Unterberg's Research Report: Part II
GSTRF Distributor Survey: Our Fourth Survey Shows Little Incremental Progress
* Survey continues to point to slower than expected handset sales. Our fourth survey did not give us any indication that demand for the Globalstar service is greater than our estimates. In fact, we have found demand to be somewhat weaker than expected. We should also mention that LSPs seem less comfortable today discussing sales results than they have been in the past, which may or may not be an indication of sales levels itself. One market that has been forthcoming with sales levels is Elsacom (Italy). Early sales results were impressive when Elsacom announced in December that it had sold 1,100 handsets during the soft launch of the service. Sales results as of near-March 20, however, are less optimistic, improving by only 400 handsets to 1,500 total. In addition to sales levels, Elsacom also provided us with an indication of today's minutes of use (MOU) levels, which were strikingly low at only 20 minutes per subscriber per month. If this MOU level is accurate and thereby indicative of what other GSM countries are experiencing, there is clearly a problem. It has always been our concern that usage in GSM countries would be low considering the strong coverage of GSM networks, but we had not expected MOU levels to come in so far below our expected usage rate target of 40 MOU per month. Italy's low MOU level is surprising because these users are early adopters, who by nature have higher usage rates than later adopters.
* Morale still relatively high throughout distribution channel. The predominant theme rising from our discussions with distributors and local service providers is that the service is rolling out slower than expected but not below the expected range of success. Most remained very confident in the service, pointing out that Globalstar was not a mass-market product and regardless of today's performance, the company will survive in the long run because the world needs a true mobile satellite phone.
* First quarter revenue and subscriber estimates. Based on our survey results, we expect first quarter-end subscriber count to range between-3,000 - 5,000, which we impute to equate to approximately 788,000 billed minutes of use (MOU) for the quarter. As a result we derive first quarter revenue of $370,000.
* We continue to see the integration of Globalstar service and its LSPs' respective wireless businesses as low. On the distribution front, many local service providers (Vodafone AirTouch, TE.SA.M., Elsacom, Vodafone) have mentioned or implied that they will market to their wireless subscriber bases (100 million subscribers combined), however, little evidence of this high level of coordination exists. The only local service provider we found to clearly be incorporating the Globalstar service with its wireless service is Vodafone Globalstar of Australia. The company began marketing the Globalstar service to Vodafone customers right from the beginning as an extension to Vodafone's GSM network. In addition, to illustrate Vodafone's full wireless offering, the company changed its name to Vodafone Globalstar. In contrast, AirTouch in the United States, has separated the two businesses into two companies, Globalstar USA and the newly formed wireless partnership Verizon Wireless (partnership between AirTouch, Bell Atlantic Mobile, GTE and PrimeCo). Evidence of the separation between the two services was apparent when we made a phone call to AirTouch cellular sales and could not locate a representative familiar with the Globalstar product. The AirTouch experience culminated with us being referred to the Globalstar USA website. It is our strong belief that satellite phone sales are complex and demand
the integration with and experience of capable wireless operators (LSP) in order to be successful.
* Survey limitations. To monitor Globalstar's commercial development,we are continually making contact with Globalstar distributors and local service providers around the world to assess the progress of Globalstar's commercial service launch. A limitation of this survey is that our findings are highly dependent on the knowledge and quality of each representative contacted, which by nature varies.
* Clarification of Globalstar distribution channel terminology. In the past, we referred to Globalstar distributors as the major partners of the company, such as Vodafone, AirTouch, TE.SA.M. and Elsacom, and local service providers as the individual retail outlets that sold Globalstar service. We originally learned these titles from Globalstar, specifically at the company's analyst meeting held in September 1999. We have now learned that this terminology is incorrect and is, in fact, the exact opposite of how Globalstar now refers to its partners in the distribution channel. To avoid creating any confusion in the investment community, we are acquiring Globalstar's distribution channel terminology. We now will refer to Globalstar's partners (Vodafone, AirTouch, TE.SA.M. and Elsacom) as local service providers (LSP) and the retail chain (i.e., Manhattan Microwave, GMPCS, TDCom) as distributors. The necessary changes have been made
throughout this document, including the portions that were earlier published.
* Based on our findings we continue to believe that the early commercial rollout will be challenging. This leaves us to advise investors to approach Globalstar with some caution as near-term results could meaningfully impact share performance. Reiterate Neutral.
(Globalstar - GSTRF - Neutral)
<<040700gstrfa.pdf>> <<040700gstrf.pdf>>
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C.E. UNTERBERG TOWBIN
William Kidd
Managing Director, Satellite Analyst
(212) 572-8008
(212) 688-0456 fax
Patrick Fuhrmann
Associate Analyst - Satellites
(212) 572-8053
Joshua Steiner
Associate Analyst - Satellites
(212) 572-8021
Internet: unterberg.com
Bloomberg: SATCOM Index GO
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