Service Intended To Offset Customer Losses Caused by Satellite Problems

CASCO, Maine —


atellite-telephone service provider Globalstar said a new product it will introduce in November will open a large new market and help it ride out the degradation of its current satellite constellation with a sufficient base of customers until its second-generation satellites are launched starting in 2009.

The new product, called Spot Satellite Messenger, is a hand-held device that will

be integrated into a GPS positioning unit to allow outdoor enthusiasts and others to signal their whereabouts in an emergency. Globalstar said the product, to be introduced in November after extensive testing, could provide a vast new pool of subscribers to the company as it struggles to maintain a minimum customer base despite the degradation of its core two-way telephone service.

Jay Monroe, chief executive of Milpitas, Calif.-based Globalstar Inc., said the potential market for this product, which he said has no equivalent currently on the market, is measured in the hundreds of thousands. Globalstar’s current subscriber base stood at 278,000

on June 30.

In an Aug. 14 conference call and in a written submission to the U.S. Securities and Exchange Commission (SEC), company

officials conceded that some heavy users of the two-way telephone service have quit the Globalstar service because of the coverage gaps caused by a degradation of the satellites’ S-band power amplifier.

“The heavy users are not satisfied right now,” Monroe said. But Globalstar continues to attract new customers and secure its existing base for its one-way data service, which operates in L-band and is not affected by the power problem degrading the two-way service. Half of Globalstar’s subscribers use the system for this one-way service, called Simplex.

Chief Operating Officer Anthony J. Navarra said the degradation of the two-way service continues, with no remedy in sight, but that an Internet service advising Globalstar users of the best time to make a call at their specific location is permitting many of the company’s customers

to use the service as before. The average Globalstar subscriber uses the telephones for just five minutes a day, he said.

Chief Financial Officer Fuad Ahmad said the company continues to add subscribers for both the one-way and two-way service. Monroe said 70 percent of new subscribers are signing up for Globalstar’s Unlimited Loyalty feature, which lets users pay a fixed monthly fee in return for unlimited use. Monroe said some users were taking advantage of the low price of this service to subscribe for several years at these prices, meaning they will benefit even after

second-generation constellation of satellites has eliminated the current problems.

In its SEC filing, Globalstar said ThalesAlenia Space of Cannes, France, which is under contract to build Globalstar’s 48 second-generation satellites, has offered to accelerate production by up to four months. That would mean these satellites would be delivered starting in the first quarter of 2009.

Monroe said Globalstar is evaluating the proposal, which the company said carries a price tag of between $7.8 million and $15.6 million. The existing ThalesAlenia Space contract with Globalstar is valued at $885 million for the 48 satellites. Globalstar has not

contracted yet for the launch of the satellites.

Globalstar has estimated the total cost of its second-generation system at $1.2 billion. The company estimates that it will need $150 million in new financing to meet these obligations, in addition to the resources it already has or expects to generate by operating the business.

Part of the financing that Globalstar already counts as secured is a $150 million bank facility that is available in 2008-2009. But the bank commitment was made before the degradation of the two-way telephone service was made public in February and is conditioned on their being no material adverse change in the company’s operations. Monroe declined to speculate in the conference call about

whether the on-board power degradation might constitute such a change in the eyes of Globalstar’s bankers, or whether the bank facility could be considered secure today.

said the four spare first-generation satellites that were launched in May will all be in service by October. A final set of four satellites is scheduled for launch later this year.

reported that service revenues for the six months ending June 30 were $37.5 million, down from $42.2 million a year earlier.