Here is my response to him, FWIW.
Just one of those days I need to blow off steam.
Wow, another hatchet job on Globalstar. The negative press surrounding the stock reminds me of that which used to hang over Qualcomm like a deathcloud. (The technology won't work, violates the laws of physics, they'll be crushed by GSM, etc. etc.)
You write:
Indeed, Globalstar has been falling sharply this week after hitting an all-time high on January 3. The stock retreated sharply that day, and fell again yesterday in the wake of a downgrade by Merrill Lynch.
This is the first of many misrepresentations contained in your article, implying that the Merrill call came after the slide had already begun. Implication: Smart money was already leaving. In fact, after the "sharp retreat" on the 3rd, Globalstar moved up on heavy volume prior to the Merrill call, hitting 49 1/2 twice on the 4th and the 5th, respectively. Clearly the Merrill downgrade precipitated the selling, as opposed to a collective decision by the market to crush the stock.
You then write:
The basic problem is that Globalstar's service is too expensive to compete with the terrestrial wireless phone industry. I don't believe there are enough people willing to pay $1.50 per minute for domestic calls -- or $3 per minute for international calls -- and shell out $1,500 per telephone to have global service.
This is especially true when the terrestrial competition over the next 18 months will be charging way less per minute and practically giving the phones away.
I would be interested to know which consulting firm performed the price analysis to help you determine the price is "too high." Certainly could not have been the several independent studies suggesting a potential market of 40 million who are both in need of the service and can afford it at the stated rates, could it? Perhaps it seems simply intuitive that this price is too high, given the prolific cellular coverage around the world. Given that Gloablstar is complementary to cellular coverage, as opposed to competitive, this seems to be a pretty empty argument.
You are missing the point: Where there is cellular coverage, you simply use the "cellular mode" built into the Globalstar phone. What good is a monstrous, cheap, per minute package if there is no coverage when you truly need it? Where there is no coverage -- massive areas of the world -- Globalstar offers service. The fact that cellular providers charge less per minute is completely irrelevant if you need service where none is provided.
You continue on the competition:
These competitors include any of the digital telecommunication players like Sprint PCS (PCS: NYSE), Vodafone (VOD: NYSE ADR) or wireless data players Winstar (WCII: Nasdaq) and Teligent (TGNT: Nasdaq), not to mention Internet communications firms like Ibasis (IBAS: Nasdaq).
In essence, the new technologies have allowed these companies to leapfrog the entire satellite-based carrier business model.
You neglect to mention, of course, that both Vodafone and the company they recently acquired, were originaly investors in Globalstar, clearly seeing the value the satellite coverage could add to a some of its customers. (Estimated to be about 10% who could use the service, 10% of which they project will use the service.) Additionally, both Winstar and Teligent are FIXED wireless companies, offering NO MOBILITY. Zero comparison to Globalstar. Interestingly enough, Sprint PCs was an Iridium strategic partner, again demonstarting the recognitionon the part of service providers to provide service where it was not economical or feasible to build out cellular infrastructure.
The article goes on:
Who in their right mind is going to pay satellite rates when they can sign up for a local wireless service with superior quality at lower prices? There are only so many people in remote places looking for phone service - certainly not enough to support Globalstar's huge $4 billion investment.
The other consideration here is that the satellites the company is using only last six to 10 years before they have to be replaced.
See the above argument. The whole point of the service is to have connectivity where none currently exists. It is not to supplant the existing cell providers. That is why they are partners. With Globalstar.
Just for fun you seem to throw in the blatant assertion that the service through a local provider is of "superior quality." Given that Gloablstar is built with the most most advanced and highest quality technology on the planet, CDMA, where do you have basis to imply the quality is inferior? Have you used a phone? Have you spoken with anyone who has used a phone?
You then go on to assert that there are "only so many people" in remote areas looking for phone service. And again I ask you for evidence to support your assertion. China, India, Brazil, Mexico, are only a few of the rapidly developing countries with limited telecommunications services. That's over two-and-a-half billion people. Forget the US. Forget Europe. Forget Russia, and South Africa, and Australia, and the rest of South America, and Canada, the Middle East, SE Asia, and the fishing, mining, and oil drilling industries. You still have more than enough potential customers to fulfill Globalstar's business plan.
You do briefly comment on developing countries when you write:
The other flag the company waves in support of sales is the vast opportunity in developing countries. But I think these potential customers will more likely use the satellite-linked pay phone stations that are popping up instead of a satellite phone.
Given that the beneficiary of these sat-linked pay phones is Globalstar, what is your point? Are the minutes used on fixed stations some how less worthy of consideration than those used in a mobile fashion? The Mexican government has already announced intentions to do exactly as you proposed in some of its rural villages. Imagine, and I know it must seem far out to you, if many of the countries listed above started to do the same thing.
In short, (interesting use of the word) your article is filled with unsubstantiated assertions and half-baked ideas. Your lack of understanding of the business model and the strategy being employed by both Globalstar and it's partners, cellular service providers and equipment makers, is appalling. Your article only adds to the chorus of misunderstanding and misinformation.
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