Globalstar Mounts Technical, Marketing Initiatives To Retain, Attract Customers

PARIS —




Satellite-telephone service provider Globalstar Inc. said its February announcement of an unexpected decay in its satellites’ two-way communications resulted in a drop in service revenues and profit for the three months ending March 31.

Company officials said they have initiated a wide range of marketing and technical-engineering initiatives to retain customers and mitigate the effects of the performance decline in their 40-satellite constellation.

In a May 14 conference call with investors, officials from the Milpitas, Calif.-based company conceded that they face a difficult period between now and late 2009, when Globalstar’s second-generation satellites should begin to enter service.

The first three months of 2007 marked




a “very difficult quarter in terms of market sentiment and aggressive marketing by our principal competitors,” Fuad Ahmed, Globalstar’s




chief




financial




officer




said.

Globalstar’s




competitors in the mobile satellite services market, including Iridium and Inmarsat, have made Globalstar’s troubles a major




marketing tool




.

Globalstar has eight spare first-generation satellites that it is launching four at a time this year, with the first launch scheduled for May 30. Company Chief Executive Jay Monroe said the entry into service of these spacecraft should limit the gaps in coverage that the company has said will turn up as a result of the degradation of the satellites’ S-band voice and data service.

Globalstar
has 48 second-generation satellites on order from ThalesAlenia Space of France, with deliveries set to start in mid-2009. Monroe said Globalstar is discussing with the manufacturer whether deliveries could be accelerated.

It remains unclear whether ThalesAlenia Space could significantly speed up construction without adding new shifts and incurring costs that would force a renegotiation of the contract. In response to Space News inquiries, ThalesAlenia Space




issued a statement May 15 saying only that the company “is studying, with Globalstar, different industrial scenarios that would permit an acceleration in the first launches.”

Globalstar
still has no launch contracts signed, and it is unclear how many of the 700-kilogram satellites could be launched in the months immediately following the satellites’ delivery starting in mid-2009.

Dean Hirasawa, Globalstar public and investor relations director, said May 16 that the company sees no need to renegotiate the ThalesAlenia Space contract, but that the manufacturer may realize economies by making early purchases of components from subcontractors and speeding up production.

“With regards to labor, there may be less savings,” Hirasawa said. “However, more efficiency may be achieved when the assembly and test work is completed during multiple shifts. This is being reviewed by ThalesAlenia and we are hopeful that the increase in labor expense will be minimal.”

Hirasawa
stressed that the goal of accelerating delivery by three to six months has not been agreed to by ThalesAlenia. “This is simply a target we are both working towards,” he said.

Ahmed said Globalstar currently forecasts that it likely will need a fresh cash infusion of $125 million to $150 million in 2010 or 2011, but that its current liquidity is sufficient to meet the company’s expenses through 2008.

Monroe said Globalstar’s $900 million contract with ThalesAlenia Space features a steady payment by Globalstar through 2014, with no sharp increases in expenditure required. Whether the contracts to launch the satellites




also will permit a steady spending profile will depend on when the launches occur.

Globalstar
President Anthony J. Navarra said the company is taking measures to modify the way it uses its satellites and the gateway Earth stations to optimize coverage and performance despite the on




board problem. Globalstar has yet to find a way to stop the decline in the performance of the satellite hardware, he said.

While service revenues and profit for the three months ending March 31 took a beating as a result of the service-quality issue, Globalstar nonetheless increased its subscriber base by 12,600 during the quarter. During the same period, 3,800 subscribers quit the service, bringing net subscriber additions to 8,800, for a total of 272,000 as of March 31, Globalstar said.

Monroe said Globalstar’s owner, Thermo Capital Partners, agreed in the quarter to purchase $35 million in Globalstar stock at a price of $16.17 per share. Monroe, a principal owner of Thermo, said the investment “demonstrates my continued personal commitment to Globalstar.”

Globalstar
said revenue for the three months ending March 31 was $23.2 million, down 24 percent from the same period a year ago. Services revenue for the period, at $17.5 million, was down nearly 16 percent. The company reported an operating loss of $586,000, compared to a $3.9 million gain a year ago.

Pretax profit was $801,000, compared to $3.7 million for the same period in 2006.

Statement by Globalstar Inc.

The f






ollowing is an excerpt from a May 14 statement by Globalstar Inc. President Anthony J. Navarra on the steps the company is initiating to mitigate the degradation of the constellation’s S-band voice and data service. Globalstar disclosed the service-degradation issue in February and said that, if it is not checked, it may lead to a sharp decline in service quality in 2008 – at least a year before Globalstar’s second-generation satellite constellation will be available in orbit.

Navarra

made his remarks during a conference call with investors:

“We have investigated and




analyzed over 20 engineering and operational tasks that we can implement to maintain or improve our service quality. We are pleased to report that many of the satellite, ground station infrastructure and user-terminal engineering options available to us will measurably improve our service. We are implementing these efforts as our highest priority and we are continuing the investigation for additional service improvements.

As previously disclosed, upon completing the realignment of our existing satellites in the first quarter, we identified certain network infrastructure initiatives that would improve our customers’ overall calling experience. For example, we have selected the specific orbital planes into which we will place the first four spare satellites [scheduled for launch May 30] to optimize our quality of service and improve our coverage.

We have initiated a test program to determine possible methods of improving our subscriber service by preferentially assigning satellites to gateways based upon demand and emergency service requirements.

Today our satellites are being operated at lower amplifier voltage levels. This enables us to specifically focus the S-band power into satellite center beams, thereby lowering the overall output power levels from our satellites. The lower-voltage operation does not diminish the voice quality of our calls.

We continue to investigate our satellite and gateway beam-handoff operating parameters to optimize the duration of single-satellite coverage that serves our subscribers. When implemented, this will improve our call-connection time.

We have established specifications for a new car kit – an improved car-kit antenna for our existing products, which will have more gain and will require less power from our satellites, therefore improving our service. We expect this service enhancement to be available later this year.

We are also testing new modems that are capable of receiving data at speeds up to 144 kilobits, and transmitting data over our system as the satellites pass overhead. This would enable our data users to have seamless connections via static IP using our virtual private network or via public IP address on the Internet. Data can also now be automatically collected and transmitted over our network at a later time.

Our gateway antenna control software is being revised to access satellites higher in elevation to ensure shorter acquisition times and extend the duration of our calls. We are in beta testing now with our key customers and international gateway operators to validate a Web-based tool that will forecast when our satellites are overhead and available. This will provide our customers with optimal calling times and a schedule of when best to transmit their data. This will also minimize the inconvenience resulting from any gaps.

We are also continuing to compile information for the third-party study of our constellation and will update you in our second-quarter call.

Other than the list of initiatives discussed previously, to date we have not identified additional ways to extend the useful life of our S-band voice and data satellite service. However, we will continue to study ways to meet that goal.

Early deliveries of our second-generation satellites continue to be a priority of our engineering and contracts department – that is, to reduce the transition time between our first- and second-generation constellation. We are currently scheduled to take delivery of the second-generation satellites beginning in the summer of 2009.

Thales
Alenia Space is reviewing their material acquisition plans and the assignment of additional factory shifts to determine whether they can accelerate deliveries by as much as 90 to 180 days. This would certainly improve our service, by allowing us to launch earlier in 2009.

In summary, the results of these engineering and operating changes are expected to improve our subscribers’ experience and the use of the Globalstar network worldwide into 2010.”