As Globalstar Telecommunications Ltd. faces a funding gap, a proposed merger between two emerging satellite operators adds yet another twist in the short history of the mobile satellite industry.
Globalstar recently revealed its funds could run dry by the fourth quarter, but the company said it is confident it will obtain more funding before then, and there is no need for shareholders or customers to panic or start preparing for its demise.
“We will have a gap of about $160 million, but that’s very different than saying we have a problem,” said Mac Jeffery, senior director of public relations for Loral Space and Communications, which owns 40 percent of Globalstar. “We are confident we will be able to round up the necessary funds to get through that patch. We were just pointing out our cash situation.”
For months, Globalstar has been struggling to emerge from the aftermath of the failure of Iridium L.L.C. and the financial woes of ICO Global Communications, both of which caused serious damage to Globalstar’s credibility and the future of the satellite telecommunications industry as a whole. But analysts and the companies themselves were quick to point out the industry is still in its infancy, and some mistakes are to be expected.
“The satellite industry is still in the early stages of its life cycle, and it is too early to call this market a failure when in fact we are just beginning to see robust services offered,” said Anna Karamapahtsis, analyst with Allied Business Intelligence, Oyster Bay, N.Y.
Globalstar’s worldwide service rollout just got under way during the first quarter, and New ICO, formerly ICO Global Communications, announced it emerged from Chapter 11 bankruptcy protection only last week, following a $1.2 billion investment led by Eagle River Investments L.L.C. President Craig McCaw and a group of U.S. and international investors.
These and other factors have resulted in a weaker market than initially predicted, and ABI estimated there will be about 8 million voice terminals in use by year-end 2004, with revenues of approximately $7.5 million.
ICO-Teledesic Global Ltd., the new holding company that controls the satellite assets of Eagle River Investments, intends sometime this week to propose a merger between New ICO and ICO-Teledesic Global, Teledesic said. ICO-Teledesic Global now is the controlling shareholder of New ICO with a 54-percent share.
On May 12, Teledesic’s board of directors approved the merger of Teledesic in to ICO-Teledesic Global, but it remains subject to shareholder and regulatory approvals. Under the proposal, New ICO and Teledesic would become wholly owned subsidiaries of ICO-Teledesic Global.
Vijay Jayant, a managing director of Bear, Stearns & Co., noted it will be at least two years before ICO-Teledesic becomes a “real” company, calming any immediate concerns that it will threaten Globalstar’s market share.
In response to the ICO-Teledesic announcement, Jeffery said it is impossible to say at this point what effect the new company will have on Globalstar.
“We haven’t seen any of the details. It’s still not clear to us what is their kind of service,” said Jeffery. “But,” he added, “I would never write them off. Craig McCaw has a noteworthy record in the field.”
Jayant said ICO-Teledesic will be focusing on the high-speed data market, with plans to support data rates up to 144 kilobits per second. Globalstar offers significantly slower data-transfer speeds, but Jeffery said the company’s target audience is voice users anyway.
“We will be offering 9.6 kilobit per second data capabilities to be introduced later this year and for our target audience, that seems to be their needs. The market we’re after is looking for voice with data as an auxiliary service,” Jeffery said. “We are not dismissing at all the market for data, but it’s not a homogeneous market. There are very different demands for different market sectors.”
Bear, Stearns’ Jayant, however, said he thinks satellite voice service is a declining industry, and those with robust data capabilities will be able to cross over to offer voice services easily.
“If you can do high bandwidth data, you can do voice too. The question is funding. Some of these projects need $4 (billion) or $5 billion before you see a dollar in return,” said Jayant.
The enormous costs of establishing a high-speed data satellite network will lock Globalstar indefinitely into the voice market.
“The challenge for (Globalstar) is they have a sense of urgency, to ramp up before they run out of money. At that point, they need to come to a decision on whether or not to fund it, to make it work or to shut it down,” Jayant said.
