Besieged by doubts over the very existence of a market for satellite-based voice services, low-earth-orbit carriers are starving for some kind of positive development to feed investors and customers alike.
The bankruptcies of LEO carriers Iridium L.L.C. and ICO Global Communications L.P. have reduced confidence in the mobile satellite services market to an all-time low. Iridium’s failure to rack up the expected number of subscribers and consequential financial meltdown caused investors to doubt the market. This unease came at a time when ICO needed money the most, leading to its funding problems.
In this environment of near desperation, Globalstar L.P. finds itself preparing to commercially launch its LEO network. Having expected to step onto a road already paved by Iridium, Globalstar now finds itself as the new standard bearer for MSS services.
“We always said there’s a massive market for MSS,” said ICO spokesman Robert Taylor. “It’s just a question of providing a service people want at the right price. If Globalstar can perform to that criteria, they will do well, and so will we. If they are able to demonstrate by a good enough service that a market is out there, that can only help us.”
By all outward appearances, Globalstar is bristling with confidence.
“It would be foolish to say it hasn’t cast a cloud over the sector,” said Globalstar spokesman Mac Jeffery of the Iridium bankruptcy. “But we are confident most people who know this business see Globalstar and Iridium as apples and oranges. There’s nothing you can point to at Iridium that says Globalstar is going down the same road.”
Although its stock price remained relatively strong following the Iridium bankruptcy, Globalstar stock has been falling since ICO’s bankruptcy declaration.
However, the company managed to secure $500 million of the $600 million needed to launch commercial service before ICO’s bankruptcy. The remaining $100 million is being negotiated in the form of vendor financing, Jeffery said.
With the money question mostly resolved, the company plans to initiate a three-phase launch beginning sometime this month or next. The official ribbon-cutting ceremony for the network is expected to take place at Geneva Telecom Oct. 11, however service will have begun before that, Jeffery said.
The first phase essentially is a Beta test, during which a small control group will use the network and handsets and provide feedback. Phase II will be more of a soft launch, where Globalstar will sell handsets and service and conduct billing and customer-relations activities on a limited basis, Jeffery said. Finally, the third phase will open the network to full commercial availability with no restrictions. Jeffery said the time between phase I and phase III will be about three months.
“We’re very confident of the time frame,” he said. “The satellite network construction is buttoned down. Really, the gateways are the determining factor on where we launch and when. Where we launch first depends on which (gateway) is done testing first.”
Globalstar has 36 satellites in orbit, of which only 32 need be operational to launch initial service. The complete network will consist of 48. Globalstar’s constellation is designed so that at any given time, between two and four satellites will be overhead and available to take a call, which allows for greater flexibility in line-of-sight issues, Jeffery noted.
At launch, at least nine gateways will be ready, he continued, with another 16 under construction and expected to be ready by mid-2000. The company plans to have 35 gateways operational by the end of next year.
Globalstar’s three handset vendors-Qualcomm Inc., L.M. Ericsson and Telital-have committed to providing 70,000 handsets by year-end, Jeffery said.
An empty room?
But some analysts wonder if all this effort is for naught. MSS critics feel the differing business plans, technologies and rollout strategies between carriers are just different doors leading to an empty room.
“The point being, I don’t see a market for Globalstar,” said Tim O’Neil, analyst at SoundView Financial Group.
Globalstar is positioning itself more as an extension to regional cellular operators, not targeting the international business traveler as Iridium did. Jeffery said the company estimates the market for such a service is about 20 million worldwide.
“All the market research we’ve done has been corroborated with our local service providers,” he said. “Even if all (LEO operators) were on the air, there’s more demand than supply. Iridium’s experience is unfortunate, but it is no test of whether there’s a demand out there. There’s plenty of demand, it just hasn’t been reached properly.”
But O’Neil contends the market is much smaller, too small to justify the massive investment needed to meet it. If there was such a need for added coverage in rural regions, he asked, then why did ICO’s partners in those areas like Deutsche Telekom, British Telecom, Korea Telecom, Satphone Japan, Hellenic Telecom in Greece, Singapore Telecom and Beijing Telecom fail to support ICO with additional financing, leading to its bankruptcy?
The places that need satellite coverage most, Africa and Asia, don’t have telecom carriers that can afford to invest in MSS providers, and don’t have users able to pay the $1,000 for handsets and even $1 a minute, he said.
“The places that need it can’t pay for it.”
Going further, O’Neil said Iridium has lowered its prices to levels comparable with Globalstar, yet has a greater global coverage than Globalstar. Also, Iridium’s next-generation handset will be smaller than those offered by Globalstar. Both factors, he said, could present problems for the company should Iridium emerge from Chapter 11 successfully.
Iridium update
On that front, Iridium announced it has retained turnaround firm Alvarez & Marsal Inc. and hired two of its managing directors-Joseph Bondi and David Gibson-to help with its financial restructuring. Bondi was named chief restructuring officer and Gibson interim chief financial officer, replacing Leo Mondale, who resigned.
Industry watchers may remember Bondi and Gibson from their similar roles in the successful restructuring efforts of paging carrier MobileMedia Corp., which was recently bought by Arch Communications Inc.
Meanwhile, Iridium North America, Iridium’s U.S.-based gateway provider, said both subscriber and minutes of use for the Iridium service have increased 25 percent and 20 percent, respectively, since July.
