Globalstar Reports Heavy Q3 Losses

Globalstar Telecommunications LP reported that its third quarter service revenue totaled only US$1 million. The company ended the third quarter with 21,300 subscribers, generating 2.3 million billable minutes in the quarter, about double the numbers it had in June, at a monthly average of 36 minutes per subscriber. Subscribers aren't using the phones as much as anticipated. Industry analysts believe Globalstar needs to average at least 100 monthly minutes per subscriber to break even. The company needs 550,000 subscribers to cover its estimated US$500 million in annual operating costs. Net revenue for the third quarter, including royalty income from phone sales, less discounts and promotions, was US$1.4 million, versus US$708,000 in the prior quarter. Globalstar’s operating costs totaled US$89 million in the third quarter. The company reported a net loss applicable to ordinary partnership interests for the third quarter of US$219 million, or US$3.54 per partnership interest. Its total debt load, most of which is unsecured, has risen 17 percent this year. The company has US$2.9 billion in debt. As of Sept. 30, Globalstar had US$285.9 million in cash, enough to fund its operations through May 2001. Globalstar has 400 employees, with 370 based in San Jose, California. Globalstar has no plans to file for bankruptcy protection or restructure its debt load, and will make its next interest payments to bondholders.

Globalstar’s has reorganized its marketing strategy, which will now include selling phones directly to large companies and the government. Globalstar’s plan may include giving away phones and cutting the amount it charges for the service to attract government, military and large companies. Globalstar also plans to run advertisements on television, as well as take out radio and newspapers ads. In the past, Globalstar has relied on service providers such as Vodafone Group Plc to sell its phones. Globalstar USA, a unit of Vodafone, has begun offering coupons for 300 minutes of free airtime or a US$300 rebate on the phones. Globalstar USA phones cost US$1,199 each. Customers also pay a monthly service fee of US$24.95. The prices for Globalstar's service may also be discouraging usage. Rates range from about US$1 to US$3 per minute, depending on the calling location and the retailer reselling Globalstar's service. Industry investors and analysts doubt the company's plans to roll out a new marketing campaign and slash prices will be enough to rescue the company.

One potential market for Globalstar might be the U.S. military. By next March Globalstar will be able to meet the Pentagon's special security requirements in terms of encryption. Discussions with the Department of Defense have generated "very keen interest." The defense establishments of other countries might also be interested.

Globalstar's woes dragged down Qualcomm Inc., San Diego. Qualcomm owns a 6 percent interest in Globalstar, and has risk exposure to Globalstar of US$105 million in accounts receivable and US$509 million in financing commitments. Qualcomm had shipped about 71,000 phone handsets for the phone venture as of July 19, 2000.

Loral, which holds 40 percent of Globalstar’s shares, will no longer provide it with cash. Loral has invested more than US$1 billion in Globalstar.  
  

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