Mr. Winn: I took the liberty, per your suggestion, of giving your pricing comments and the market pricing mechanism on Globalstar to a satellite firm that I consider reputable and knowledgeable. Here is the response.
"Thank you for the pricing comments you sent on Globalstar's per minute usage costs. I take those comments as referring to the cost of domestic (intra-country) calls for a user who is travelling at the time he/she makes the call in question.
The comments, I think, draw this response: in US dollars, the basic cell phone cost per minute in SE Asia, Australia, and Hong Kong is from $.90 to $1.20. In Brazil, the cost is $1.25-$1.35. In Hungary, Czechoslovakia, Turkey, and Slovenia (just to take the other side of the globe), the basic per minute cost is $.90 to $1.10.
In this regard, then, the Globalstar proposed per minute domestic charge by the regional telcos (I have in mind Air Touch, Network Vodaphone, Autrey S.A., and Embratel-Loral) of $1.50 is not some peculiar pricing scheme totally out of proportion to the current market price in the areas I named. (I do not know what Elsa has proposed yet, as I have not heard back from their office in Skopje for the obvious reasons).
It does appear to me that in the current discussion on pricing one is taking the American market price for cell phone coverage (which in many instances is spotty and not continuous in even one cell), looking at Globalstar's cost, and seeing it as totally disproportionate to what the market is willing to pay.
One cannot, however, look at the American market and from that make a judgment on Globalstar's pricing strategy. You are aware of cellular pricing schemes of $29/month in the United States, but these are for circumscribed areas, and do not give overseas calling in their pricing.
The regional Globalstar partners have taken the general basic per minute cost of cell calls in the areas in which they serve, and have marked the price for Globalstar some 10-31% per minute higher because of the premium those who want phone coverage but cannot get it from cell coverage are willing to pay (according to marketing studies by the regional telcos themselves). In this regard, Globalstar regional telcos are offering telephony where it would not be for quite some time, and are pricing the call in general in line with what cell calls in similar circumstances will bear as their per minute charge.
In Australia itself, the Vodaphone charge for Globalstar will be reasonably close to the charge for cell phone coverage now, and it is believed that the higher quality of coverage that Globalstar will offer (continuity of call, no dropped calls, etc.) will be paid for by many mobile travellers in Australia who are on the roadways, on average, 70 minutes per day. There are many areas in Australia where once you get some 9-11 miles outside of its suburbs calls are dropped 3, 4 times before a permanent disconnect because the cell towers (which should be 40 miles apart) are not sufficient in number by any means.
Vodaphone has said that cell tower infrastructure build out in Australia to provide continuity of coverage would cost it far more than its investment in Globalstar telephony.
In Brazil once you get some 7-11 miles outside the major cities in many instances, where poverty and income are not an issue that some have mentioned as an impediment to Brazil telephony, the cell coverage is even worse. There simply isn't any. You may as well as put the phone away until you get back into the city environs. I am sure you know that vast areas of Brazil are covered with high mountains, and intense foliage making cell tower buildout simply uneconomical. Business people in Brazil want a way to circumvent that, and, I might add, are more ecologically conscious than Americans given the government's emphasis on rain forest preservation and the like. Satellite telephony appears to be a more acceptable alternative.
How China Telecom, to answer your question, will approach pricing is not easy to ascertain. China, as you know, is not as "pure market" driven as SE Asia and the rest of the world. The government is still a dominant presence in communications. While the government there has a mandate to provide telephony in ever greater capacity, China Telecom's price aggressiveness, I think, will be the determinant of how quickly Globalstar's worldwide number reaches one million users. I do think China will have more fixed site interest than is currently anticipated by Globalstar. China Telecom's own pricing will be the determinant of how much fixed site interest there is.
In regard to your question on VSAT telephony, for example, for Global Village-- the average cost there will be $1/minute after PSTN mark-up, and will have inherent in the call voice delay. This too holds for the GEO telephony coverage that Hughes has also proposed, although they have not set a price yet. It is not going to be anywhere near $.30/minute, after the PSTN mark-up.
So, the question comes back to: should Globalstar drop its per minute charge to where the system is, as you put it, "flooded from day one with demand". I think the general Globalstar regional telco pricing structure pivots off the cell market pricing in most of the globe where those very same telcos provide cellular service now, and that is why it is where it is, namely from 10-31% higher than the cell market. There is a premium paid for convenience and dependability of travelling calls.
You may ask about the United States-- why would anyone pay $1.50/minute? I can tell you that AirTouch simply believes firmly that it can get that price, and has even suggested it could get a higher price if it chose. That view is as recent as today. Its outlook is it is going to offer a service where there are no dropped calls off the CDMA spectrum with a Qualcomm phone, and for that convenience, where there is no more "the person you are calling is outside the roaming area", the individual who needs dependability of phone coverage will be willing to pay.
In the United States, the average Air Touch user targeted is one who spends $10,000 year on cell calls already. Will he/she pay more for absolute continuity of coverage wherever he is when travelling? Time will tell, but Air Touch (and given its record of achievement, probably one should defer to Air Touch's judgment here) certainly believes that person will. And it believes so because it is expecting Globalstar to be a system that eliminates the dropped call on the road, from which all cell users frequently suffer. That is the key to its strategy on Globalstar: it will eliminate once and for all the roaming disconnect. Now you can see the importance of "path diversity"-- a feature absent in TDMA.
All this considered, then, the Globalstar proposed pricing structure is not out of line with what the market already charges for cell phone coverage. I cannot comment on the Iridium charges for coverage in detail, since quite frankly the variations in charges even domestically in a country like India simply do not dependably admit of averaging.
I expect the average Globalstar per minute call to probably track the cell phone cost in the area it serves, with a 10-31% premium at all times. And I think that is a reasonable expectation.
I do not consider the Globalstar system a novelty, an experiment, something that is Jules Verne sci-fi. I do not, therefore, by any means believe Globalstar has to drop its prices below what the cellular market charges, which is what the comments you sent me seem to indicate should be the policy of Globalstar. Not that the comments you sent suggest it is sc-fi. But given its communications advantages, clearly the system has more convenience to offer the user who needs those conveniences.
Certainly, the market will set the price. I agree with the comments of the writer. And it already has. Where? In the already existing cell phone market. This is the market model. And it is the model that Globalstar is following, with the slight premium I mentioned above.
That Globalstar should offer service far below what even the cell phone market in general charges worldwide (the writer's suggestion of $.25/minute is what I have in mind) simply does not make sense to me. It should offer service at what the market will bear, and the world cell phone price for telephony markets is what will guide Globalstar in that regard, as it has so far." |
