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From the AOL LOR Thread:
Subject: My summary of the shareholder meeting.
Date: Tue, May 18, 1999 7:56 PM
From: Smolky
Message-id: <19990518235621.04491.00002840@ng-fa1.aol.com>
Well it has been a long time since I have posted here.
IRID has fallen hard, last time I posted it was at 30 or 40 and I had written that the Goldman Sachs analyst had told me that it was a great short, looks like he was right on the money with that call. Does it have more to fall? The market is treating the company like they are going to go under, I think that is a safe assumption, so the stock may go down to 2, 3, or 4 bucks a share before they get bought out by Motorola or something.
I haven't spoken to Readware lately, I owe him an email.
ICOGF has fallen back down to where I thought it would fall the $8 range, but I think this stock comes down to 5-6 before they start service. Could be a good trade from here, the stock will get some hype between now and the commencement of service, but after all is said and done, I think they will be seeing 5-6 at one point.
CQ ad VSAT I still own, been a tough road for the whole satellite sector.
LOR and GSTRF, I have not reentered since the Zenit crash.
Now to the shareholder meetingŠI did go, they gave me a little trouble at first to get in because of the over-capacity crowd coupled with the fact that I wasn't a shareholder. Standing room was not fun so I sat down on the floor J.
Overview of the meeting: Not impressed with the energy levels, I remember 2 years ago when I went to the shareholder meeting - there was a lot of energy and excitement in the room, not today. Bernard did carry the meeting with more professionalism then he did at the meeting in 1997. He looked the same, and was pretty much as fast and quick with the funny lines as he always is, so age is not taking its toll I don't think. However, he could not
remember the name of the China partner - China Telecom.
I went to the meeting to see what has changed since the Readware days of Loral - or the days before I took a sabbatical. I expected a bunch of new plans, since when originally investing in Loral I had the understanding that Loral was a GROWING conglomerate of satellite companies. Unfortunately I was deeply disappointed - there was very few changes, the only thing that is different that stuck out was that Cyberstar concept may become clear in the
next few months and GSTRF will be starting later than planned with less satellites up than originally planned.
To the question answer session:
Q: The first question came from a man who brought up issues like the average age of management being upwards of 65, the general stock performance - or lack thereof, China, and one satellite.
A: Bernard opened the question answer session up with humor just like he did 2 years ago. He said he was having a difficult finding people his age and thought that may hurt the company due to young inexperienced management J. That drew a smile from the crowd. He said that management is skilled and age is not a real factor because they do have a lot of younger management and will be getting younger management as time goes on.
"No one can hype a stock better than I can" but he went on that he isn't going to hype Loral/GSTRF because he never has and yet has been very successful. Hype - he said - only lasts for so long before reality sets in. In a couple years when Loral is a satellite champ the stock will reward its shareholders.
He declined to comment on China policy rumors, but was not very worried about any government rules regarding China. (Probably because he has painted the governments green for so many years, lol) Again he reiterated what I remember him saying 2 years ago about the China issue, 'We at LOR have done nothing wrong and have followed the rules, I am confident when I say that.' (By the way all the questions and answers are not exact word for word
quotes, just the idea or what I felt was being said. So there may be some bias in the way I wrote this, sorry, I did try to be as accurate as possible)
At this point he receives a phone call from a Loral/Globalstar worker from California. He was using a Globalstar phone. The phone was huge! Looked like a gun with the way the antenna looked. I can say that I was not impressed with the looks of this phone. By looking at the live feed and listening carefully to the conversation you could see a lag of about of a second. It was clear that his words were not matching up with his voice, perhaps they
were using the Iridium System??? Wishful thinking.
Q: One guy asks about the location of the meeting being in an inconvenient location. More of a joke to Bernard.
Q: Pay structure and how much the market can handle?
A: More then $1.00 a minute for sure! Because the partners who will be selling the service have invested real money into the G* system they will work very hard to sell the service.
Q: Question about the competition/Iridium and their problems and how we know GSTRF will not have similar problems. Mentions how Sprint is not working very hard to sell the service (or maybe it was produce the phones, I don't know Sprint's connection to IRID to know for sure)
A: The answer we all know very well. GSTRF has better technology and a much better marketing system than IRID has. The business/financial plan is also much better for GSTRF. He was happy to say that even with all the things going wrong with IRID, GSTRF/LOR has not changed any major things since the original concept/plan write up I 1992-1993. He did avoid delving into conversation about IRID.
Q: Questions the thoughts behind using a Zenit to launch satellites since it had such a poor success rating, he quoted a success rating of about 40% or something like that.
A: Bernard says the question isn't a very good one, because the success rate at the time was greater then 97-98% and was one of the best in the world at the time. He said things like the Zenit crash are bound to happen, he was prepared for it, and for that reason has the launches spread out between a bunch of different launch pads. 'Zenit WAS the smart move.'
Q: Guy mentions how he used an Iridium phone and has been very happy with it. He has gotten reception inside a hotel in the Caribbean and says how everyone around him was very jealous. But he did say that the price was too much, and once GSTRF sold their services with lower costs he thinks more people would sign up.
What are your thoughts on all the satellite blowups happening?
A: All these risks have been factored in and Loral has backup plans in place.
Q: Question about the rumor with Dan Dorfman and AOL.
A: No comment - however, we have spoken to many Internet companies including ISP's and broadband related Internet companies. One day something with an Internet company will happen. He did say clearly that there was nothing noteworthy of a rumor about AOL.
