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Author: Paytient Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 677  
Subject: Re: Globalstar, LEOS Date: 3/10/2000 9:04 PM
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Robert,

....that I ask why you, as well as many other great minds, including market mover par excellence George Gilder, see so much promise in satellite transmission.

Yes, I know a good portion of the world population does not have other types of wireless service. I know that those of us that do wander off our service areas. But this Globalstar service is very expensive, the equipment is very cumbersome, and I just don't see how this service would be a candidate for hypergrowth. Though admittedly it has its place, I consider it more niche-like. It's better than Iridium, but that's not saying much since Iridium was basically not a business; arguments are made that the breakeven penetration is not that high (a million subscribers?, I can't recall). Maybe all of this is correct, but there are many, many companies out there that have great potential to enter powerful hypergrowth stages that I can't see tying up money in something that, at least today, does not clearly demonstrate that potential. I don't see millions and millions of people carrying around heavy equipment, paying $1,000 for the phone and $1.50 a minute to talk when in the boonies. The potential for millions and millions is what would get me excited. To top it all off, it's voice, in a world of data and streaming video.


Fox,

I have been talking with a close contact who spent this Tuesday and Wednesday in QCOM's conference rooms with Dr. Jacobs, the CEO, CFO, CTO, ect and the entire Board of Directors in San Diego.

Lost in the downgrade news was the announcement by QCOM of extending their 100mm note to GSTRF to a 500mm note. QCOM may spin off Omnitracks this year (not announced at meeting). QCOM now has 46 of the country's largest long haul trucking companies signed up with Omnitrack.

Living in a remote area of the country I TRULY BELIEVE the market exists for GSTRF. I believe they will turn into the black in a much shorter time than most think. I also think I will make a lot of money owning GSTRF. Gilder is very seldom wrong.

I'm posting my response to your original post here also for the benefit of others.


Fox,

Thank you for your kind comments. By the recommends to your response on my “blood in the streets” price alert on GSTRF I would have to assume many here feel the same way about the company. I should tell you I am accumulating GSTRF for a three to five year hold or longer, not a hyper growth pop as you mentioned. While I too have a great deal of respect for the theme jumping and returns the board has achieved recently, I am looking for the next QCOM, JDSU, VARL and Softbank.
I'm not a trader. I look for positions to hold for a minimum of three years that I can comfortably hold when the storms come, knowing what I own and waiting for the rest of Mr. Market to catch up, ala the companies mentioned above.

The recent price movements and chatter regarding GSTRF are exactly what occurred with QCOM before the company settled their suit with Erickson and the rest is history as they say, so I guess I'm not too concerned with all the negative Iridium like comments.

QCOM has a 6% equity stake in GSTRF, and to date they have been very keen as to whom they partner with. I encourage you and anyone else to listen to Gerald Beckwiths 15 minute update on GSTRF from QCOM's call yesterday. Pay particular attention to the last two minutes:

http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=QCOM&script=1100

I am going to post some additional information for your and others review to consider. I do this to put out there “the rest of the story” as it were and to hopefully encourage some to look beyond the rumors and the Iridium fear, which no doubt is one of the primary forces driving the current valuation.

Here is some direct response text from GSTRF IR dept to give a backdrop as to how GSTRF views their market and their competitive position in that market:


But to your specific question about possible competition from global ISPs, bear in mind that Globalstar has all along stated that we have no intention of competing with cellular or any other terrestrial-based system. Instead, our service complements these systems, providing a dial-tone in areas outside the range of cellular and other systems. You correctly note that connectivity to both phone and data is becoming ever more available in hotels, airports and business centers, and Globalstar has no intention of competing there. But well over 80% of the world's land mass is still out of range of any wireless service, and it is here that Globalstar, in effect, has no competitor. To take just one example, only 5% of Australia's land mass has cell service, putting over 1 million people outside the range of cell. Similar pictures emerge in Brazil, southern Africa and many other areas where build-out of land-based systems will take many years, and in areas where population density is too thin, there may -never- be a terrestrial wireless system.
Regarding the 5 cent costs, we have said that, at about 50% capacity, our own cost-per-minute is about 5 cents. This is a good indicator of the kind of economics that fundamentally underpin Globalstar's operations, although one should remember that it is reflects our costs in full operation, not our incremental costs during our start-up period now.
W know that we will never be able to match some of the prices now available in cellular services. But that's OK -- that is why our phones give people the option to choose. If the user is in range of a cell, the call is put through in cellular mode at cellular prices. It is only when the user is outside the range of cell where satellite costs would be incurred. And that's why we feel it is a very viable business -- outside the range of cell, who are we competing against?
Regarding the comment pointing out the increased build-out of cellular, I cannot disprove the premise that cellular will -eventually- cover most of the world. But it is very clear that such a situation is still many years....more likely decades....away. Where population density is low and/or terrain too rough, it may -never- be economically sensible to build cells. Furthermore, many cell operators today have said that they actually intend to slow down the expansion of coverage in the next few years because they wish to devote more investment to expanding capacity in the areas they already serve (too many customers still can't get a line during busy periods). Finally, bear in mind that we are only addressing a relatively small slice of the world's population -- we are not trying to offer a service that would appeal to the entire world. It's true that many people live within the range of cellular, but it takes only a very tiny percentage of the world's population to fill our entire capacity. Even if you accept the comment below that we address "only" 5% of the world's population, that's 300 million people.

