA), Elsacom Spa, China Telecom (CHL) and Dacom Corp. (Q.DCM).
But all of that may not be enough to save it, analysts warn.
The landscape for mobile satellite services has changed significantly since the project's conception,
says Timothy O'Neil, an analyst for SoundView Technology Group. Cellular providers have been
"very aggressive" about launching their own services, and prices for both cellular handsets and
services are the cheapest they've ever been, O'Neil says.
Those factors will prevent satellite-based global phone services in general from becoming a direct
competitor, says an industry source who asked not to be identified.
Globalstar's Jeffrey agrees. The company is seeking customers who wish to supplement their
cellular service to avoid so-called dead zones; industries in remote areas such as forestry, mining,
or off-shore marine operations; and rural regions where wired phone service would be more
costly, such as in China or Brazil, Jeffrey says.
The size of the market still is unknown, O'Neil and Weinstein both say. Iridium had expected to
reach as many as 40 million users, but its service has only racked up about 20,000 customers so
far, Weinstein said.
O'Neil says there are potential customers for global service: the United States Army, rural
companies, and nautical companies who want full coverage across the oceans.
But Globalstar may not appeal to those demographics, O'Neil explained. Its system isn't fully
global and there are already other products for rural customers. Plus, the handsets may not be
rugged enough for military use.
Jeffrey confirmed Globalstar only has about 25% of its system ready, a fact which could hurt it
later on, Weinstein says. Incomplete build-outs have hung like an albatross around the necks of
other wireless carriers. Paging Network Inc. (PAGE) floundered with its VoiceNow voice paging
service because it hadn't fully built out the coverage in its rush to be the first to market.
Unlike paging networks that can be modified to carry data, Globalstar's system may not be easily
transformed for other uses if it needs to offer more than just voice to stay afloat, Weinstein says.
There is a difference between Iridium and Globalstar.
"Iridium focused on the international globe trotting customer, and Globalstar will focus on the
regional customer," the industry source says. The key to success lies in thorough marketing.
"I think Iridium didn't do a good job explaining its product to customers," the source says. "They
didn't say they had to go outside to use the phone."
-- Dave Zeliff
Telecom Reporter
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