<Maybe I was the only one who could see it!>
<.. Where BLS stated Chirs [sic] Gent would do a presentation on G*? BLS's words were to the affect [sic] of "Up until now.. Vodaphone [sic] would not give us the time of day!!!!">
PCSTEL, I took the trouble to go to Geneva for Telecom99 to make sure my investment was Gung Ho. I saw Mike Kerr, figuratively, give Bernie the fingers. GlobalstarUSA was very obviously going to do their own thing and would NOT be very interested in Globalstar's input. Also, Irwin Jacobs, when asked by Bernie to start pouring the handsets off the production line, sat impassively and I got the distinct body language impression from a rear view only, that delivery of handsets would be with cash on the barrelhead and not for stockpiling in warehouses. [I posted about Geneva at the time].
There was very obviously, to me anyway, a distinct lack of enthusiastic co-operation and sense of common purpose and common interest from Vodafone. Each had their own drummer to march to. That is still true. But they each only make money if Globalstar succeeds. The better it succeeds, the more money they make. So there is not an inherent conflict of interest in the main issues. From a market development and sense of urgency point of view, there are differences.
Vodafone can afford to take their time and wait until Globalstar is an easy sell [when there is total coverage and all the bugs are ironed out of the system and they have their marketing systems integrated]. GlobalstarLP needs sales and needs them now. QUALCOMM wants it all to happen and happen really fast.
I think Vodafone and Chris Gent will be giving Bernie and Irwin the time of day now. Indeed, the trio had a meeting in Paris over a few days recently.
Vodafone will NOT want to have QUALCOMM take possession of the system and start undercutting them. Their exclusivity deals are worth $$billions. I dare say Chris Gent is capable of figuring that out.
QUALCOMM has got the financial wherewithal to do anything they like which makes financial sense over a 5 year term. So they could buy the whole system, supply Vodafone whatever minutes they want, while building gateways all over the place to compete with existing service providers [not in China and some other places of course - though perhaps even in China as a quid pro quo of CDMA introduction and licensing deals and stuff like that which is a much bigger fish than Globalstar [for now]]. If it took five years, it wouldn't matter to QUALCOMM's financial position. If it makes financial sense, 5 years is fine without income. It's been much longer than that already for Globalstar and QUALCOMM took it on.
Your Vodafone Exit 1 stranglehold theory doesn't apply other than in the short term. The licences are shared [the spectrum was allocated under WARC as shared spectrum]. Countries issue spectrum rights to Globalstar service providers, but not necessarily exclusively and as NextWave found, the FCC doesn't take kindly to spectrum not being used properly. I doubt very much that the FCC has given or would give sole rights to Vodafone - note that QUALCOMM already has rights to spray fragmented fotons from their gateway in San Diego. QUALCOMM could build extra gateways if they couldn't get access to the existing ones. You have seen how QUALCOMM was prepared to bid for cdma2000 spectrum in Japan and Korea to ensure their technology was accepted. You have seen how they developed Leap Wireless International and bid for spectrum and built networks to ensure their technology was developed.
There is also the small matter of anti-trust laws in the USA [see Microsoft's problems in this regard], protection of consumers and a reluctance to see monopolies avoiding competition. So Vodafone won't be able to mess too much with consumers and abuse their Globalstar gateway monopoly.
Irwin Jacobs has said repeatedly that his greatest concern about W-CDMA is delay. That is because a delay means delayed income and delayed income is money lost forever. The same applies to Globalstar.
Globalstar, by 2010, can provide many, many $$billions to QUALCOMM. At present they are getting zero [other than contingent liabilities if the bills aren't paid]. This will not be sitting well with QUALCOMM. As you know, Irwin Jacobs is a busy person, as is Chris Gent. They don't allocate days for something which is a dead duck.
They know that there are $$billions worth of tomatoes going unsold and rotting in space. I'm sure they are capable of figuring out that when tomatoes are too expensive, they don't sell, even if there IS a monopoly and consumers have no choice. They always DO have the choice of going without.
If prices were low enough, 20 million Americans would put a Globalstar phone in the trunk of their car as an emergency backup. They might even use it sometimes. But prices are too high for that. If prices were low enough, 100 million Chinese would start yakking on it. But 73c a minute is a LOT of money for most of them. If it was really, really cheap, a billion Indians would like to have a few gateways and start gabbling too.
QUALCOMM just has to figure out at what price they could fill the constellation and when. Then they need to add up the money they would get from subscriber minute sales, InFlight Network, Arnav, handset sales, sales to distributors such as Vodafone and other service providers, Eudora sales, CDMA terrestrial sales, radioOne sales, royalties from L M Ericsson and Telit, Globalstar ASIC sales, other ASIC sales, HDR sales, WirelessKnowledge sales, Wireless Internet Launchpad sales qualcomm.com, Wingcast sales, Condor sales, modem sales, data sales including to OmniTRACS, sales of new Globalstar gateways, new Globalstar system software, new Globalstar development contracts and whatever else they have or have up their sleeves.
At the moment and unless Globalstar succeeds, huge swathes of the planet will not get these services.
