[Satellite News 03-12-10] Globalstar has had some difficulties due to problems with the first generation of its mobile satellite services (MSS) satellites, but the operator is preparing for a new chapter in its history with the upcoming launch of the first spacecraft of its next-generation constellation.
   Globalstar announced in January that six second-generation satellites will be placed in orbit by a Soyuz rocket operated by Arianespace during a 90-day window that opens July 5. The next-generation constellation will secure Globalstar’s space segment beyond 2025, the company said.
   Satellite News spoke with Fuad Ahmad, CFO, and Anthony Navarra, president of global operations, about the financial state of the company as well as the challenges ahead.

Satellite News: What will the launch of the first group of next-generation satellites mean for your operations?

Navarra: The services will immediately begin to improve within a month of so of the first launch. Once our second-generation constellation is deployed, subscribers will have a high-quality experience similar to what they used to have when the constellation was full.

Satellite News: Do you expect the new satellites to have an impact on your subscriber growth?

Ahmad: We have never had capacity constraints on our satellites. The first-generation satellites were built to support several hundreds of thousands of subscribers, and these new satellites are going to much greater capacity. We have over 375,000 total customers and 100,000 global duplex voice and data customers right now, and the goal would be as the service improves with each successive launch, increasing our ARPUs as customers will be able to experience higher quality of service and more availability of the satellite. With these improvements we will start selling into the market in advance so we are looking to pre-sell to new customers, and bring existing customers on as the service improves.
Navarra: Globalstar will be expanding the original seven-year design life of its satellites and an actual lifespan of 11.5 years to at least 15 years for our new constellation. This is due to improved operations in the satellite itself. What is key to Globalstar is that we will go from a 9.6-kilobit data service to up to 256-kilobit service. That is a major increase in the capacity per subscriber. We have more than enough capacity to serve our markets.

Satellite News: Is this a case of serving existing customers more effectively or attracting different types of customers?

Ahmad: Because our constellation is a LEO constellation with a bent-pipe architecture, our footprint only increases as you put in more gateways. Over the last several years, we have installed gateways in Singapore and Nigeria. As a result, with the launch of new satellites, we will be expanding the duplex footprint, and our ability to get new customers in territories that we never previously had. For example, we can look to do more business in the maritime region of Singapore. We currently serve all of North and South America, Russia, etc. You will see customers with improved service without coverage gaps. We are looking to expand the markets we have. It is a really combination of increasing revenues from existing territories and expanding the footprint into areas where we previously did not have coverage. I think the MSS markets are ripe for exponential growth.

Satellite News: Is there enough MSS business to support all the MSS players?

Ahmad: All of our competitors with existing satellites have experienced some level of growth using the satellites they have up, but we believe that some of our competitors will always be in a certain niches where they specialize. For example, Inmarsat is really good at the high-bandwidth services for the maritime sector. We believe, however, that Globalstar has the ability to capitalize on many different markets. We think we can be good at many things.
Navarra: The strategy we have implemented is to maintain our customer base by offering them promotions. In addition, we have gone into more machine-to-machine type businesses, asset tracking, etc. The Globalstar network provides real-time updates. Many other networks don’t. We find that as we tailor our products to meet our customer needs, our technology is applicable to outdoor, ruggedized applications. As a total package, we have completed our financing, so we are on track to restart our duplex and voice services. What we see in the industry is a number of our competitors doing what we call a copycat plan to try and follow Globalstar in terms of how we raised our money — obtaining Coface backing and going after very similar vendors and manufacturers to develop their network. We are proud to say we are cutting some new ground in the industry. We see other companies following us and talking to the same vendors.

Satellite News: You genuinely view these as copycat strategies?

Navarra: That is correct.

Satellite News: What are the major challenges for you in light of the Coface deal?

Ahmad: The financing is behind us, and now that cloud has been lifted off the company, the focus is now more on the operations side. It is all about execution now. We really want to focus on the gritty nature of the business. We have to make sure the pricing is appropriate for the end users. We want to make sure we provide a strong value proposition. Our focus has shifted from raising finance to focusing on operational issues. The loan we received from the French consortium of banks was previously unheard of. We are talking about a high hurdle for our competitors to get over in terms of the cost of the loan. That is why there are a lot of copycats. A lot of people are trying to duplicate what Globalstar has done. We have been able to finance $600 million of debt at sub-3percent rates, which is phenomenal in today’s environment. There are lot of other players in this market who still have substantial amounts of capital that they need to raise to fund their business plans. That is now behind us. We can focus on operational issues and execution.

Satellite News: How difficult was it to secure the financing?

Ahmad: It was not an easy task. It was a very rigorous due diligence process by the French banks. Banks are by nature conservative. They came to the conclusion that there is real long-term value in creating this asset. They also realize that we had an incumbent business that could be re-energized. We had a customer base, and they recognized what Globalstar did with a healthy constellation in 2004. We were growing at 30 percent annually in terms of subscribers, and we were profitable during most of that period. If you put all of that together, it made sense for them to finance us. They had seen the history of it and the path going forward. Most of our struggle was to convince them that we had done this before, that we were not attempting to blaze a new trail. Yes, we had this aberration in the constellation, but we will get over it with the launch of the new satellites.
Navarra: The foundations of the business were always in place, even when our first-generation satellites were nearing the end of their duplex life. The timing of reaching the end of life of those satellites meant we had to put a new plan in and go to the banks. We spent a lot of time in due diligence. It took us a number of months to convince them that our plans were feasible, and we were very capable of giving them a return on their investment

Satellite News: Would Globalstar have survived without this deal?

Ahmad: There were other options, but they were not as desirable as this option. Without this deal, it would have been a tough. We would have pulled through. There was at least one other viable option open to us, but it would have been a lot more expensive for us.

Satellite News: Are you working on financing for the second 24 satellites?

Ahmad: We are waiting. There is no hurry on our part for the additional 24 spare satellites. The contract with Thales is designed to give us the maximum flexibility. We have over two years from now to decide on what we are going to do. We could do something more creative, but with the financing behind us and once the constellation is deployed, we will have breathing room. We should have a lot more flexibility in terms of what we are able to do.