Poet: Another fun one:
Talk : Communications : Globalstar Telecommunications Limited GSTRF
To: Labrador (8700 )
From: Labrador Thursday, Dec 16 1999 9:00PM ET
Reply # of 8704
By the way, I am not saying that I agree with all of this.
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Porter Stansberry's INVESTMENT ADVISORY
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Pirate Investing * Disruptive Technologies * Pinnacle Providers * The Secret of Lower Prices
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December 1999
On October 4, 1957, the USSR changed the course of human history, launching Sputnik from a dusty cosmodrome in Kazakhstan.
On November 22, 1999 -- 42 years later -- Another Soyuz rocket was launched from almost the same location.
In time, this second launch will be seen as even more important than the first.
One of the things that surprised me the most reading Walter Wristen's Twilight of Sovereignty was the importance he attached to satellites. The book, written in 1994, is one of the most prescient guides to the changes being wrought by technology that I've ever seen - even now, five years later. Nevertheless, I figured that Walter was wrong to attribute so much importance to satellite technology. Why? Simple - tell me one person who's made money on satellites.
Part of my skepticism is based on my own experience: I don't see how satellites affect the way I live. Besides that website at Microsoft where you can download satellite images of your home for free - www.terraserver.microsoft.com - and recreational GPS receivers, I haven't seen the effects of satellites at all. Letting fishermen mark their favorite fishing holes with deadly satellite accuracy just hasn't changed my world all that much.
But I think my opinions about the efficacy of satellites will be changing next year.
Last month a start up firm called Globalstar (NASDAQ: GSTRF) successfully launched the last four telecommunications satellites necessary to complete its low-earth-orbiting (LEO) constellation of 48 birds. Ironically, the launch took place in Russia, lending even more credibility to Walter Wristen's book.
Impressively, it was Globalstar's tenth successful launch this year and it signals the beginning of "friendly user" trials of Globalstar's satellite communication service in the United States, Canada, Brazil, Argentina, China, Korea, South Africa and Europe. Full commercial roll out of their global communication service will begin - on schedule - in the first quarter of next year.
With the most advanced CDMA technology and its "dumb" LEO satellites, Globalstar is going to change the global telecommunications landscape next year, driving down prices for international calls and enabling new mobile networking technologies that we haven't seen before.
In fact, I'm betting that Globalstar is the top tech surprise of 2000 - which could mean huge profits for you. We might be the first people to make money on satellites.
IT'S NOT YOUR IMAGINATION: EVERYONE IS GETTING RICH
One of the main reasons I'm interested in Globalstar is because the market's recent sell-off of the company's shares offers us an opportunity to buy into the company at almost the same price as the firm's venture capital partners.
(Loral and Qualcomm have received warrants with a strike price of $22.75 per share in exchange for several hundred million dollars in start-up capital. And Loral just increased its stake in the project to 45% from 42%.)
It's rare for individual investors to have an opportunity to play the venture capital game. I can't think of another company that's given individual investors the opportunity to buy in early at the same price as the founding partners. It's especially incredible when you consider the importance of Globalstar's technology - which I'll address in a moment.
Nevertheless, make no mistake, this is a risky venture - it's venture capital. As Globalstar says, "Globalstar is a development stage partnership..." And that's why I like it............
Talk about your castles in the air - Globalstar is a "pipe dream" in space
The main reason you can buy Globalstar so cheaply is that every other satellite communications company has gone bankrupt.
The most recent satellite company to float belly-up was the Motorola-backed Iridium. Most investors figure that if Motorola couldn't pull it off, it can't been done economically. On Wall Street the world satellite means loser.
And for these "castle in the sky" companies, Wall Street's opinion means everything. They don't have any hard assets and they build up lots of initial debt and an overhang of equity warrants and options. It only takes a few negative research reports for the shares to plummet - as happened to Globalstar over the summer.
Thus, Globalstar fits perfectly into one of the three rules for hyper-growth: it has lots of problems on The Street. However, as I think you'll see, the differences between Globalstar and Iridium are decisive.
First, the main reason that Iridium failed is that its business model depended on high prices for the both the handsets and the airtime - Iridium ignored the secret of lower prices. There just aren't too many people who could afford Iridium's $2,500 handset and $7 per minute airtime charges, especially in emerging markets, where satellite telephony could be a booming business because of per terrestrial infrastructure. Iridium built high prices into its business plan because 1. Motorola was trying to make money off building the handsets and 2. the company's satellites were too expensive.
Globalstar is built on a totally different economic model - one that takes full advantage of the secret of lower prices.
