01.25.10

Back to the future?

Posted in Financials, Iridium, Operators, Spectrum, TerreStar at 3:11 pm by timfarrar

Last week I attended the Iridium Partner Conference held in (a rather wet) Phoenix, AZ at the Hyatt Regency Scottsdale. Ironically that was the very same hotel where the first demonstrations of the Iridium phone were made back in May 1998. 2010 is certainly shaping up to be just as significant for the MSS industry as was 1998, with the launch of the new TerreStar Genus phone just a few months away. We will then find out whether the new entrants are going to be able to mount a credible challenge to existing MSS operators, or whether they will experience an underwhelming customer response as Iridium and Globalstar did a decade ago. Our new profile of TerreStar has just been released, and discusses all these issues, including five year subscriber and revenue forecasts, along with an assessment of the value that might be realizable for ATC spectrum in the next few years.

At the conference itself, Iridium clarified that they intend to contract for the new NEXT constellation in mid-2010, and to ensure that they are fully funded at the same time. That would presumably involve a combination of bank loans guaranteed by export credit agencies and additional capital markets funding, totaling something between $1B and $1.2B – we would guess that they might need to raise of order $200M to $300M in high yield debt or convertible bonds in addition to the guaranteed bank loans. Interestingly, Iridium now regards advance funding from hosted payloads as “icing on the cake”, rather than as an essential component of its NEXT funding, allowing it more flexibility to consider projects which would provide an ongoing stream of revenues as opposed to just an upfront data purchase. Clearly the expectation is that by taking a “big bang” approach to its funding, Iridium will not only be able to persuade their distribution partners and customers that they will be around for the foreseeable future, but also that Iridium will close some of the EBITDA multiple discount on which their shares are trading compared to Inmarsat.

1 Comment »

  1. PCSTEL said,

    January 25, 2010 at 7:00 pm

    Yet another delay, and yet another rework in the funding mechanism. Out goes the hosted payloads which obviously netted lackluster interest. At one point I believe Iridium had hoped for significant funding from these hitchhikers. But, I have always doubted the actual market for a requirement that would intersect with Iridium’s orbital parameters, and cost basis. One in which much of the satellites life is spent over the open expanses of the oceans or polar ice caps as indicative with their “near polar orbits”. Indeed it appears that the competitive landscape is changing and the long term availability of Iridium becomes the question of 2010 vs. the long term availability of Globalstar in 2008/2009. A “changing of the guard” so to speak.

    Now it appears that Iridium management has decided that a “Big Bang” financial commitment is the order of the day. Which sounds expensive. Indeed, no time to wait around to see if a “hosted payload” contractor shows up at some point in the future. Surely Globalstar is gearing up for some interesting pricing options as they bring their second generation constellation on-line. After all, they have ~$50M in second generation Qualcomm User Terminals still contracted to be PUT to them beginning in April of this year. I would think that Globalstar will want to convert those phones into subscribers as quickly and cost effectively as possible. I would suggest they will do so with extremely (see cheap) competitive pricing plans that will likely put pricing considerable pressure on Iridium’s EBITDA results. These are the same cash flows they have claimed will fund a significant portion of Iridium NEXT. I know the folks in Milpitas are eagerly waiting to return all of the favors Iridium has bestowed on Globalstar over the last 4 years.

    Speaking of favors, the latest Motion to Hold in Abeyance by Iridium sure makes for some interesting reading. For a company that described Globalstar’s decision to file their ITU filings via the French Regulatory Agency as…

    “”So no, we don’t believe that that has ANY effect going forward in terms of our spectrum position or the global spectrum position.” – Matt Desch

    ..they sure seem upset by the recent application by Globalstar to amend the country of registration for it’s second-generation replacement constellation. An “end-run” I believe they referred to it as. Ahh! No one likes getting beaten at their own game. Of course the decision of the European Communications Office of the CEPT’s decision on June 26th, 2009 to effectively remove band segmentation within the Big LEO Band in their 48 member countries (including the Russian Federation) could not have made Iridium too happy either. I would almost suggest that Globalstar has achieved some level of overall EU governmental support it seems?

    Almost ironic to see Iridium claiming Globalstar’s lack of respect to the FCC’s Authority due to the lack of action on the FCC on various STA applications, while Iridium itself admits in submitted documents that certain satellite(s) currently on-orbit no long comply with the terms of their original license, and that Iridium continues to operate this/these satellite(s) even though the FCC has not acted on the Modification Iridium has requested to it’s space station licenses to allow regulatory compliance of these satellite(s). As a procedural matter, Iridium hasn’t even filed a STA in regards to the satellite(s) in question, but more so claim it is in the “Public’s Interest” to continue to operate these subject satellite(s) outside of their licensed parameters, even though they are admittedly currently in “technical violation” of the Commissions rules.

    Now that is the Pot calling the Kettle black.

    And so it goes,
    PCSTEL

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