Iridium World Communications Ltd.’s stock plunged last week after an announcement that parent company Iridium L.L.C. had hired Donaldson, Lufkin & Jenrette to restructure its debt and the company announced it would not meet the subscriber and revenue figures needed to comply with its debt covenants by the extended deadline of May 31.
As a result, the company’s stock fell more than $4 on May 14 to $10.43 and continued falling to $9 at RCR press time.
Iridium bonds lost half their value, some of which are now in the junk category. SoundView Financial Group placed a “hold” rating on the stock with a target price of $7, and reduced year-end subscriber forecasts from 100,000 to 40,000.
As problematic as this is for the company itself, Iridium’s hardships are beginning to take a toll on the mobile satellite industry overall, causing some to doubt the market for voice-based global mobile satellite services.
Following the Iridium downgrade, SoundView lowered its rating on Globalstar L.P. from “buy” to “hold” as well, pointing specifically to Iridium’s problems and questionable market size. Globalstar is in the process of constructing a 48 low-earth-orbit satellite network similar to Iridium’s.
“In the long term, we do not believe there is a market big enough to support this project at their current price points,” read the SoundView report.
Tim O’Neil, the report’s author, said he believes Globalstar will in fact complete and commercially launch its satellite network. “However, we are having a hard time understanding the addressable market given the current pricing strategies and Iridium’s extremely slow start,” added O’Neil.
Globalstar’s pricing is too high, SoundView said, to penetrate the unserved area and mobile roaming market. “Suggested retail for (Globalstar) services is approximately $2 per minute for airtime and $1,700 for the handset. The company has always quoted wholesale pricing of under $1 per minute and under $1,000 for the handsets.”
O’Neil is quick to point out the differences between Iridium, which strives for coverage at any point on the globe, and Globalstar, which aims to act more as an extension to landline infrastructure.
“Service pricing should not be compared to Iridium, it should be compared to the other alternatives,” the report read. “There are plenty of regions in this world … that require and demand telecommunications. However, these regions are being aggressively addressed by alternative lower-cost solutions from the fixed satellite providers. Mobile satellite service providers must compete close to these levels to be successful.”