Q: Y2K
A: "It's coming!" He addressed the issue, but said that he doesn't expect anything serious to happen. (More on this later)
Q: Will there be enough phones available?
A: First of all, GSTRF has three companies producing phones for them, while IRID did not have 3. Secondly, at the start of service we expect 30,000 phones to be ready, and by year end 100,000 phones. With production at around 40,000 phones a month. We will try to get more then that a month, but either way it is not an issue to be worried about.
Q: Any comments on CyberStar? We haven't heard all that much about it recently.
A: Beta testing for CyberStar will start soon - year-end through 2000. If things look good and there is a market for CyberStar then we will try to get CyberStar in service by 2002. It will be a 'data service' company. I didn't feel like there was so much hope for CyberStar, and I had thought that CyberStar was going to be a nice compliment to the planned Loral conglomerate, I guess not.
Q: Back to the Y2K thing - will GSTRF be able to capitalize from it in any way?
A: No not really, we don't have a way to benefit from a Y2K crisis, but one company did contact Bernard to ask for phones so that they are prepared with phones on a system that is built recent enough to be Y2K compliant. He went on that he felt conventional telephony may go down due to Y2K and wanted a backup system, namely GSTRF. He did say, and I think this is a quote, but I'm not sure - 'Y2K is just a pimple!'
Q: Soros had owned about 30% of GSTRF what is the case with that today?
A: I believe he still owns that much, but I'm not sure. (Like I believe that, only your largest owner of GSTRF other then you and your not sure how much he owns, come on old man, stop playing games.)
Q: Probably the dumbest question, ha ha, sorry whoever this was
Why doesn't LOR and GSTRF merge or something?
A: Bernard just rambled on about Loral's stake in GSTRF being 42% and what GSTRF means to Loral. He said LOR may increase its position in GSTRF in the future, but didn't make it sound like that was going to happen anytime soon. Basically Bernard tried to make the question into a useful one. He also said that Loral and Globalstar are two different companies with the same management.
Q: A question about fiber optics. I didn't see the relevance of the question.
A: Basically said why fiber optics isn't a practical alternative since 3.5 million (or was it billion?) people don't have telephony right now, and live too far away to have fiber optics worth while for the price. He went on to reiterate that supply for satellite systems would not be enough to cover all the demand.
Q: A good question asking about phase 2.
A: GSTRF may not fill up very quickly, in 2002 we only expect about 50% of the capacity to be achieved. The satellites have a 7.5-year life span and the system can handle 7.5 million people. The second generation - phase two, will be developed two or three years after the start of phase one service, so figure around 2002-2003. Current sketchy projections call for a 20-25% greater amount of capacity. (Smolky's thoughts: This touches upon
something I mentioned briefly 2 years ago, how I thought that with IRID getting off the ground first, and also having the shortest satellite life span that it would put a phase 2 up by 2004-2005. With all the knowledge of the customer base and the pricing and the usage, problems, etc. I thought they would be the number one company by 2007 or something, but it seems they will go under before that and unless GSTRF or ICOGF can prove that IRID had poor
management and a poor plan, than IRID won't make it to generation 2.)
Q: What are some of the problems that may pop up in the future?
A: I thought that was a good question, but obviously Bernard didn't agree because he didn't answer it. He said there are inherit risks in satellites, and said that Loral will be receiving $700-800 million in cash dividends in 2002 from Globalstar - more than paying off for the investment in GSTRF to begin with. Thanks for asking a question asked one hour ago Bernie!
Q: Back to the production of the phones, are 40,000 phones a month enough to get to where you want to be?
A: Yes!!! We will hopefully be able to get more than that out a month if demand is met. Iridium's error was that they reported subscriber base, which we will not be doing. We will only be reporting the amount of billable minutes used - not subscribers. (That is a let down. Interesting he called that an error on Iridium's case, Iridium went so far to base some of their loan covenants on the number of subscribers.)
Q: FCC has in the past broken up large telephone companies, any thoughts on this?
A: That would be a positive if it happened, because it would just add to the number of sellers out there, but it really will not matter.
Q: Any firm customers yet?
A: We don't think so, but our partners do not have to report that kind of information to us. One thing we learned from Iridium is not to act hastily. Ericsson has a policy of not starting phone production more than 90 days before the start of service, so they will start pumping out telephones around July 1st.
Q: Can you comment on ICO? Is that cheaper?
A: Well there will not be more than five companies in the industry due to FCC regulations. Ellipso still is a possibility. (Smolky: take note that 2 years ago, Bernard said that if Ellipso and another company enter into the market then you can see that the demand is thereŠtoday Ellipso has still not entered in, let alone the fifth company, could that be a bad sign?) Either way, all five companies could not handle the 40 million+ market.
ICOGF may be cheaper but they will be one year late. Since there is so much demand 'we' don't think that GSTRF will be fighting for customers with ICOGF in the market.
Q: Any plans of satellite dish or Internet usage of the LOR/GSTRF system? Do AOL users use LOR's services?
A: Yes, Orion deals with ISP's. No, AOL has nothing to do with LOR.
That was it!
All in all, I will not be getting back into GSTRF/LOR/ICOGF anytime soon.
I may trade GSTRF for a couple of days around the time of the last launch and the commencement of services. But nothing more than that. My enthusiasm for this company and the future are greatly depressed from where they were 2 years ago. I think the future for the satellite industry is still years away. I would say that I can't see a GSTRF like company making huge amounts of earnings until 2010, but technology advancements happening at the speed
they do, I will say that this is dead money until 2005, when launching will be much cleaner and technology in the field will be far greater than it is today. |
