NEW YORK-Extraterrestrial wireless received good news when Globalstar Telecommunications Ltd. sold a $245 million secondary stock offering Jan. 26.
In preparation for Globalstar Telecommunications’ secondary offering last week, Bernard L. Schwartz, chairman and chief executive officer, took an unusual step the prior weekend to test the service.
“In 10 billion years, no one ever made a call from (inside) the Grand Canyon, but I called six or seven people (from there) Sunday, some in London,” he said.
Globalstar is essentially fully funded, Schwartz added. It plans to use part of the $245 million in net proceeds from the sale, which Bear, Stearns & Co. Inc. lead managed, to finance this year’s planned $55 million worldwide cooperative advertising campaign. C.E. Unterberg, Towbin was a member of the underwriting syndicate.
With a constellation of 48 satellites in orbit, Globalstar closed 1999 offering telecommunications services through land-based carriers serving 11 countries, including Austria, Brazil, Canada, Greece, Italy, South Korea, Switzerland and the United States. By mid-year, terrestrial carriers plan to offer Globalstar’s services in 61 more countries, including Argentina, Australia, Chile, China, Mexico, Russia, South Africa and major Eastern and Western European countries.
Schwartz said each minute of use costs Globalstar 9 cents, and its wholesale rate to terrestrial carriers is about 40 cents. The satellite provider has made advanced sales of 25 million minutes at a 25-percent discount to its wholesale rate. It may use some of the proceeds of the new stock sale to fund promotional discounts.
Globalstar has assigned the largest of its exclusive wholesale territories to its dozen founding strategic partners, including France Telecom, Vodafone AirTouch plc, ChinaSat, Dacom Korea and Elsacom of Italy. It has agreements with at least 220 local service providers.
Schwartz also noted that a company like AT&T Corp., which has the exclusive Globalstar franchise in New York City, also can choose to enter into resale agreements with other carriers like Bell Atlantic Corp.
“We don’t bypass or compete with terrestrial cellular. We are in markets carriers never intended to build out. Even in the United States, cellular networks cover less than 50 percent of the land mass,” said Eric Zahler, Globalstar’s executive vice president.
“We are not about rural telephony or V.I.P. global roamers; we look to serve communities of 10,000 to 50,000 people that are not served by cellular.”
By consensus of Globalstar’s terrestrial wireless partners, retail airtime rates will not exceed $1.50 per minute for local calls, $1.99 for regional calls and $2.99 for international calls, Zahler said.
Globalstar has an exclusive agreement to use Qualcomm Inc. Code Division Multiple Access technology for mobile satellite telephony. The multi-mode handsets, which function as cellular phones where that service is available, now retail for $1,350 to $1,500. However, Zahler said the “targeted full-production price in 2001 is $750.”
So far, Qualcomm, Ericsson Inc. and Telit have produced 40,000 phones, and another 30,000 are on order. Globalstar’s aggressive goal is to have available 40,000 additional phones in each of the first six months of 2000 and 650,000 total by year-end, Zahler said.
“Qualcomm and Telit are on time. Ericsson got the hardware late and made a decision to jump to a second-generation phone, which is smaller, nicer to use in the field and has a better design.”
Schwartz said Globalstar needs 240,000 subscribers to cover its operating expenses. It expects to have 3 million within three years. Its network has a capacity for 7 million. He estimated the worldwide addressable market for a service like Globalstar’s to be about 40 million customers.
Today’s Globalstar network has the capacity for 1 billion minutes of use. That can be increased by about 20 percent “by bringing more lines into the earth stations, adding four additional satellites, by software modifications at the gateways,” Schwartz said.
Globalstar plans to launch four in-orbit spare satellites from Florida in February, Zahler said.
“Loral (Space and Communications Ltd.) expects to have wideband, edge-of-the-Internet that could be tested on Globalstar’s ground system in one-and-a-half to two years,” he added.
“It will be narrowband enhanced up to limited broadband capability … Broadband services will be available in 2002-2003.”
Loral, a major manufacturer of satellite communications equipment, is a founder and managing general partner of Globalstar. Schwartz is also Loral’s chairman and chief executive officer.
