Degraded performance from Globalstar's constellation of satellites led the company to warn its customers that they may lose two-way voice and data service as early as next year.
Many of the company's 40 satellites are suffering from degraded performance in their S-band antennas, and the rate of degradation has accelerated, Globalstar said in a Feb. 5 filing to the U.S. Securities and Exchange Commission.
"Sometime in 2008 this will have a significant adverse impact on the company's ability to provide uninterrupted two-way voice and data services on a continuous basis in any given location," Globalstar said. "Subscriber service will continue to be available, but at certain times at any given location it may take substantially longer to establish calls and the average duration of calls may be impacted adversely."
Globalstar has not been able to correct the problem and warned it may not be able to.
Tony Navarra, Globalstar's president of global operations, asserted guarded optimism. "We've been in service since 1998 and have been managing our constellation since then, Based on that, we're comfortable handling our children in space," he said, adding that while "it's not business as usual, this is our business."
He explained "we could have a problem in 2008, but we try to remedy these kinds of problems every day. I am very confident that we'll improve the life of some of these satellites and fix some of these problems. I just can't project that yet"
Industry analysts were less sanguine. Assuming that customers start looking for alternative services, "the Globalstar revenue stream is likely to begin to drop almost immediately," said Roger Rusch, president of TelAstra. "By the time the constellation fails completely most of the users will be gone."
When the company went public in November, shares in Globalstar went for $17. On Feb. 6, stock prices dropped by more than 28 percent - closing as Nasdaq's "Most Declined" for the day - to finish at $10.40.
"Clearly [the announcement] put them in a difficult position," said analyst Tim Farrar of TMF Associates. "Clearly the expectation was that the old constellation would last till they could get the new ones in space. If that doesn't happen, it's difficult to retain those customers. They won't sit around for two years without service.
"They will have to re-evaluate what to do. Iridium is taking customers away from them now," he said. "Inmarsat and ICO won't start taking customers till next year."
Rusch said the "Achilles heel" of the spacecraft is their orbit at an altitude of about 1,414 kilometers (850 miles), which puts them at risk for radiation. "It was a fundamental flaw," he said. "At this altitude the radiation belts are extremely hazardous. Globalstar orbits experience radiation in the South Atlantic Anomaly where the Van Allen Belts nearly touch the atmosphere. Very few satellites are orbited in this region because of the radiation," which can irreparably damage satellite transistors.
Navarra said Globalstar had set toward that altitude to maximize three primary concerns and considerations: "When we chose 1,414 kilometers, we did so by measuring power levels (not to exceed one watt per handset) against the footprint [in service coverage], which drove us to an altitude far enough below the Van Allen Belt," effectively triangulating a formula based on "altitude, power and how many satellites we'd need to be cost-effective."
Space Systems/Loral was the prime contractor for the first constellation, while Alcatel Alenia Space was responsible for the satellite payloads and structures. The spacecraft were launched beginning in February 1998 and have outlasted their design life of 7.5 years.
Even without the anomaly, "I don't think they would have survived very long anyway," said Rusch. "They are struggling with the difficulties of old age. If you heard a similar announcement from Iridium, you might not be surprised, except they haven't tried to go as high in altitude."
"The potential for the degradation has been recognized for some number of years," said Farrar. "Apparently the orbits get relatively high levels of radiation from space, which causes degradation. When it's gradual as this appears to be, its hard to get a handle on how to know precisely the rate that's likely to happen."
Globalstar has eight ground spares scheduled to be placed into orbit by a pair of Soyuz rockets in March and May, respectively.
In December, Globalstar awarded a contract to Alcatel Alenia Space for a second-generation constellation of 48 satellites, with the first spacecraft expected to be available in late 2009.
A gap in satellite coverage also would cast doubt on whether Globalstar would be able to meet the U.S. Federal Communications Commission's standard for ancillary terrestrial component (ATC) services. ATC systems allow satellite operators to use their authorized satellite radio frequencies to integrate into their satellite service offerings a terrestrial wireless service similar to cellular or PCS . In January 2006, Globalstar announced it would use its planned system of terrestrial repeaters to boost the availability of its Mobile Satellite Service in urban areas and within buildings, with multiple business possibilities growing out of the system.
In a research note, Farrar commented that "Globalstar derives the vast majority of its revenues from providing two-way voice services in North America. The company has expanded rapidly by offering low-cost services and terminals, and by our estimate has a roughly 80 percent market share of the 150,000 MSS voice handsets in use within North America."
If Globalstar's satellites begin failing, however, "Inmarsat is currently in the process of deploying a handheld voice service on its new generation of satellites, which provide global coverage, and we expect it to offer service in the US by the middle of 2008. Two dedicated North American systems, ICO and Terrestar, also plan to launch handheld MSS services across the region during 2008, and are expected to offer relatively low service costs and support small, low-cost handsets. As a result, while any suspension of Globalstar's voice service will certainly prove problematic for its existing customer base, other competing services will clearly benefit from this upheaval. Hopefully these operators will be able to move forward with their plans on a timely basis, and will thereby limit the amount of disruption experienced by MSS users."
-- J.J. McCoy