Text of Bernie Schwartz's remarks (in case the link expires).
THE FOLLOWING REMARKS WERE PRESENTED BY BERNARD L.
SCHWARTZ, CHAIRMAN & CEO OF GLOBALSTAR
TELECOMMUNICATIONS LIMITED, AT THE ANNUAL
SHAREHOLDERS MEETING ON TUESDAY, MAY 9, 2000
Let me begin my remarks by quoting a major analyst:
"The demand for these phone units is greatly
exaggerated. The company's strategy is driven by
technology, not by demands of the marketplace. Their
costs are so high that it precludes them from
reducing rates low enough to achieve their market
expectations.
On a practical level, even if you get the damn phone,
you still won't use it."
No, this analyst wasn't talking about Globalstar,
although he is now saying much the same things about
Globalstar. Rather, he was talking about cellular
phones when they were first being introduced 15 years
ago.
This reference to a prior comparable product
introduction is instructive. The message is:
Globalstar's market may be difficult to define, just
as cellular's was, but there is a market.
Intuitively, and through universal experience, we can
agree to certain of its characteristics:
1. There is a vast population not plugged into modern
communication;
2. Globalstar will achieve a huge financial success
if we reach only a tiny fraction of this population.
In fact, we need only a small piece of our
addressable market, meaning the segment that is
demographically and financially suited for mobile,
wireless telephony;
3. Despite cellular's growth, despite the dramatic
advances in communication technology, despite the
trillions of dollars invested in infrastructure,
there has never been a time that demand for telephone
services has not exceeded capacity. The demand for
wireless, mobile communication, today, is huge and
will exceed availability for the foreseeable future.
Evidence of wireless phone capacity shortage is
apparent everywhere, in geographically unfriendly
areas, in much traveled but remote regions of the
world, even in more developed countries in which
cellular covers less than all the territory, and, in
fact, on 72nd Street and Park Avenue in New York City
where service is inadequate;
4. Although technology has increased capacity, new
applications have driven usage well beyond the
ability of private or public investment to keep up.
In addition, the worldwide economic advances have
broadened the addressable market by extending
affordability and creating requirements where neither
existed before;
5. As in every communication application, satellites
provide the quickest, most cost-effective method of
bringing solutions to the global market;
6. And last, Globalstar is the only global system
available to serve this market. Globalstar's hardware
and software work. Its system design has been proven
by millions of minutes of completed telephone calls,
by its billing systems, by a satellite constellation
that is operating flawlessly, and by the quality of
its voice and service.
We are currently working with Qualcomm to develop new
and expanded data features, including fax, e-mail,
Internet access and short messaging services, to be
available this year. Ours will be the only such
network capable of using the powerful CDMA [Code
Division Multiple Access] technology developed by
Qualcomm on a worldwide basis.
From Globalstar's conception, its management relied
on validation of our market and our technology on our
strategic partners. They are among the leading
cellular operators in the world. Their aggregate
investment in Globalstar exceeds $1 billion. They
validated the system and market then, and have
reaffirmed their confidence in Globalstar by
increasing their investments now -- even as we meet
here today -- in their selected franchises. Their
current investments are in support of the Globalstar
deployment. They are purchasing new ground equipment,
acquiring new sites for gateways, committing to
additional telephones, training personnel, securing
retail outlets to supplement their own distribution
networks, executing marketing plans, and advertising
under their own as well as Globalstar's brand.
These operators are not dismayed by a slow retail
deployment. In fact, they expect the deployment and
usage to be slow at the beginning, as with any new
product. It is their experience, market knowledge and
financial commitments that underscore our confidence.
Your management understands investors' desire to
receive as much information as possible, and as
quickly as possible. However, we cautioned that early
progress will be difficult to quantify because of our
arrangements with service providers. Nevertheless, we
have been tracking our progress, and can report that
all early indicators are favorable and improving
weekly as deployment proceeds.
