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Microcap & Penny Stocks : Globalstar Telecommunications Limited GSAT -- Ignore unavailable to you. Want to Upgrade?

To: djane who wrote (7713)	10/5/1999 12:13:00 AM
From: djane	Read Replies (1) \| Respond to of 29987

**More Rusch... Perspective: Investors should take heed of satellite's past By Roger Rusch 04 October 1999 Recent analyst reports recommend buying Globalstar stock. Some of the same analysts said that Iridium LLC, of Washington DC and London-based ICO Global Communications plc were outstanding buys - and these new reports are no more reliable than last year's were. Some even express their judgments with the statement "we believe" instead of "we calculate." Religious credos are misplaced in an objective analyst report. One report quotes directly from the Globalstar publicity literature. There is new information relevant to the case that should be carefully considered. We have clear evidence from Iridium and the American Mobile Satellite Consortium that this market is limited. London-based Inmarsat has been the only profitable company to provide mobile satellite service, with annual revenues of $400 million per year, and 140,000 subscriber terminals (50,000 for data and 90,000 for voice) after 17 years. Inmarsat is successful because it has done an excellent job matching capacity and demand. The big low-earth orbiting systems have over-designed capacity; their capital cost is five times as great and their operating cost is substantially higher than for the Inmarsat geostationary satellites. The operational functions are more complex for LEO systems because the satellites continuously sweep the earth and there are more satellites to control. Globalstar LP of San Jose, California has $2.5 billion of liabilities with annual interest payments of $278 million. Its total annual cost, including overhead, is $650 million per year. Just to pay Globalstar's operating costs, the company needs 1 million customers - and to stop the financial hemorrhaging, they are needed immediately. Unfortunately, it takes time to build a customer base. Satellites are perishable, needing regular replacement. Inmarsat satellites are designed to last for 13 years; Globalstar said its own will last for 10 years, although they are designed to last only 7.5 years. One life limitation is fuel supply, but there are other mechanisms to wear out, including the solar arrays and batteries. Repeated thermal and power cycling causes high levels of stress in LEO satellites: we estimate that a third of the Globalstar satellites will fail within 10 years. Globalstar service is not the same as cellular service. Satellite service seldom works inside buildings, as cellular usually does - and this is immediately obvious to customers. The telephones are relatively large: Globalstar telephones weigh 350 grams compared with 100 grams for a typical cellular phone. Globalstar "dual mode" telephones that work with both the satellite and terrestrial cellular services cost $1,495. Service is expensive too: airtime rates are $1.65 per minute for flat-rate service, nearly treble the rates that Globalstar was predicting; tariffs are about the same as Iridium's. Excellent voice quality should be expected. Globalstar telephones use variable-rate vocoders that can be operated at the highest data rate for clear voice quality. In demonstrations, because Globalstar has no customers, it can devote all its power to a demonstration telephone. In actual service conditions, many customers will be sharing the network and the quality is likely to degrade. All these huge disadvantages - convenience, weight, cost and quality - will severely limit the number of interested customers. Cash flow is a major problem. If the mobile satellite services market grows at 50% per year, Globalstar will have to wait many years to break even. How long can it go on treading water? Roger Rusch is president of satellite consultancy TelAstra Inc., Palos Verdes, California. Information : info@total.emap.com URL : totaltele.com ¸ EMAP Media 1999