The value of those products and services outside terrestrial coverage areas is huge. Umpteen $$ billions by 2010. Right now, the income is zilch and going nowhere fast, with New Zealand missing in action, India DOA, South Africa on hold, Africa empty, China doing nothing and Japan a no-go zone.
Irwin Jacobs and QUALCOMM are capable of figuring that out.
Therefore, they want a solution and they want it now.
QUALCOMM doesn't want Globalstar messed up and delayed in bankruptcy proceedings. They don't want any more delay than is unavoidable. This is a $$multibillion revenue stream which is going to waste.
QUALCOMM owns 6% of Globalstar LP and about a quarter of the debt. They also own the CDMA technology and maybe that is not a transferable licence [Philips couldn't buy a licence by takeover of a company that had one, so I suspect a similar situation applies here].
QUALCOMM [$53bn] has the financial power to buy the whole thing in one bite! They could buy all of Loral [$1.4bn] too. They could just about buy Vodafone [$205bn] if they felt like it, given the confidence Wall Street has in QUALCOMM these days and QUALCOMM's cash flow.
When Globalstar was conceived and the partnership with Loral established, QUALCOMM was a rinky-dink little company in a little building in Sorrento Valley full of great ideas. There was no money to build Globalstar or market it. There was also the difficulty of local licensing and market development. So they went with Vodafone and the service providers.
Now, QUALCOMM, by itself, is big enough to do whatever it pleases. Especially if they joined with their Microsoft buddies who helped out with WirelessKnowledge. Microsoft is very interested in wireless internet and I bet they have the imagination to see where Globalstar could lead by 2010.
If the cash flows look good, there are umpty $$billion available from investors and partners to fund Globalstar development. The technology trajectory for Globalstar is great and technical developments preferentially favour Globalstar. For example, smaller handsets are not so important to terrestrial customers now, but they are to Globalstar. Improved batteries [such as fuel cells] matter to Globalstar, but not to terrestrial mobiles.
The total value of Globalstar [as determined by bond and stock markets] is about $300 million for the shares and $300 million for the debt. A total of $600 million. [Give or take $200 million].
QUALCOMM could write out a cheque for that tomorrow and have money left over. If they offered everyone double the current market value, I think they'd just about get control. If they offered triple, they'd easily get it.
But they wouldn't need to offer that much, because I guarantee Bernie will stay in if he possibly can. He didn't work the last decade of his life to see it slip from his grasp.
One of the big drawbacks to Globalstar sales now must be the fear of bankruptcy, loss of service, disruption and a wasted handset investment. QUALCOMM can add huge value by the simple expedient of making it a debt-free company with cash on hand to carry on developments as required. That would give great confidence to potential subscribers who would know the system will continue. Few would understand the difference between the company and the system and as with Iridium, they would expect that bankruptcy would mean loss of service, although that is not the case for Globalstar.
Bernie is an accountant and accountants know that undercapitalized companies without working capital are not long for this world. I suppose he set the finances up like this because he really did not think that the debts would so dominate the company. Now, he must know that a debt-free company is the only way to succeed because it will need that total confidence for subscribers to buy. That means somebody with a big pile of money needs to take control.
Since QUALCOMM has the money, the control of the technology, the interest in future sales and the development programme for Globalstar's technology and associated services, they are the company in the best position to sort it out. QUALCOMM is funding development of businesses which promote their technology. There is none more important that Globalstar.
Therefore, I expect that QUALCOMM will either completely take over, or, in exchange for a greatly increased shareholding and changes to the exclusivity deals and pricing by Vodafone and service providers as recommended by Blackstone, fund the company [the existing company] to repay all debt and ensure rapid market development.
If bondholders or shareholders don't like it, QUALCOMM could initiate bankruptcy proceedings, pull their licence after the bankruptcy court has disposed of assets, and bid for the assets in a liquidation sale. Vodafone would need to enter into a licensing agreement with QUALCOMM if they wished to buy the assets.
In the event of a liquidation, QUALCOMM would avoid having to repay the debt to other creditors, other than through their bid, which would probably be quite low and much less than what they would pay creditors to gain control in a negotiated takeover without bankruptcy proceedings.
QUALCOMM'S liquidation bid would be low because who would want to take it over if there was no CDMA licence, no understanding of technology upgrades, no surety on phone production, gateway development, software support, the price for all that QUALCOMM technology and an unknown market. Vodafone owns Exit 1, 2, 3 and 4. Big deal! There are other Exits and QUALCOMM could build more while supplying Vodafone for their existing customers [at, say $1 a minute wholesale price].
I expect the outcome will be a negotiated settlement, with a greatly increased shareholding by QUALCOMM, a renegotiated service provider system, including competition or perhaps transfer of gateways to Globalstar LP, no debt, with bond-holders converted to shares or paid out 20c or 30c on the $1.
We will then be owners in a company with 1 billion issued shares, no debt, $200 million in the bank, competitively priced retail minutes and away we go! QUALCOMM and Loral will be the main shareholders, but Vodafone will probably have an increased shareholding too [perhaps in exchange for gateway ownership].
As Irwin said, "The fun is just beginning".
Have I got it wrong anywhere? Any comments from anyone?
Mqurice
PS: I hope everyone understands that this is total guesswork and I am NOT a consultant to Blackstone, who I still know nothing about. |
