09.23.08

Iridium brings much needed validation to the MSS market opportunity

Posted in Financials, Globalstar, Inmarsat, Iridium at 11:05 pm by timfarrar

Despite several successful fundraising deals this year by Globalstar, TerreStar and MSV, Iridium’s deal with GHL is noteworthy as the first investment to directly validate the potential of the MSS market in the absence of spectrum upside, since Iridium cannot free up significant amounts of spectrum for an ATC play.

However, there is no direct read across to the MSS market potential for other players, since Iridium and Inmarsat are the only MSS operators that can provide truly global service across the oceans and thereby address the maritime and aeronautical segments that account for roughly half of wholesale MSS service revenues. These markets segments continue to grow strongly, particularly for broadband communications, and we expect Iridium’s next generation system to be designed to compete more directly with Inmarsat for maritime and aeronautical broadband customers. Combined with moderate progress in land-based handheld and low data rate MSS markets, Iridium should be able to grow its revenue and subscriber base over time, despite increasing levels of competition from new players such as ICO, and Inmarsat’s entry into the handheld MSS market.

Where we can draw some conclusions for other players is on the maximum amount Iridium could afford to pay for Globalstar in the event of a merger, given the value placed on Iridium in this transaction ($591M). Given that Iridium’s revenues this year will be about three times those of Globalstar, and that Iridium presumably does not ascribe value to Globalstar’s ATC opportunity, it seems likely that Iridium would place such a low valuation on Globalstar as to all but rule out any prospects of a negotiated deal between the two companies. At least in this case, it therefore looks like we won’t see a merger being agreed any time soon.

Why is ICO involved in the Qualcomm-MSV chipset deal?

Posted in ICO/DBSD, LightSquared at 10:37 pm by timfarrar

The biggest surprise of the three-way chipset deal announced by Qualcomm, MSV and ICO on Monday was ICO’s involvement, given its insistence last year that it did not intend to develop a handheld satellite phone and that it would focus instead on its Mobile Interactive Multimedia (MIM) service. It now appears that by incorporating support for ICO’s S-band frequencies into Qualcomm’s mass-market chipsets, ICO may be setting the stage for a handheld product launch.

Whether this comes from a lack of confidence in MIM, or simply a desire to address additional segments of the MSS market is hard to discern, but we have been skeptical about the market appeal of mobile video in cars (it seems likely to attract a much smaller number of subscribers than satellite radio for example), and it seems to us that ICO has placed more emphasis on the navigation and roadside assistance components of the MIM package in recent months. We also remain concerned about whether the multiple car antennas needed for the MIM video service will be acceptable to end users and car manufacturers alike (ICO’s trial car has four separate diversity antennas, although it hopes to reduce this to only two antennas in the production version, subject to the results of its technical trials later this year).

Also remarkable is the turnaround from MSV and ICO’s earlier alignment with HNS for development of their network infrastructure. Who would have predicted a year ago that we would see Globalstar aligned with HNS and MSV and ICO aligned with Qualcomm?

Note: In response to our perspectives above, ICO informed us that they have not placed more emphasis on navigation and roadside assistance in recent months, and that their alpha trials along with recent additions of video content, their three year exclusive agreement with Delphi for DVB-SH in North America and their demonstrations in Las Vegas earlier in the year “represent a fairly significant ongoing commitment to mobile video”. The agreement with Qualcomm “brings both economies of scale for the development of chipsets that are S-band capable, as well as capability for the interactivity requirements of the ICO mim service offering”. ICO’s comments appear to leave open the question of whether ICO will ultimately decide to launch a handheld MSS phone, which the Qualcomm chipsets could certainly enable, since they will be compatible with the handheld services planned by MSV.

09.16.08

Is TerreStar positioning itself for a merger with ICO?

Posted in Financials, ICO/DBSD, TerreStar at 9:04 pm by timfarrar

TerreStar announced today that it has sold its remaining stake of 29.9M shares in Skyterra to Harbinger and other investors for a total of $123M. This will meet TerreStar’s capital needs into 2010, well beyond the delayed launch date for TerreStar’s first satellite in 2Q2009.

We find it particularly interesting that this transaction took place in the week in which ICO’s ongoing lawsuit with Boeing has gone to the jury for a decision. There has been speculation in the past that eventually ICO and TerreStar will merge, to secure a much improved spectrum position, and a key challenge in determining the value of ICO’s business has been the uncertainty in respect of the Boeing lawsuit. ICO faces a deadline of August 2009 to refinance over $750M in convertible bonds, so we wonder if the upcoming resolution of this lawsuit might provide a catalyst to restructure and merge with TerreStar. Certainly TerreStar’s actions in obtaining further funding would help to strengthen its position in any such negotiations.

