F lush with $400 million in new cash, Globalstar Inc. is moving ahead with plans for new spacecraft but keeping its options open on the exact look of its next satellite architecture.
The global satellite-telephone service provider is preparing to issue requests for bids from manufacturers on a geostationary-orbiting satellite system even as it continues work with Alcatel Alenia Space on designs for a second-generation low-orbiting constellation, Globalstar Chief Executive Jay Monroe said.
The Milpitas, Calif.-based company expects to select a contractor for one of the two architectures this summer, Monroe said April 28. Globalstar recently raised $400 million in debt and equity financing and “should not need another dime” for several years, even once its next system begins construction, he said.
As a condition of taking the company out of bankruptcy protection in late 2003, Thermo Capital Partners of New Orleans and Denver and the other Globalstar owners insisted that the company register stock with the U.S. Securities and Exchange Commission (SEC) by Oct. 13, 2006.
But with its $400 million in financing now secured, Monroe said registering securities with the SEC does not necessarily mean an initial public offering of stock, or IPO. Monroe said Globalstar continues to review a possible IPO but is not committed to one.
Globalstar reported $120 million in revenues for 2005 and Monroe said the company has had a 21 percent EBITDA margin. Globalstar’s EBITDA, or earnings before interest, taxes, depreciation and amortization, was $25 million in 2005. Globalstar had 195,000 subscribers at the end of 2005 and is sticking to its earlier goal of reaching 270,000 subscribers in 2006.
Monroe said the company has not made a formal revenue forecast for 2006 but that $160 million is “a fair estimate.” The EBITDA margin this year, he said, will be 30-35 percent.
If these revenue and EBITDA figures hold, Globalstar will be able to fund its next-generation system, whatever the design, without further outside funding, Monroe said.
Half of the $400 million the company raised recently came from Globalstar’s majority owner, Thermo Capital Partners . The remaining $200 million is in the form of a five-year loan from Wachovia Securities investment bank.
Globalstar operates a low-orbiting constellation of 40-plus satellites that will need to be replaced starting around 2010. To fill the gaps in coverage and replace satellites that have experienced technical problems in orbit, the company is preparing to launch eight new spacecraft in 2007. These spacecraft will be identical to the first-generation satellites.
For its second-generation system, Globalstar is evaluating the costs and benefits of abandoning its low Earth orbit satellite architecture in favor of two or three satellites in geostationary orbit. Such a change would be consistent with industry experts’ views that low-orbiting constellations are not cost-effective.
Blaise Jaeger, vice president for telecommunications business at Alcatel Alenia Space, agreed that a new satellite operator likely would steer clear of a low-orbit constellation. But Globalstar, he said, already has invested in a global ground network to communicate with a low-orbiting constellation, and its customers have purchased gear that would not easily work with a geostationary system.
Alcatel Alenia Space was a major contractor for the original Globalstar system and built a factory in Italy expressly for Globalstar satellite integration and testing. That factory has since been underutilized.
“Considering their sunk costs, they are in a situation where a low-orbiting system makes more sense than for someone starting from scratch,” Jaeger said.
Monroe agreed. “No one starting out today” would build a low-orbiting constellation. But Globalstar’s satellites, he said, are not complicated to build.
“People say: ‘These guys invested $4 billion into their system,’ and they’re right. We did. But this was not the cost of the satellites. The brains of our system are on the ground.”
Globalstar has contracted with its user-equipment supplier, Qualcomm Inc. of San Diego, to build a newly designed Globalstar telephone handset and other gear. The $140 million contract was announced in mid-2005. Monroe said the contract calls for delivery of 180,000 handsets, plus other user accessories, with deliveries beginning in late 2006 and continuing through 2009.
Globalstar’s deliberations about future satellite architecture are complicated by the company’s appeal to the U.S. Federal Communications Commission (FCC) to reverse an FCC decision denying Globalstar a license to use the 2-gigahertz portion of the radio spectrum for a hybrid satellite/terrestrial system.
Globalstar has received a license to operate a satellite/terrestrial network, using what are called Ancillary Terrestrial Components, or ATCs, for a different part of the radio spectrum but would prefer a 2-gigahertz license, Monroe said.