Globalstar Contrasts Its Situation with that of Iridium

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PARIS — Mobile satellite services provider Globalstar on March 11 said it has slowed the exodus of its two-way communications customers despite the degradation of its current satellite constellation and will be able to restart subscriber growth in 2011 once its second-generation satellites are put into service.

With these new satellites scheduled to launch starting in September, Globalstar officials are now confident enough to begin returning some of the fire they have taken from competitor Iridium Communications since the Globalstar satellites began losing their two-way capability in early 2007.

Without mentioning Iridium by name, Globalstar Chief Executive Peter Dalton used a March 11 conference call with analysts to contrast Globalstar’s July 2009 financial rescue via a $738 million package aided by the French export-credit agency, Coface, with Iridium’s ongoing attempt to secure the same kind of state-backed guarantees.

Bethesda, Md.-based Iridium is looking for a 10-year, $1.5 billion package backed either by Coface, in which case Iridium would use Globalstar’s satellite manufacturer, Thales Alenia Space of France and Italy, or by the U.S. Export-Import Bank, in which case Iridium would select Lockheed Martin to build its second-generation constellation, called Iridium Next. The company hopes that, in addition to assuring below-market-rate financial terms, the package will allow Iridium to delay repayment until 2017 — three years after the 66-satellite Iridium Next constellation would begin launching.

Besides backing work done in France, the Coface loan guarantees cover up to 30 percent of work done outside of France as long as it is an integral part of a French prime contractor’s role.

Some of the Globalstar second-generation satellite construction, for example, is occurring in Italy. For Iridium, Thales Alenia Space would be subcontracting up to 40 percent of the prime contract’s value to Ball Aerospace & Technologies Corp. of Boulder, Colo., in keeping with Iridium’s security requirements that certain hardware be built and integrated into the satellites, on U.S. soil.

Industry officials said it will be difficult for Iridium, a U.S. company, to secure U.S. Export-Import backing since that organization, like all export-credit agencies, was created to support U.S. product exports, not to assist struggling U.S.-based companies.

Iridium has told its investors that export-credit agency involvement is a key element in the proposed $2.7 billion in financing needed for Iridium Next.

For the moment, Iridium’s current constellation of 66 satellites and seven in-orbit spares is healthy in orbit, Iridium Chief Executive Matt Desch told a Raymond James-sponsored investor conference March 8. The company expects these spacecraft, which have exceeded their contractual in-orbit service lives, to provide full service until the Iridium Next satellites are ready to replace them.

Globalstar thought the same thing in 2006 when it signed the first contracts for its second-generation constellation. Less than a year later, it was faced with failure of the satellites’ S-band communications antennas, which deliver two-way communications.

Since then, Globalstar has waged a war on several fronts to retain as many of its core voice customers as possible; diversify into data services, notably with the Spot Messenger product; and secure financing for the second-generation system.

Globalstar officials believe the worst of the customer defections — notably to Iridium — is over.

“Our core asset — our Duplex customer base — remains largely intact, giving us a great platform for future growth,” Globalstar Chief Financial Officer Fuad Ahmad said during the March 11 investor call. “In addition, our Simplex business continues to grow.”

Globalstar reported 2009 service revenue of $50.2 million, down 18.7 percent from 2008 as two-way voice customers cut their use of the service because of the reduced coverage area provided by the Globalstar satellites. But the churn rate — customers quitting the service each month — remained stable throughout the year at an average 1.3 percent.

Equipment sales in 2009 dropped 42 percent, to $14 million, a decline Ahmad said was in part due to late delivery of the company’s second-generation Spot Messenger personal tracking device. The company reported that, aided by the Spot product, its subscriber base increased by 13.4 percent, to 390,594 subscribers, in the 12 months ending Dec. 31.

To conserve cash, Globalstar cut its operating expenses by 18 percent in 2009, to $118 million.

Anthony J. Navarra, president of Globalstar operations, said during the call that two-way service would improve gradually starting four to six weeks after the launch of the second-generation satellites. The 24 spacecraft are scheduled for launch aboard four Soyuz rockets from the Russian-run Baikonur Cosmodrome in Kazakhstan starting in September. A second six-satellite launch is scheduled for either late 2010 or early 2011.

Navarra said it would take about three months after each launch for all six satellites to be integrated into the constellation.