Profile: Retooling From the Ground Up

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  Space News Business

Profile: Retooling From the Ground Up

By MISSY FREDERICK
Space News Staff Writer
posted: 06 March 2006
04:51 pm ET


Profile: Jay Monroe

Chief Executive Officer, Globalstar

G lobalstar has a lot in common with longtime rival Iridium Satellite LLC: both were built in the 1990s to provide global mobile telephone services via satellite; both went bankrupt shortly after beginning operations; and both were then purchased by investors for a tiny fraction of their original cost.

The post-bankruptcy Globalstar, like Iridium, is operating profitably with a mix of government and commercial customers and contemplating its future. But while Globalstar must conduct an initial public offering (IPO) or make its shares publicly tradable in some other way as a condition of its 2004 emergence from bankruptcy, Iridium is under no such obligation.

And while both companies are mulling options for a next-generation satellite system, Globalstar has made clear that its plans include an ancillary terrestrial component (ATC), a network of ground-based signal repeaters that will provide service inside buildings and other areas that are hard to reach via satellite. Globalstar in January received a Federal Communications Commission license to deploy an ATC, and Jay Monroe, the company’s chief executive, said this will attract customers who are not sold on satellite telephony.

Monroe, the majority owner of Thermo Capital Partners, which purchased Globalstar and ushered it out of bankruptcy, spoke recently with Space News staff writer Missy Frederick .

What’s your vision for Globalstar’s long-term success?

Globalstar really has three distinct business opportunities. One is the mobile satellite service business in general. The second is the ATC opportunity. The third is a more complete utilization of our Globalstar system in other parts of the world.

How does ATC technology represent a new market for Globalstar?

Satellite telephony has some substantial limitations. It’s not so hot indoors unless you’re next to a window where you can see the sky. It’s also not particularly good in urban areas. So how do you fix that? The way is to build repeaters, which act as cell towers functionally, and can amplify that signal and have it be used terrestrially, like you would a cell phone.

This component gives us the ability to sell you a phone which you also could use as a cell phone for the rest of your life. That broadens the market appeal for this product.

We have built some of this equipment and demonstrated it, and were granted a license by the FCC in January. We have not done a roll-out yet, but it’s something in our near-term plans. We’ll have done something substantial within the next 12 months.

What distinguishes Globalstar from the other companies looking for partners to invest in ATC networks?

We understand that there is a potentially large capital cost associated with certain ATC initiatives, but please understand that we have also started discussions with various potential partners and once those discussions are completed, then we will have a better idea of how we will want to proceed.

It’s is also important to keep in mind that at this time, only two companies have received ATC approval; plus we have a wealth of experienced managers who are already familiar with both land-line and other dual-mode communications infrastructure. We’ve also already demonstrated the concept of using modifications of our current handsets and constellation to provide the service.

What’s the status of your current constellation of satellites, and will your next-generation system operate in geostationary orbit?

We needed to contract for and launch eight spare satellites. Those are constructed, completed and getting ready for shipment overseas and launch.

We have already signed agreements with two prospective launch providers for the launch of these satellites, planned for early 2007.

We now need to get our second-generation constellation of satellites procured and under construction.

We’re having bi-weekly second-generation meetings, but we don’t yet know what our second-generation satellites will look like. We are looking at some options that resemble our existing constellation and some that don’t. Our current constellation will last into 2010 at a minimum.

How have you changed the company’s business model since taking over ?

The way we originally designed our business model was that Globalstar intended to be a wholesaler in different regions of the globe, with independent gateway companies authorized to provide Globalstar service in different regions. That never panned out quite as we’d hoped for, and we started acquiring the independent gateway companies we had around the world a couple of years ago. For example, in January we acquired Globalstar Americas Telecommunications Ltd., Globalstar Americas Holdings Ltd., and Astral Technologies Investments Ltd.

We now have five of the gateway companies, and there are nine more of them out there, and we’re in discussions with some of them about joint venturing or acquiring them. By doing this we bring real sales and marketing muscle, and we expand the market. At one of the companies in the United States , after acquiring it, we went from 17,000 users to about 60,000 users all in the span of two or three years. The same thing can happen at many, many different locations once the management that’s involved decides they want to apply the resources to make it happen.

How are Globalstar’s IPO plans shaping up?

When we made our formal exit from bankruptcy April 14, 2004, we had an obligation to list our shares sometime before the middle of October 2006.

Whether we do this as a formal IPO or some other way, we are obligated to make those shares freely tradable by October.

Basically, you pursue an IPO if you want to raise money. If you don’t need to raise money, you often just register your units, and then the market develops. An IPO is a formal process of obtaining a lot of cash from the outside.

To finance our constellation, we may choose to issue private debt, or to issue equity publicly in an IPO.

How is Globalstar’s asset-tracking business?

It’s been very interesting to watch the development of the asset-tracking business. That is a business that, for us, went from 500 users at the end of 2003, to 5,000 users at the end of 2004, to 20,000 users at the end of 2005. We already have orders in 2006 for 50,000 customers. That market is growing very rapidly.

Asset tracking hasn’t taken off in every market segment. There are a lot of users in the transportation field, such as truck companies wishing to keep track of their trucking fleet. There are government agencies like FEMA (Federal Emergency Management Agency) who want to track what assets they put into disaster zones, and there are long-distance shippers who move containers over a great distance.

Product cost is going down; it’s approximately $300 for the [data-tracking device ], and we will soon offer a new box which is half the size and lower in cost within the next few months. We’ve also rolled out data appliques to enhance asset-tracking coverage around the world. These are pieces of equipment at ground stations operated by either Globalstar or one of our independent service providers that allow data to be processed through the station and back to the customer. We’ve gone from regional asset tracking to a more global tracking model.

To what do you attribute the growth in the asset-tracking market?

The market is growing because more than anything else, people realized it was there.

For example, in the trailer-tracking market, you’ve got a lot of companies that own a lot of tractor trailers. Apparently, in that industry, at any given moment of time, approximately 20 percent of trailers are [unaccounted for] ; they don’t know where they are. Basically what happens is that someone from Wal-Mart calls up the company to say, “Get this trailer out of our backyard; it’s been there for over a month.” If a company has 10,000 trailers and 2,000 are missing at any time, that means they have to purchase 2,000 extra trailers. Meanwhile, this data device costs next to nothing to use for a month, very little in general, and they can find out exactly where every trailer is at any given day.

Is Globalstar profitable ?

We have been since July 2004. Our revenue over the last year has increased approximately 50 percent. We had revenues in 2003 of $57 million, revenues in 2004 of $80 million and revenues of $120 million in 2005. We’re very profitable at this point. Our number of subscribers grew by approximately 37 percent in 2005, and just a week ago we went over our 200,000th subscriber.

What is the business split between data transfer and voice usage?

Voice still represents probably 75 percent of our utilization on the system. But a few years ago, it was almost 100 percent.