Due to some initial start-up problems, which have now
been fixed, and also due to the much-publicized
concerns about Iridium's failure, reported minutes of
usage were, so far, less than might have been
expected. However, recent reports showing consistent
increases in usage are encouraging. I emphasize that
these data are based on only a very short experience
and limited to a few of our territories; therefore,
they are not necessarily representative of future
performance. True commercial, billable, service was
initiated in many of the already deployed territories
starting as late as March, and roll-out is only just
underway in some of our most promising countries,
such as Canada, Brazil and Australia. Moreover,
commercial service has not yet begun, but will soon
be initiated in China, Russia and South Africa.
Further, data for the number of subscribers, actual
billable minutes of usage, telephones at distribution
points or the number of telephones sold are in the
hands of our service providers who, for competitive
reasons, guard the information. Consequently, we are
reluctant to distribute limited information which,
and in any event, should not be taken as an
indication of future performance.
Let me share with you some of the early data which,
together with episodic reports, reinforce our
confidence in Globalstar.
There is nothing unique about Globalstar's early
deployment. It follows the experience of many other
successful product roll-outs, including cellular
phones, satellite television, and paging. It is worth
noting that the earlier concerns about system
performance, satellite launchings, telephone
availability and limited capacity were over-blown.
The overall Globalstar plan and deployment have been,
so far, extraordinarily well-executed.
Similarly, Globalstar leadership has been pro-active
in coordinating, supporting and shaping the
territorial roll-out. Accordingly, we have helped to
rationalize pricing of minutes, from 73½ a minute in
China, less than $1.00 in South America, and about
$1.50 in the United States. Also, we initiated plans
for promotional marketing and advertising campaigns,
and $400 retail price reductions of telephones. As we
begin deployment of commercial service, it is
appropriate to remind our shareholders of our
performance in developing this most challenging
technology and its conversion to a manufactured,
low-cost consumer product.
We have successfully achieved the following:
* 52 satellites in orbit working extremely well;
* A network of command and control operations centers
for space and ground functions - among the best
facilities in the world;
* 14 gateways sited and in operation. By year-end, 27
gateways will be deployed, covering 121 countries;
* Roaming agreements in place covering North and
South America and all of Europe, except Scandinavia
and Eastern Europe. Total global roaming by June 30,
2000;
* Millions of minutes in completed telephone calls
with high-fidelity voice quality;
* Successful billing systems for all participating
countries;
* Global marketing and distribution networks;
* Three manufacturers producing mobile and fixed
phones and accessories;
* Approximately 67,000 phones in distribution;
* Selecting CDMA as the technology of choice and
working with Qualcomm to incorporate tri-mode
(analog, digital and satellite) functionality in one
mobile phone.
There have been recent questions about whether
Globalstar's financial resources are adequate to
complete the effort. At April 1st, Globalstar had
$585 million in cash and available credit. At year
end, assuming that a $250 million bank credit due
December 31, 2000 currently not being used is not
extended, Globalstar will need $160 million of
revenue to avoid a cash shortfall. The company is
considering several options to cover any potential
shortage, including the possibility of support from
equity partners. We are highly confident that
sufficient resources are available to resolve this
issue.
In closing, I wish to take note of the sharp decline
in the market prices of our common shares and
publicly-held bonds. I believe that the current price
undervalues our accomplishments and prospects. The
completion of the development phase, the successful
placement of 52 satellites in orbit, the network of
ground and space command centers, the worldwide
distribution and marketing network (something Iridium
never accomplished), the building of a global brand,
and a unique high-quality voice and data design have
significant value. I fully expect that our share
price will improve as we continue to perform. We are
confident of our business plan, we have the resources
in place for continued successful execution, and a
hugely talented team whose interests are perfectly
aligned to shareholders' interest.
We truly are sensitive to investors' concerns, and we
are addressing them as we achieve our plan. We are
more confident than ever of success and look forward
with enthusiasm. I believe your confidence is
justified and that yours and our rewards will soon be
realized.
Thank you. |
