Industry Trying To Determine Full Reach Of Globalstar Issue

Problems with Globalstar’s constellation of satellites led the company to warn in February that customers could begin to suffer from service loss as early as 2008. Many of the company’s 40 satellites are suffering from degraded performance in their S-band antennas, and the company’s second-generation system will not be in orbit quickly enough to stop a major service gap.
The operator obviously has the most to lose, but others within the satellite telephone business are becoming concerned about the wider impact Globalstar’s problems may have on the entire sector.
Globalstar’s immediate concern is to retain customers. The company’s new unlimited air time offer for “loyal” subscribers, unveiled two months after the company revealed the constellation problems, is seen as a last-ditch effort to keep subscribers from fleeing.
The new plan may help Globalstar retain subscribers throughout the next six to 12 months, “but if this plan is maintained for long it will have very negative implications for Globalstar’s future revenues,” says Tim Farrar of research firm TMF Associates. “This announcement makes us extremely nervous about the prospects for the company, both for what the first quarter 2007 results are likely to reveal about voice subscriber losses and in terms of the financing prospects for Globalstar’s next-generation constellation.”
Rival Iridium stands to benefit the most in the short term. Globalstar holds a subscriber advantage over Iridium because of cheaper equipment and service plans and holds about 80 percent of the market for voice handsets in North America, according to one study.
Iridium has announced its own new pricing schemes aimed at attracting both new customers as well as dissatisfied Globalstar users. New competitors already preparing to enter the market also are eager to fill the expected vacuum that will be created by Globalstar’s service problems. Inmarsat is in the process of deploying a handheld voice service that will use its new generation of satellites, and other companies are developing systems incorporating ancillary terrestrial components (ATC) that will provide even more competition for mobile subscribers.
Distributors also have found a reason to be concerned about the Globalstar service issues. First responders and others that have stocked Globalstar equipment for disaster relief communications may find that their emergency systems are unavailable when they are needed most. The concerns are growing large enough that some distributors are becoming hesitant to push Globalstar for fear that they may be held liable if the service does not work during an emergency.
The problem also could have a long-term impact on the mobile satellite sector.
Investors shied away from the sector following the bankruptcies of Globalstar and Iridium, but the relationship looks to have been patched up. Funding has been pledged for Globalstar’s next-generation satellites and investments also have been made in the various ATC plans being unveiled by companies.
The concern from some quarters is how investors may react if they are burned by Globalstar for a second time. Will the investors attribute the problems to one specific company or will they once again flee the mobile satellite sector?
It will take months, if not years, to see the how all of these issues will play out, but an industry that seemed to be reaching some stable footing has found itself facing another set of difficult questions.