Globalstar Reports Growth but Faces U.S. Regulatory Hurdle

by

PARIS — Mobile satellite services operator Globalstar on March 31 said its annual revenue increased in 2010 for the first time since 2006 in what the company said was the beginning of a return to full service and profitability promised by its second-generation satellite constellation.

Covington, La.-based Globalstar nonetheless said it faces challenges in meeting its debt obligations in the coming years, and that it is currently unable to offer second-generation satellite service in North America because of a lack of regulatory approval.

Globalstar’s debt covenants, following a revision, oblige the company to be able to offer service in the United States from its new satellites by Aug. 31. U.S. regulators have declined to allow this until France, which is the licensing authority for Globalstar’s second-generation constellation, registers the system with the United Nations.

It was unclear why this registration, under the U.N. Outer Space Treaty and the Convention on Registration of Objects Launched into Outer Space, was not done previously.

In a March 31 filing with the U.S. Securities and Exchange Commission (SEC), Globalstar said it cannot guarantee that French regulators will secure the required registration by Aug. 31, but that it is expected “in the next few months.”

Until then, Globalstar’s U.S. customers will be unable to benefit from what the company says is already a 15 percent improvement in telephone service due to six second-generation satellites launched in October. These satellites are now in service alongside Globalstar’s 29 first-generation satellites.

Because of the design of Globalstar’s ground architecture, the company’s inability to serve the United States means it is also unable to provide second-generation satellite services in Canada.

Most of the first-generation Globalstar spacecraft were launched in the late 1990s and began losing their ability to provide two-way telephone traffic when their S-band antennas succumbed to radiation in orbit. Eight other first-generation satellites, launched in 2007, continue to provide the full suite services.

It is these fresher first-generation satellites, combined with 24 second-generation spacecraft, that Globalstar is counting on to return the constellation to full capability and win back telephone customers that departed after the two-way service started collapsing in 2007.

While waiting for the second-generation satellites to launch, Globalstar has developed what was once viewed as a side business in providing location-based consumer messaging through the company’s hand-held Spot device. Other products have since been created for this market, which does not require two-way communications and thus can use Globalstar’s first-generation constellation.

The Spot Satellite GPS Messenger service accounted for nearly 35 percent of Globalstar revenue in 2010, up from 25 percent in 2009 and 14 percent in 2008. What Globalstar calls its Duplex service, meaning two-way voice communications, declined by 50 percent between 2008 and 2010.

With the Spot product leading the way in terms of growth, Globalstar reported that 2010 revenue increased by 5.7 percent, to $67.9 million, from 2009. The company reported an operating loss of $59.8 million. EBITDA, or earnings before interest, taxes, depreciation and amortization, was a negative $4 million for the year.

The second-generation satellites launched in October have now been inserted into the constellation to bolster Globalstar’s telephone service in its high-priority service areas.

Anthony J. Navarra, president of Globalstar operations, said these six new satellites have improved telephone service by 15 percent. The same level of improvement will occur after the next set of six satellites is launched in May. The final two launches of the second-generation constellation will occur at 60- to 90-day intervals, meaning all 24 second-generation satellites could be in orbit by the end of 2011, Navarra said in a March 31 conference call.

In its SEC filing, Globalstar said the eight first-generation satellites launched in 2007 are likely to be afflicted by the same S-band antenna problem as the others and will be unable to provide telephone service beyond 2013.

Globalstar’s contract with satellite manufacturer Thales Alenia Space of France and Italy includes an option for 24 more satellites, but the contract’s terms include deadlines that are fast approaching. In its SEC filing, Globalstar said it has opened negotiations with Thales Alenia Space to “amend the current contract to define a new quantity of satellites with associated terms and conditions, including adjustments to price and schedule.”

In the conference call, Globalstar Chief Financial Officer Dirk Wild said the company expects its average monthly revenue per subscriber to approach the $60 level, where it was before 2007, when the service-quality slippage took effect.

As Globalstar demonstrates its renewed capability, it expects to win back customers and return to profitability and cash-flow levels that enable it to pay its many upcoming bills from suppliers as well as its bank debt. Wild said that under the terms of Globalstar’s credit facility backed by the French export-credit agency, Coface, the company must begin repaying principal amounts eight months after the last of the 24 second-generation satellites is launched.

Under the current schedule, that first repayment of principal, amounting to $17 million, would be due sometime in mid-2012. The company recently came to an agreement with Hughes Network Systems of Germantown, Md., to delay Globalstar’s repayment of $54 million to the technology provider. The new payment schedule calls for Globalstar to pay Hughes some $37 million in 2011.

To maximize the potential of its second-generation satellites to provide higher-speed data transmissions, Globalstar will need to upgrade its network of gateway Earth stations, which link to the satellites. The company said it expects to be able to do this by 2013.

 

RELATED ARTICLES

Top 5 Companies To Watch: Globalstar

Globalstar Eyes 2011 Return to Full Service With New Satellites