Enterprise Value And Hot Spot Capability

One fantastic phenomenon of the turbulent stock market is the huge enterprise value of Globalstar L.P [GSTRF] relative to other satellite programs. During May, Globalstar has trading for about $10 per share (this stock price is still double the IPO price after two stock splits). The accompanying table shows the approximate comparison of revenue and enterprise value.

Why is Globalstar so valuable? It appears that the market foresees greater revenue potential and profits for Globalstar than for PanAmSat [SPOT] or Comsat [CQ]. Some investors must expect that Globalstar can produce enormous revenues like the cellular industry. Whether this is possible depends on the ability of Globalstar to provide capacity to areas of high demand. Since demand is highly congested into “hot spots” Globalstar revenue will be restricted by the capacity of a few satellites.

This is a classic problem for all types of communications satellites.

Human habitation is extremely concentrated. The oceans and Antarctica cover 73 percent of the Earth. Mobile satellite proponents have told us that only 10 percent of the landmass will be served by cellular. This means that nearly all cellular communications take place on 2.7 percent of the Earth’s surface. Satellite constellations provide uniform service to most of the Earth’s surface. Each LEO satellite, e.g. Iridium and Globalstar, only can provide service to 1 percent to 3 percent of the Earth.

Cellular analysts estimate that 2 percent of the population live in land regions that can never be economically served by terrestrial communications. Although we have macroscopic data on the concentrations of cellular users, we do not have precise information about the concentration of mobile satellite users in remote areas. We already know from past programs that satellite traffic demand is not uniform over all land areas. Eighty-three percent of Inmarsat traffic is delivered to nations that occupy only 11 percent of the surface of the Earth. Major Inmarsat users include huge countries with vast, but sparsely populated, regions: Australia, Brazil, Canada, The People’s Republic of China, Russia, and the United States.

Mobile satellite concentration will be similar to terrestrial and Inmarsat patterns. Most potential subscribers live in “hot spot” suburban and rural regions adjacent to population centers. A few LEO satellites will carry most of the traffic at any time. Maximum revenue generating capacity will be limited to the capability of a few satellites. This analysis leads us to estimate that Globalstar’s maximum revenue potential is limited by human demographics and will be less than the PanAmSat and Comsat revenues.

GEO satellites must also plan for hot spots. Some of the new mobile and broadband systems are designed to focus capacity. The ACeS Garuda design permits 20 percent of its capacity to be concentrated into a single beam. The next generation of high-speed packet data services must design for hot spot requirements.

The ability to serve hot spots can be a decisive factor for the success of any satellite system that provides two-way services. The broadband satellite services will have much more revenue potential if they can deliver services in both rural and urban regions.