It seems the dark cloud that settled over the mobile satellite services industry when Iridium L.L.C. and ICO Global Communications went bankrupt last August has begun to lift, reflected by a stock rally from Globalstar L.P. indicating renewed investor confidence.
Globalstar USA, Globalstar L.P.’s exclusive U.S. service provider, entered the second stage of its three-phase rollout strategy last week when it announced it started offering satellite phone services on a limited basis in the United States, with expectations to upgrade to a full commercial launch this quarter.
Expectation of this announcement was one of several factors behind a massive surge in Globalstar stock in the last two weeks. On Dec. 23, Globalstar was trading at $28.18 a share. By Jan. 4, it reached $47.75. An overall stock market slump had caused it to fall to $39 at RCR press time, but the point was made.
“I think in general the tide has turned,” said Timothy Logue, satellite analyst at Coudert Brothers.
Contributing to the beginning of renewed confidence in the sector was Craig McCaw’s investment in the struggling ICO, he added.
“People say, `If McCaw sees value here, there must be something.'”
In addition, the Federal Communications Commission authorized Globalstar to sell its services in the United States.
If anything, Globalstar may be benefiting somewhat from lowered expectations of the MSS industry. After the rash of dire announcements coming from the first-to-market Iridium, the weight of the industry was placed on Globalstar’s shoulders.
“The expectations for Globalstar are lower, and therefore every positive news helps,” Logue said. “I think the market is looking for reasons to be positive about the MSS sector.”
A recent Dataquest report predicts the installed base for MSS terminals will reach 8.32 million by 2004, as opposed to about 211,212 it reported at the end of 1999.
Globalstar expects to have 200,000 handsets shipped by the end of the first quarter. For year-end 2000, the company predicted between 550,000 and 600,000 subscribers, with revenues of up to $300 million. Analysts have set lower targets. Kenneth Leon, analyst at ABN AMRO, estimated no more than 400,000 subscribers by the end of the year, with total revenues of $239 million. However, he did raise his price target to $60 a share, from $35.
“Clearly, Globalstar is now positioned to be the first mobile satellite service in full operation in 2000, which should be a market advantage,” he said.
Others do not agree. Merrill Lynch cut its near-term rating to neutral, from accumulate, citing in particular the stock rally, and cut its long-term rating from buy to accumulate, based on its belief that Globalstar’s competitors can offer less-expensive service and phones.
Globalstar outlined its pricing plan for its upcoming full commercial rollout last week as well. The three-tiered service pricing plan is based on a monthly service charge and fees for satellite network connection and use. The Beyond Basic plan is $30 a month and $1.70 a minute. No minutes are included in this plan. The Beyond 100 plan is $170 a month with 100 included minutes and $1.50 for additional minutes. Finally, the Beyond 250 plan is $370 for 250 minutes a month and $1.40 for additional minutes.
Charges do not include land-based international long-distance charges and local termination fees. Globalstar handsets are expected to retail for $1,500 in the United States.
