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Technology Stocks : IRID - Iridium World Communications IPO Announced! -- Ignore unavailable to you. Want to Upgrade?

To: Ann Molison who wrote (309)	12/16/1997 5:03:00 PM
From: Snake	Read Replies (1) \| Respond to of 2693

Competition is Globalstar, if you can call it competition. Better is to call them 2 systems in which all their capcity is less than estimated total demand. As far as profitability, here is someone's messase posted on the yahoo boards about Oppenheimer's recent hold recommendation. Subj: Operating Cost Comparision between IRIDF and GSTRF By: K_Meister Date: Dec 14 1997 2:01 P.M PST Reply To: Msg. 1 by YahooFinance As a long-term investor in Iridium, I was recently disturbed by an operating cost comparision of IRIDF and GSTRF in CIBC-Oppenheimer research report dated 12/9/97. According to the report, IRIDF is at an inherent cost disadvantage to GSTRF due to a fundamental difference in the methodology employed for transmitting voice/data. Moreover, the cost differential is likely to get considerably worse due to reduction in international tariffs brought about by WTO (World Trade Organization) agreement to generate competition in telecommunication markets. This is how it works. In case of call made from an IRIDF satellite phone to non-IRIDF phone (such as cellular, land-line), the satellite closest to the caller picks up the signal, tranfers it from SATELLITE-TO-SATELLITE until it reaches the gateway nearest to the recipient, then uses local circuits to transmit the call. In case of GSTRF, on the other hand, the satellite nearest the caller picks up the signals, tranmits it to the local gateway in the SAME country, and then uses GROUND-BASED INTERNATIONAL circuits to transmit the call to the recipient. In other words, where as IRIDF system bypasses ground-based international circuits to avoid paying notoriously high tariffs on international calls, GSTRF uses them. The catch is that satellite-to-sattelite signal transfer capability results in considerably more expensive satellites for IRIDF, which in turns results in a higher "base" charge per call for the user. Moreover, as tariffs on international calls come down (under the WTO agreement), the "base" charge for IRIDF would become more out-of-line with the true costs of carrying international calls. As an example, the report discusses the operating costs of a call from Australia to U.K under the two proposed satellite systems: Under IRIDF system: Iridium charge (Australia to Italy gateway) = $2.50 Ground network charge (Italy gateway to U.K) = $0.12 Total wholesale cost = $2.62 Under GSTRF system: Globalstar charge (Australia to Australia gateway)= $0.47 Ground network charge (Australia to U.K) = $1.00 Total wholesale cost = $1.47 (Another example compares the price of call from India to U.K with the same conclusion). Based on the above (and similar analysis), the following thoughts come to mind: (1) Most consumers should prefer GSTRF system over IRIDF on account of lower costs. (2) IRIDF will have first-mover advantage but due to the inherest cost disadvantage of its system, will rapidly lose market share in case of a price war started by GSTRF. (3) IRIDF calls from satellite to ground/cellular recipients might be of better quality (on account of avoiding ground- based networks for the most part). But consumers will not be willing to pay a substantial price premium for it. (4) Since IRIDF satellites have a useful life of 5 years as opposed to GSTRF's 7 years, the company must replace its satellites by 2003. Would satellite technology have advanced to such an extent, that the next-generation of IRIDF satellites will be able to counter the reductions in international tariffs under WTO and lower costs of GSTF? Any thoughts or comments would be most appreciated. K_Meister