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

To: Jeff Vayda who wrote (8228)	11/8/1999 9:39:00 AM
From: Jeff Vayda	Read Replies (3) \| Respond to of 29987

Another look at the revenues possibilities. Author says G* will succeed because of Bernies stature in the industry. Not a good sign IMO. (Thanks Philips Telecon) Jeff Vayda (P.S. the charts were a pain to realign, if they are not perfect - deal with it. :-) Globalstar L.P.: Let's Talk About Price By Karekin Jelalian The short-term numbers do not add up, but we still believe in Globalstar L.P. [GSTRF]. According to Globalstar, the company will have approximately $250 million of interest expense annually. It also will have approximately $350 million of sales, general and administrative costs next year, totaling roughly $600 million of expenses in 2000. Revenue projections come nowhere near $600 million. Only in some of the best-case scenarios will annual revenue be enough to pay just the $250 million of interest expense. As of June 30, Globalstar had $55 million of cash and in August, the company secured a $500 million line of credit. It's unclear how much, if any, of that credit has been drawn down. What could be a saving financial grace for Globalstar is the lack of early and ambitious revenue and subscriber covenants; for example, $500 million in revenue by the end of 2001 should not be hard to meet. Approximate Revenue Estimates The wholesale rates Globalstar collects from service providers range from 38 cents to 54 cents per minute. The wholesale fee is Globalstar's only source of revenue. On the retail side, per-minute rates will generally be between $1.30-$1.50 within a subscriber's home country, $1.50-$1.99 within a region (e.g. Europe), and no more than $2.99 inter-regionally. Assuming more calls will be made in the latter two categories, Globalstar's average per-minute rate should be about 48 cents. According to Globalstar, subscribers will use the service anywhere from 140 to 160 minutes per month. We use a range of 130-170 minutes of use (MOU) per month to be on the somewhat safe side. More minutes used per subscriber could mean lower retail, and possibly, lower wholesale rates. The biggest wild card in the revenue calculation is the number of subscribers. For both revenue and investor perceptions, the number of subscribers could make or break Globalstar. The calculations in Figure 1 assume an average number of monthly subscribers for the year. So, if the company begins 2000 with 15,000 subscribers it would have to end the year with 635,000 subscribers for an average of 325,000. This doesn't take into consideration whether the number of subscribers is back or front loaded. Thus, only six scenarios (all highlighted) in Figure 1 will provide Globalstar with enough revenue to pay just its interest obligation. Globalstar Projected 2000 Revenue Range (millions)+ (X axis) Average Number of Subscribers Per Month (thousands) (Y axis) 125 175 225 275 325 130 $93.60 $131.04 $168.48 $205.92 $243.36 140 100.8 141.12 181.44 221.76 262.08 150 108 151.2 194.4 237.6 280.8 160 115.2 161.28 207.36 253.44 299.52 170 122.4 171.36 220.32 269.28 318.24 + Assumes $0.48 average per minute wholesale fee. Source: Company reports, Satellite News The Positives So, why are we positive on Globalstar given the gloomy numbers? Bernard Schwartz. Schwartz has the know-how, respect and could extract concessions from service providers and/or raise more money in capital markets. Access to more cash. Globalstar can dip into its line of credit or, if subscriber growth is healthy, the company could issue more debt and/or securities. Only provider in the market. For awhile, Globalstar could be the only operating mobile satellite service (MSS) provider not in bankruptcy. Execution. (most likely a positive) Globalstar has made some mistakes, e.g. delayed shipment of phones, but the company has learned from Iridium and has a good distribution system in place. Schwartz's and Loral's [LOR] track record also boost confidence in Globalstar's execution. The Negatives Price, price, price. Eventually prices will have to fall for Globalstar's service to take hold. Declining prices would, in turn,help boost subscriber numbers. But, using cellular as a model, it will be awhile before prices drop. There should be pressure on service prices once some of the other MSS, particularly lower cost-structured regional MSS operators, begin offering service. (See Figure 2). Peripheral competition. Outside of the MSS world, wireless infrastructure is covering more territory and international wireline prices keep falling. Those trends have to factor at least a little into an organization's decision to buy into MSS. What does all this mean for Globalstar? It probably means that Globalstar will have a tough go of it during its first few years of service. However, something may have to give financially in 2000, either a trip to the capital markets or more funding from Globalstar's partners. K. Jelalian is a market analyst for the Phillips Telecom Group. Areas of expertise include legislative/policy issues, market research and financial analysis. He has more than eight years of experience in telecom. You can reach him at (301)340-7788, X2122. Or e-mail him with ideas for these pages at KJelalian@Phillips.com. A Comparison of Selected Mobile Satellite Service Providers Globalstar Ellipso ACeS Thuraya Total Cost (billions) $3.88 $1.10 $0.80 $1.10 Start of Comm'l Svce 3Q1999 2001/2002 early 2000 Sept. 2000 Coverage Withthin +/-70 degrees of latitude North of 50 degrees latitude south 23 Southern & Asian Pacific Countries 5 Southern Asian countries Subscriber Terminal Cost (voice) $750 fixed: $1,500; mobile: $700 $900 $600 Avg Price Per Minute (wholesale) $0.38-0.54 fixed: $0.08; mobile: $0.3-0.35 $0.25-0.4 $0.42 Estimated Retail Fee Per Minute $1.30-2.99 N/A <$1 <$2 Source: Euroconsult, Via Satellite, Globalstar