Globalstar's ultimate goal is to become as cheap and ubiquitous as cell phones. In order to do that, Globalstar has to produce a heck of a lot of handsets. So they've contracted with three separate venders - Qualcomm, Ericsson, and Telital. These three venders are expected to produce over 500,000 handsets next year. (Over 300,000 have already been made). Competition in handset production - and with venders not associated with the company - assures Globalstar of competitive handset pricing. Handsets are expected to sell for as little as $500.
And just as importantly, Globalstar had to lower cost of satellite airtime. To accomplish that task was a little more difficult and involves some truly cutting edge technology.
Another CDMA miracle - super cheap satellite telephony
As I write this, I'm sitting in a Holiday Inn in the center of Nanjing, China. (The next time someone tells you that nothing ever changes, consider that 18 hours ago I was at my desk in Baltimore. The world is getting smaller.)
They've got Mozart piped through the hotel hallways over here (they're moving in the right direction) but telephone calls to the U.S. are still painfully expensive.
No matter, by this time next year, with a Globalstar phone, I could have my calls forwarded to me right here in China for as little as $3 per minute. That might seem like a lot to pay, but it's cheap compared to what I just paid to check my voice mail in Baltimore ($18 for a two-minute call). Plus, when I leave Nanjing today to go trekking through the hinterlands, there won't be any international telephone access at all - and Globalstar will still be available for just $3 per minute.
In the cab on the way in from the Airport last night, I saw a huge billboard for Beijing Telecom advertising their CDMA wireless systems and I got to thinking. Right now the pricing curve for wireless telephony products currently shows a 15% annual decrease in costs. That's why all around the world, and particularly in developing nations, wireless telephony is replacing fixed-line telephony. In Finland, for example, mobile phones account for more than half of all telephone bills. The rest of the world is sure to follow - the prices for wireless technology continue to fall at a much faster pace than the costs of fixed-line telephony.
It occurred to me that Beijing Telecom should be more worried about Globalstar than China Unicom or China Telecom, its main competitors right now. It seems to me that satellite telephony could become just as disruptive to cellular investors as wireless phones were originally to fixed-line investors.
We don't know yet how much capacity Globalstar will be able to bring online with their satellites. But we know that in general, CDMA technologies like the kind Globalstar is using show themselves to be capable of doubling data transmission rates every 12-months. And in fact, the expansion of the technology could be much, much faster. Remember that Qualcomm has already produced field trial results of CDMA products delivering data rates in excess of 2.1 mbps (that's 2.1 million bits per second). Considering that voice calls are optimized using just 64kbps, you can see that Globalstar may be able to stuff a heck of a lot of voice bandwidth through its satellite system. And that could dramatically lower the cost of satellite telephony.
I know - I am using a lot of ifs. But they aren't really ifs. They are really whens.
And we do know a lot about Globalstar right now. We know that technology will enable satellite calls to get cheaper. We know that folks all around the world will use satellite telephony products when they are affordable, because in most places there simply isn't a land-based alternative. When you put the two concepts together, you end up - inevitably - with Globalstar. After all, Globalstar's satellites cover the entire world, except for the poles.
We also know that that Globalstar's technology functions as advertised, and at prices less than half of their competition. At a conference last month in Geneva, Globalstar demonstrated its technology to the satisfaction of over 18,000 people. The calls were as clear as the digital PCS phones available on regional CDMA networks.
We also know how much Globalstar's network costs - through September Globalstar has spent $2.59 billion on systems origination, $438 million on interest expense, and $546 million on pre-operating losses. At the end of the day, the total cost of their global network is going to be roughly around $5 billion. According to the Morgan Stanley Dean Witter estimates, Globalstar needs 250,000 subscribers next year to break even on its operating expenses. But it needs 550,000 subs to actually make money - it has to cover interest expenses. And it would need 1,000,000 subs to report an actual profit because it must immediately begin replacing its satellite constellation.
There probably won't even be a million handsets available until the second half of next year, so for 2000, I don't expect Globalstar to turn a profit - another reason why you can pick up the shares so cheaply right now.
But look a little beyond next year, and I think you'll see the same bright future ahead for Globalstar that I do. Just in America, there are already 69 million wireless subscribers - up from just 24.5 million four years ago. That number will continue to grow and their usage will continue to increase. Yankee Group Research reports that only 2% of wireless subscribers use their wireless phone as their only phone. Usage and subscriber base will continue to grow - especially as prices continue to fall.
In the end, I see only two sustaining technologies in communications - fiber optics, where the bandwidth revolution screams ahead at the speed of light, and satellite wireless. Each of these two technologies will slowly consume their competition because of the greater potential of each technology. There's nothing faster than light. There's nothing more global than a satellite network. Just wait until Wall Street figures this one out. |
