Globalstar Will Use Cash To Finance Initial Plans
Satellite News 07/29/02
author: Paul Dykewicz
(c) 2001 Phillips Business Information, Inc.
Globalstar LP, the San Jose, Calif.-based mobile satellite voice service, expects to fund its proposed 60-satellite,
next-generation constellation from both internal and external sources, while financing the early phases of the project with
cash on hand, company officials said.
Despite operating under Chapter 11-bankruptcy protection since February, Globalstar continues to serve roughly 75,000
subscribers, add new customers and restructure its finances, said Mac Jeffery, a Globalstar spokesman. A next-generation
satellite system requires only a "modest amount" of funding in the short-term and offers the opportunity to upgrade existing
capabilities, he added.
The bulk of the money to build a new satellite constellation will be spent in the later years of the deployment, Jeffery said.
Space Systems/Loral, the Palo Alto, Calf.-based satellite manufacturing unit of New York's Loral Space and
Communications [LOR], earlier this month won the contract to build Globalstar's next-generation satellites. Cost estimates
for the entire system are between $2 billion and $4 billion, industry sources said.
The planned constellation would consist of 56 low-Earth-orbit (LEO) satellites, supplemented with four geostationary orbit
(GEO) satellites to provide coverage for remote areas not easily served by the satellite voice service's existing
constellation, Globalstar officials said.
"Now is the development stage, and we have money to proceed with this first phase," Jeffery said. "We're talking to
investors and plan to advance to a second phase at the appropriate time. The mountain doesn't need to be climbed today.
The big money doesn't have to show up for several years."
Globalstar expects to emerge from bankruptcy around the end of the year, Jeffery said. Previous expectations of
concluding the bankruptcy process earlier than that proved too ambitious.
"Once we complete the restructuring and demonstrate a healthy, viable business, it opens many doors for additional
investors and customers, as well as the raising of funds in general for the next generation of satellites," Jeffery said.
New investment in the Globalstar system would be traded for an equity stake in the company, he said.
"Fundraising for the construction phase of the next generation is a separate process," Jeffery said. "I think we have to
demonstrate that we have a viable business. The raising of the funds for the next phase of construction would be most
appropriate closer to the time the metal is actually bent. By that point, we will be out of restructuring and in a normal
business mode."
Globalstar's stream of monthly revenue is not inconsequential. The company charges each of its 75,000 customers a
monthly service fee of $25. Those fees alone total $1.875 million. Additional revenue is collected from the per-minute
airtime charges Globalstar receives from subscribers.
"Our company's subscriber base is far larger than any other handheld MSS [mobile satellite services] provider," Jeffery
said.
The company's bankruptcy filing is slowing new sales, Jeffrey admitted.
"We have had a lot of customers tell us to call them back when we are out of restructuring," he added.
Globalstar currently operates 48 low-Earth-orbit satellites that cost roughly $3 billion to build and put in orbit. Its
competition includes Iridium Satellite, of Arlington, Va., regional satellite voice services in various parts of the world, and
wireless service providers that offer international coverage where landlines are not available.
Globalstar, a joint venture backed by Loral, sees the next-generation system as a way to offer broadened services and
higher capacity with 2 GHz spectrum. SS/L would design and build the 2 GHz, next-generation satellite system for full
deployment by the end of the decade, company officials said. The FCC previously granted Globalstar's 1997 application to
use the newly available 2 GHz mobile satellite radio spectrum, and the company needed to sign a contract by July 17 to
keep the bandwidth allocation.
"It's a technology still in search of a market," said Sean Badding, vice president and senior analyst at The Carmel Group, a
satellite consultancy. "They still are targeting a large addressable market, including maritime, oil, mining, military and
emergency organizations, but are only hitting a small portion of it."
Badding observed, "Cell phones are one of the biggest challenges for satellite telephony, considering their wide use across
business and consumer market segments, as well their low price points. Other factors include a monthly service fee
charged by Globalstar and Iridium, in addition to the larger size of the satellite phones compared to cell phones. Those are
the key issues slowing the growth of satellite voice services."
Andrew Seybold, president of Andrew Seybold's Oulook 4Mobility, added that for Globalstar to remain viability, it "needs
to focus on voice services where wired services are not currently available as well as higher speed data services."
(Mac Jeffery, Globalstar, 408/933-4434; Sean Badding, The Carmel Group, 831/643-2222) |
