**'Careful' Globalstar set to tiptoe into satellite market
[Should be more ammunition for the shorts -- 1.5M MSS subscribers by 2005? Hmmmm.... This article has many, many interesting comments. djane]
totaltele.com
By Theresa Foley
20 September 1999
Question: How do you launch a global mobile satellite system into a market that has already
seen your two competitors file for bankruptcy protection? Answer: Very carefully.
Over the next few months Globalstar LP, San Jose, California, plans to creep slowly into the
market, taking time to correct any small marketing or distribution missteps before the
customers can notice. By tiptoeing rather than plunging into the market, Globalstar
managers hope their strategy will sidestep the lift-off and subsequent fizzle of Iridium LLC.
Yet Globalstar needs a rapid service take-up if it is to generate cash to pay interest on its
$2.5 billion in loans and avoid the same fate as Iridium, said Roger Rusch, consultant at
TelAstra Inc., Palos Verdes, California, and an MSS critic.
Rusch said Globalstar needs $273 million every year just to meet interest payments,
compared to Iridium's requirement of $400 million for interest.
In addition, Globalstar must pay for operations, advertising and public telephone network
charges, buy more earth stations and pay back principle on the debt, Rusch added.
Opinion is now split among experts and analysts on whether MSS remains a fundamentally
sound business in the long term. TelAstra estimates that the total number of subscribers for
all the MSS systems will not exceed 1.5 million by 2005.
Nonetheless, Reid Stephenson, Globalstar vice president for marketing, counters that
Globalstar will not undergo the bankruptcy fate of the others: "Unlike the other two, we
have all the money" to complete and operate the system. He would not disclose the amount
of cash Globalstar has built into its business plan to cover any mis-estimation of the market,
but said: "We have a cushion that will see us well, well into launch and we have that now."
At 45%, Loral Space and Communications Inc.'s stake in Globalstar is larger than Motorola
Inc.'s 19% holding in Iridium, and should be incentive enough for Loral to ensure that
Globalstar succeeds.
Originally targeting a September start date, Globalstar is now looking at October, but there
are few signs yet that a launch is imminent other than the usual public relations hype.
Service tariffs have not been filed with regulators in the first markets to receive service, and
handsets are still not in the hands of users. Both of these activities should take place
around October, according to the parties involved.
"The rollout will vary country by country," said Stephenson, who chose his words carefully
in an 8 September interview. "Unlike Iridium, we will not flip a switch and have worldwide
service."
Globalstar and its partners recently agreed to a three-phase timetable for introducing the
phones and service. Later this month the company plans to embark on a very limited user
test-phase, during which friendly outsiders try out the phones. This stage will also include the demonstration of 300 handsets at Telecom 99 in Geneva next month.
Then comes a "soft rollout" period in which there will be limited sales of phones and service
for a month or two. In each market, the company will assess how service is succeeding on a
daily basis and try to correct any hiccups in the distribution chain or in the customer service
end.
Then, when Globalstar is convinced that nobody is likely to complain about the product or
service, full commercial sales will be allowed, but only on a market-by-market basis.
The regions first on the list to get the service are in North America, western Europe, South
Africa, China, the Republic of Korea and parts of South America, Stephenson said.
Globalstar service providers Vodafone AirTouch plc, Newbury, England, and Elsacom of
Rome are two of the companies that are in the midst of preparations to begin sales, but
neither had all details for startup settled by 10 September, when CWI interviewed officials
from both companies.
"We are working like mad and in the process of refining the way that we will launch," said
Michael Yates, chief operating officer at Elsacom.
"We will have a very soft entry into the market because we want to make sure the market
gets what it expects." He estimated it would be November to December before Elsacom's
territories actually have Globalstar service available.
Elsacom, a unit of Italian industrial giant Finmeccanica, is a small equity partner in Globalstar
and has the rights to provide service in 18 countries stretching across Europe, reaching
from Scandinavia across to Albania, and including Italy and Germany.
The 12 service providers have not filed tariffs that would indicate the true end-user prices
for Globalstar. "We are in the process of starting to file [in EC countries] - But it's just a
formality," said Yates. Elsacom plans to announce its Globalstar pricing structure in
October, and while the company will try to keep it simple, the complexities of international
calling and the variation in local tariffs on those calls will necessitate a big variety in
international calling rates, he said.
Vodafone AirTouch cites a $1.50-$2 a minute retail price in the North American market on its
U.S. Web site. One of its distributors, GMPCS Personal Communications Inc. of Pompano
Beach, Florida, said calls originating outside the United States will be "less than $3 a
minute" for its Globalstar customers. Vodafone AirTouch spokeswoman Toni Carinci said
no tariff filings are needed in the United States, and filings in the other markets have not yet
been made.
Also, no handsets have, as yet, been delivered to service providers.
Stephenson said Globalstar expects to have 40,000-50,000 handsets available by year end,
and the production rate will be 40,000 a month at its peak.
In September, Globalstar was continuing extensive software and call quality testing on the
system, which presumably was holding up the handset shipments.
Stephenson said Globalstar was not going public with the test result details but the service
was "very close to what we'll find acceptable."
According to Mac Jeffery, senior director of public relations for Loral in New York: "The
phone works; it does the handoff from satellite to satellite."
Even if a customer is ready to buy a phone, the service providers are not yet ready to take
orders, Stephenson said. Some 300,000 handsets are in the so-called pipeline, having been
pre-ordered by Globalstar from three manufacturers - L.M. Ericsson AB, Telital Srl and
Qualcomm Inc. - to warm up the market, but additional telephone orders will have to be
generated by demand.
Globalstar is reluctant to hand out early month-by-month subscriber projections, but does
say that by mid-2000 it expects to have 200,000-220,000 users.
Nor does Elsacom want to speculate publicly about its projections about the market in its
territories, Yates said. "This is for top-end telecom users - not for my wife or kids, but for the
hyper-communicator who is very sensitive to quality and support parameters. We will
launch in a very controlled way" to assure that these sophisticated, selective consumers are
not disappointed.
By end 2004, the total number of Globlalstar subscribers should be 2.8 million, said
Stephenson, who added that subscriber estimates have not been reduced in the wake of the
Iridium problems.
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