not925:
Since we likely have differing opinions on the topic, I appreciate the professional manner in which you challenged my position. While the issue is complex to address in a simple e-mail, here are some thoughts.
(1) GSTRF expects to wholesale minutes for $0.47 not $0.40. The current run-rate reflects discounts for pre-sold minutes that are tantamount to service provider financing.
(2) Your 40 minute-per-month estimate is much too low. I suspect that you are trying to extrapolate from early data points without a more granular analysis of the likely customer classes.
The concept of a subscriber is in-and-of-itself rather amorphous. What is a subscriber? Many observers tend to relate to the “retail” early-adopter, the must-have-a-new-toy professional. But retail crosses a lot of boundaries. Rural consumers vary from geography-to-geography and country-to-country. Recreational users, like myself, probably will burn fewer minutes than quasi-professional users, hikers, outdoorsmen, charter operators, recreational tour-guides, et cetera. From an analytical standpoint, I tend to divide the market by payment responsibility. If the end-user is directly responsible for funding service use, I characterize the customer as retail and assume more conservative utilization.
Professional users again break into many vertical markets. Federal, state and local government and corporate users, will each have very different usage patterns determined by the specific application. FEMA, for example, could burn a ton of minutes during a crisis but then effectively go to zero during quiescent periods. A single corporate “subscriber unit” on, say an oil rig or a cruise ship, could actually represent the usage pattern of thirty to more than a thousand people. One key aspect of the professional user is that it is unlikely he will be substantially liable for the cost-of-use. Since corporate/industrial/government users will be motivated by a specific access need, there is substantial price elasticity. I believe that demanded professional MOU will prove very application specific, and cost, within reason to available alternatives (if any), will not be an overriding factor.
Similar in concept to the single corporate subscriber unit will be fixed wireless. The Mexican government, for example, is implementing something tantamount to the “universal service” available in the United States. Globalstar U.S., has a contract to provide 4,000 fixed wireless units to geographically dispersed villages throughout the country. Obviously the MOU for a single fixed wireless device with potentially dozens of users will be profoundly different from the single, retail early adopter. Something not often discussed, and presumably missed by the bears arguing that nobody will (or can afford to) pay $0.47/minute for telephony, is that the Mexican government has committed to subsidize the phone usage cost. When one considers the prohibitively high cost of a de novo wireline build-out, such subsidies are extremely economic. I wonder how many people realize that even in the good old U.S.A, rural services providers receive a substantial ‘universal service’ subsidy?
Data service usage patterns will also vary widely. IFN has the potential to consume many, many minutes. In contrast, remote reporting of utility usage could account for millions of transceiver units that only operate a couple of minutes per month.
The bottom line is that it is difficult for an outsider to intelligently define ‘subscriber’; I use the term subscriber-equivalent internally. Within this context, blithely multiplying an estimated MOU times an estimated subscriber provides little of any analytical value.
Some service providers utilize a concept more-or-less similar to my aforementioned ‘subscriber equivalent’ to model the business. After their internal algebra, which incorporates their best guesses on the mix between retail, commercial, governmental, fixed, mobile and data, I have been given estimates ranging from 110 to over 200 MOU per month per subscriber equivalent. Obviously, the differential between your 40 MOU and my 110+ modeling MOU substantially changes the number of subscriber equivalents necessary to achieve cash flow break-even and subsequent profitability.
The most ‘moving’ fundamental difference between your MOU and my MOU (sorry) is the delta between your view of the market opportunity and mine. Based on our research with the service providers, demand is unlikely to be the gating issue. Yeah, I know, looking, as you are, at 13,000 subscribers ‘six months’ into the launch, I suspect you thinking I am smoking something funny. However, as I tried to point out in my prior post, my belief is that Globalstar is still in the process of going commercial from a marketing standpoint. Corporate accounts take more time to trial, negotiate and deploy than the stock market has been willing to accept. In contrast, I expect a marketing ramp more in keeping with Nextel’s than a traditional cellular operation.
If you model the business accordingly, I believe you will come to a rather different regarding the company’s investment merits. |
