Analysts say the launch of Iridium L.L.C.’s mobile satellite service has positioned Globalstar L.L.P. to be a low-cost provider when it offers service around 2000.
After losing 12 satellites in a rocket launch accident in September, Globalstar’s general partner, Globalstar Telecommunications Ltd., has seen its stock begin to rebound and analysts upgrade their recommendations on the company.
Globalstar, a partnership whose leaders include GTL, Qualcomm Inc. and Loral Space & Communications, plans to be the second MSS provider to launch commercial service. Iridium launched service early last week.
GTL’s stock is trading at about $17 after a recent low of $9 in early October. Stamford, Conn.-based SoundView Financial Group early last week upgraded its rating on the satellite venture from a hold to a buy, based on the program’s progress, reduced risk profile for launches and further evidence of the market’s need for celestial-based satellite communications.
While Iridium is targeting the traveler who wants worldwide coverage, Globalstar service providers plan to target international travelers and underserved regional telephone markets. Service providers like AirTouch Communications Inc., a cellular operator, want to be able to offer the service outside their own coverage area and target niche markets such as the marine, transportation and aviation industries.
“Globalstar will do well due to the regional use basis and the fact that it’s a simple system,” said Larry Swasey, wireless analyst with Allied Business Intelligence Inc., Oyster Bay, N.Y. “Globalstar has a lot of service providers that will build and operate base stations. Countries maintain control of their own telecom and contribute to Globalstar traffic.”
Tim O’Neil, analyst with SoundView, said Globalstar’s service is well-suited for underserved regional applications, but the venture will have difficulty in penetrating other niche markets that depend on worldwide coverage. “However, based on Iridium’s current marketing success of generating over 1 million prospects, yet only qualifying 10 percent once pricing is discussed, we believe that [Globalstar] is well positioned to offer this segment lower priced equipment and services,” he said.
Swasey said Globalstar expects to charge service providers an average of 47 cents per minute for wholesale airtime rates. Depending on the competition, Globalstar could charge 35 cents to 53 cents.
“Service providers will add on their own charges, ranging from $1.15 to $1.55 per minute,” said Swasey.
SoundView said Globalstar still needs at least $600 million within the next year to launch by third quarter 1999 and likely will be looking for financing in the high-yield market in the first quarter of 1999.
“The debt markets have certainly closed and the equity markets at this point are also closed, but the private market remains healthy,” said O’Neil. “For companies whose business plans really make sense and already have secured strong financial backers, the access to capital is there, albeit harder to get.”
