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Mobile & Satellite: Globalstar in hot seat over delays
By Theresa Foley
20 March 2000
Satellite mobile telephony operator Globalstar's rollout of services has become a source of concern to analysts and investors following reports of soft demand and delays in handset production.
Globalstar LP, of San Jose, California, recently disclosed there have been difficulties with two of its key handset suppliers, Ericsson and Qualcomm, but did not give details.
"We can't say where the phones are; we don't have that information," said Globalstar chairman Bernard Schwartz during a telephone conference call with investors in late February. "We aren't in a position to share hard information. When we push [our service providers] to get information, they tell us to go away. They don't want to be pushed on [a] weekly basis on interim transient issues," Schwartz said when investors asked for more hard data on handset sales figures and usage of the satellite service.
The conference call with Globalstar investors took place through investment management company Bear Stearns & Co., in an attempt to reassure them that Globalstar was on track with the rollout.
Meanwhile a source on Wall Street, who asked to remain anonymous, claimed both suppliers delayed making the handsets because the phones were not selling.
Clearly the investors appeared to hit on a sore spot during the conference call. Schwartz told one investor that if he didn't like the way the company was being run, he could sell his stock. "I'm getting pissed off about the idea that somebody said there's a demand problem out there. If you don't believe there are people who are going to buy our phones, you shouldn't be on board," Schwartz said.
The confirmation of the handset production shortfall backs up a report in January from consultant Roger Rusch of TelAstra Inc., Palos Verdes, California, that the handsets were not selling well in their third month of rollout. Rusch polled 14 distributors and concluded that sales were dismal, and last week said he saw no evidence that Globalstar phone sales had picked up in the intervening time.
And according to Merrill Lynch analyst Tom Watts, Globalstar take-up rates are low. "Globalstar could face liquidity issues later this year," he said. Merrill Lynch, of New York, lowered its forecast for Globalstar subscribers from 280,000 at year end to 200,000, and cut projected subscriber usage from an average 150 minutes per month to 120.
The revenue goal for 2000 was $500 million, but the latest Globalstar projections are for $300 million. Now many analysts have begun to doubt that even that will be achieved.
Banc of America analyst, Armand Musey, who carried out his own research in early February, said it was too early to conclude the phones were not selling.
The handset target this year was to have 600,000 in service, but this figure will drop to 557,000, Schwartz said, citing Stockholm-based L.M. Ericsson AB's unspecified production delays.
But Steven Andrews, communications manager for Ericsson mobile, said: "As far as we're concerned, we're not late, we're on target."
The other big supplier, Qualcomm Inc., of San Diego, California, had a production and shipment schedule in January that "did not occur," Schwartz said.
"The early experience, particularly from Ericsson, has been off plan," Schwartz told investors during the conference call. But he said the handset production problems had now been resolved and that Globalstar has asked suppliers to increase production to make up the shortfall of phones.
Globalstar had expected the suppliers to make 40,000 phones a month starting in January, to add to the 40,000 phones it claims were distributed in 1999. But by 10 March Ericsson had produced only 10,000 phones, with a total of 24,000 set to be made by the end of the month; Qualcomm was due to make 5,500 phones in March; and Telit Mobile Terminals SpA, of Rome, was set to make 3,500 terminals in March. Earlier statements from Globalstar said that more than 80,000 phones were in distribution channels by March.
But Globalstar will not reveal how many units have actually been sold - it claims it does not have this data - with many of the early users on free trials.
The first weeks of April may be the next chance investors and the public have to learn more about how Globalstar's service startup is faring. If Schwartz does not disclose harder data then, Globalstar's image problems will intensify, the Wall St. source said.
Globalstar made a big splash last October at Telecom 99 in Geneva, announcing it was starting service. But five months later, distributors, service providers and gateways in key markets such as the United States are only now getting ready for business.
In North America, Vodafone AirTouch plc kicked off service for its Globalstar USA franchise at the beginning of March. Globalstar USA's prices are $1,500 for a tri-mode roaming phone and $2,500 for a fixed telephone. Service is $1.79 a minute plus international calling charges. Three U.S. domestic service packages are available, ranging from $170-$370 per month and a set number of minutes at a discount, with international long-distance charges costing extra.
Andrew Ratlow, director of marketing for Globalstar USA, Walnut Creek, California, said he has sufficient Qualcomm handsets to launch service.
Commercial service was scheduled to start in first quarter 2000, he added.
"It happened on schedule and this is evidence we deliver on what we promise," he said.
Schwartz said short-term concessionary pricing and discounts are being considered to "jump-start" Globalstar service, but he would not elaborate.
By late February, 10 gateways covering 21 countries were in service. Schwartz claimed some 27 to 32 gateways will be in service by year end, covering 120 countries.
The "multi-protocol" feature that lets the Globalstar phones operate in dual- or tri-mode for roaming in different countries, was not ready by late February because software had not been installed in the gateway ground stations.
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