Here is a news clip from Microsoft yesterday and how they view the future of satellite delivery:


February 17, 2000
Microsoft makes satellite play
By Georgie Raik-Allen
Redherring.com, February 17, 2000
Microsoft (Nasdaq: MSFT) is teaming up with Israeli-based Gilat Satellite Networks (Nasdaq: GILTF) to create a new venture that will deliver two-way satellite Internet service to consumers.
Microsoft will invest $50 million in the venture, Gilat-to-Home, for a 26 percent stake. The software giant says it will contribute technology and ongoing financial resources to the company.
Gilat-at-Home already has begun trailing its service and expects to launch a broader rollout by the end of the year. The new company will be based in McLean, Virginia, and will be led by CEO Zur Feldman, the former executive vice president of operations at Packard Bell Electronics. Jon DeVaan, senior vice president in the consumer group at Microsoft, and Yoel Gat, chairman and CEO of Gilat Satellite Networks, will serve on the board.
REMOTE ACCESS
Microsoft officials said in a statement that the deal would help them give customers better broadband access, especially in rural areas. Analysts say many rural and suburban markets will not have access to terrestrial broadband technology for a number of years. According to Gilat-to-Home, somewhere between 14 million and 27 million U.S. homes still will be without access to broadband in 2004.


Globalstar's CASH costs for operating, interest and preferred dividends has been said by the company to be 500M$/year. The company has also said that the system will have a capacity on the order of 10B call minutes per year. 500M/10B is of course .05. But this figure, first of all, neglects depreciation, likely to run 300M$+ per year. And it will take about 7M users, probably, to consume 10B call minutes/year. So we're a long way from the day when the per minute theoretical cost for a fully loaded system is really pertinent. More interesting is how many users (or call minutes) does it take to get to positive (operating) cash flow. The company has said that number is around 550K.

DATA!!!
GSTRF plans for data at 9.6kbps in the second half of this year, with higher speeds when HDR rolls out over the next few years. Why is this important? Omnitracks, QCOM's fleet management business, only needs 9.6kbps to operate.
QUALCOMM'S OMNITRACS MOBILE INFORMATION MANAGEMENT SYSTEM SELECTED BY DART TRANSIT COMPANY - DART TRANSIT TO PURCHASE 1,000 OMNITRACS UNITS -
SAN DIEGO, Feb 16, 2000 /PRNewswire via COMTEX/ -- QUALCOMM Incorporated (Nasdaq: QCOM), leader in providing wireless data solutions, today announced that St. Paul, Minn.-based Dart Transit Company has selected QUALCOMM's OmniTRACS(R) satellite-based mobile information management system for its fleet. Under the terms of the agreement, Dart Transit will purchase 1,000 OmniTRACS units. "Our company relies heavily on mobile communications," stated David Oren, executive vice president for Dart Transit Company. "After testing and using satellite and land-based communications systems, we chose QUALCOMM's OmniTRACS because of its long record of industry stability and product reliability. QUALCOMM's success in the mobile communications industry has proven that it is the premier solution in fleet management."
With its current financing and some financing from vendors, Globalstar has enough cash on hand to operate until the fourth quarter of 2000, when it expects to become profitable. Needing only 550,000 subscribers to break even (paying operating expenses and interest) and with its competitors dealing with lawyers instead of customers, GSTRF looks very attractive at these prices.
Additional info:

Airtouch pricing plan pulled from WSJ online:

NOW THROUGH FEB. 14, 2000: $14.99 monthly access fee
NOW THROUGH FEB. 14, 2000: $0.84/minute
Regular monthly access fee $29.99
Regular per minute fee $1.69/minute
Select Beyond 100
100 minutes of satellite calls/month
NOW THROUGH FEB. 14, 2000: $84.99 monthly access fee
NOW THROUGH FEB. 14, 2000: $0.74/additional minute
Regular monthly access fee $169.99
Regular additional minute fee $1.49/minute
Select Beyond 250
250 minutes of satellite calls/month
NOW THROUGH FEB. 14, 2000: $184.99 monthly access fee
NOW THROUGH FEB. 14, 2000: $0.69/additional minute
Voice mail will be offered at no charge (when available) through Feb. 14, 2000

They are giving a free Auto Kit with each phone and are offering these discounted rates. The .69 cents a minute on the 250 minute plan is in the ballpark for competition with roaming cell service.


Globalstar USA has put up a very welcome set of instructions for activating cellular service on Globalstar phones at
http://www.globalstarusa.com/pdf/cellular_activation.pdf

The Ericsson phone manual at
http://www.globalstar.com/en/pdf/Ericsson_R290_usermanual.pdf





Peter Lynch wrote on page 69 of One Up On Wall Street” one of the most important personal qualities needed to succeed as an investor was “the ability to ignore general panic”. I believe now is one such time regarding GSTRF.

Thanks again for your kind words.

Regards,

Robert


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