Globalstar – saved by the exchange rate?

Posted in Financials, Globalstar at 8:08 am by timfarrar

Globalstar faces its next quarterly milestone payment to the satellite construction escrow account with Thales Alenia Space at the end of September. The company has admitted that sooner or later it will need to raise more money to complete its second generation satellite constellation – it has previously indicated that $250M+ will be needed, though some of this could be offset by cashflows from operations if the SPOT product really takes off. However, in the short term, as we’ve noted previously, SPOT isn’t producing cash. Excluding the money already in the escrow account, Globalstar had available liquidity of $75M at the end of June and expected payments to Thales Alenia of EUR146M over the 12 months to June 2009. The Euro/dollar exchange rate has fallen by about 10% since then, cutting the value of this EUR146M to only $208M in dollar terms, compared to $231M at the end of June. As a result the payment which Globalstar has to make into the escrow account at the end of September may be closer to $50M than the $60M+ it could have been if the exchange rate had remained constant. The original sum would have come close to using up Globalstar’s remaining liquidity, but now it looks like Globalstar may have another 3 months to raise additional funds.

09.15.08

SPOT proves to be a pretty useful product

Posted in Globalstar, Services at 9:41 pm by timfarrar

I went camping with my seven year old twins in the Desolation Wilderness near Lake Tahoe over Labor Day weekend and took my SPOT satellite tracker with me as a test. It proved pretty useful for my wife to keep an eye on our progress and I certainly felt reassured to know that we could summon help in an emergency. While it might not attract millions of users, there certainly seems to be a good niche for the product both in the outdoor market and also for keeping track of (for example) your elderly parents when they go on a long drive. I even know a colleague who uses it to keep track of where her teenage son is going in the car – I wonder how long it will take him to realize how she knows he’s not where he said he was going to be.
I wonder when we’ll see the first two way version of this device – either from Globalstar or its competitors – since it would be great to have at least an acknowledgement that your message had been delivered.
Desolation Wilderness SPOT track

09.08.08

O3b Networks – not a reprise of Teledesic (except perhaps in its ultimate fate?)

Posted in Financials, General at 8:23 pm by timfarrar

This isn’t really an MSS topic, but having worked for several years in the late 1990s on the Teledesic project and with fond memories of evaluating the market for broadband in developing countries, I thought the emergence of O3b Networks with reportedly $60M of investment from Liberty Global, Google and others, merited a comment.

Some of the commentaries appear to conflate O3b’s satellite backhaul business plan with the satellite access services offered by Wildblue and HughesNet in the US. O3b can’t offer services to the end user (except the largest corporates) since customers will require expensive terminals which track their Low Earth Orbit satellites. As Teledesic found out in the late 1990s (and as is still true today) you either need a couple of moving dishes (to ensure seamless handover) or an electronic steered antenna – both are well beyond realistic consumer prices (not to mention their installation difficulties compared to fixed geostationary terminals).

Instead O3b will offer backhaul for ISPs operating in countries without fiber links, so they can obtain connectivity to the Internet backbone. That’s a fairly well established and highly competitive market (valued at several hundred million dollars a year), with Intelsat and other FSS players competing intensively on price. Characteristically the market grows as Internet take-up and usage expands within a country, then collapses almost to zero within 12-18 months of fiber’s entry. There’s absolutely no reason for O3b to change this equation – satellite is at least two and in some cases closer to three orders of magnitude more expensive than large fiber connections for this backhaul service, and fiber continues to decline rapidly in price.

A second market is for cellular backhaul within a country, when fiber isn’t deployed outside the major cities. Again this market is somewhat transitory: terrestrial microwave links become a good option when the cellular coverage is sufficiently contiguous for daisy chaining links from one tower to another, but the satellite opportunity is longer lasting than ISP backhaul in major cities. The opportunity here for O3b will also be affected by how much more expensive its terminals are than standard VSATs, since somewhat more limited amounts of capacity are required. However, O3b’s low latency may be helpful for this voice-oriented traffic.

Thus O3b is simply a bet that quite a few countries, particularly in Africa, won’t get fiber any time soon. Even though its been (very) slow to get going, I’d rather put my money on EASSY, an African fiber project with many of the telcos in the region as signatories (as well as credible international players), which has just entered the construction phase and is hoping to be operational in 2010, well before O3b could expect to be up and running.