Globalstar ready to fly

After more than two years, Covington-based Globalstar has finally completed the launch of its second generation of satellites, a move that the company said will allow it to offer improved communications to its satellite phone customers.

Last month, a Russian rocket took off with six Globalstar-2 satellites aboard. As the satellites orbit around the Earth, they will be maneuvered into place to fit into a network with the 18 other Globalstar-2s. By August, the final satellite will be put into place, establishing what the company said is a crystal-clear communications network for Globalstar subscribers all over the world, no matter in how remote of a location they are.

“As we put each satellite into service, our coverage and service quality improves,” said L. Barbee Ponder IV, Globalstar’s general counsel and vice president of regulatory affairs. “There are only very small periods of time when we have a lack of coverage.”

By offering more reliable service, Globalstar hopes to see an increase in subscribers and a boost to its bottom line. The company’s stock was pulled off the NASDAQ listings in December after the price fell below $1 a share. As of Thursday morning, the stock was trading at 32 cents a share.

It’s been a tough couple of years for Globalstar, which announced in July 2010 it would move its headquarters from California’s Silicon Valley to Covington. Globalstar bought Axonn, a Covington developer of satellite GPS tracking and messaging products, a few months earlier for $18 million. It was convinced by state and St. Tammany Parish officials to move its corporate offices and development activities to the North Shore.

Louisiana economic development leaders heralded the move, which Globalstar said it was making to cut its operating costs. At the time, Gov. Bobby Jindal said Globalstar was “exactly the kind of company” he wanted Louisiana to attract.

Globalstar was established in 1991 and started commercial operations in 1999. But the company started to have problems with its first generation of satellites in 2007, when constant exposure to the radiation belt around Earth started to damage an amplifier that completed the link that allowed customers to receive phone calls. That made two-way communications unreliable, something customers don’t want if they’re in remote places on the planet.

The company started designing the second generation of satellites a year in advance of the problems arising. Ponder said Globalstar knew the first satellites had an expected lifespan of 7½ years.

The first batch of six satellites was launched in October 2010. But there were delays with future launches caused by problems with components and regulatory issues with Russian satellite launches. At the same time, Globalstar got into a dispute with its main satellite vendor, Thales Alenia Space of France, over contract terms and conditions.

“Launching, designing and building satellites is an inherently expensive operation,” Ponder said.

Tim Farrar, founder of TMF Associates, a California firm that provides technical and financial analysis to the telecom and satellite sectors, said that Globalstar has had challenges because of the problems getting the second group of satellites in orbit.

“Those satellites lasted as long as they were supposed to,” he said.

One bright spot for Globalstar during the years waiting to get the second generation of satellites launched was its SPOT subsidiary. SPOT sells one-way personal tracker devices for use in the outdoors or on the water. If owners of the devices need help, they can press a button on the SPOT messenger and a message with GPS coordinates is relayed to an emergency response center.

Ponder said Globalstar has more than 250,000 SPOT subscribers, including companies involved in the oil and gas, mining and timber industries. The biggest single customer is the U.S. Forest Service, which struck a deal last summer to buy 6,000 SPOT units.

“These are a perfect device for them, because they have a lot of lone workers they want to make sure are safe,” Ponder said.

But the SPOT units and customers aren’t as profitable as the market for two-way communications. A SPOT device sells for about $100 apiece and service plans start at $100 a year.

In contrast, Globalstar’s GSP-1700 satellite phones retail for just under $500 and annual service plans cost $300 to $1,200. Before the final batch of satellites was launched, the company was selling unlimited voice plans for $20 a month in an attempt to bring in subscribers.

Ponder said Globalstar has around 100,000 customers for its voice service.

“Now that the fourth launch is up and successful, we’re seeing an uptick in the number of subscribers and the minutes of use,” he said. “Customers and distributors were waiting to see that fourth and final launch. We think we’re going to see a fairly significant uptick.”

Financial challenges still remain for Globalstar. Last week, the company announced that holders of some convertible notes have the right to surrender their securities on April 1 for purchase by Globalstar. But Globalstar warned that it didn’t have the nearly $71.8 million cash on hand to purchase all of the notes if all of the holders surrendered them.

“If they can get past that issue, the distributors will be more comfortable selling the service,” said Farrar. “Distributors don’t want Globalstar to get into financial difficulties.”

Globalstar is eying one avenue for lucrative growth. In November, the company petitioned the Federal Communications Commission to allow it to use its airwave spectrum license for mobile broadband Internet. This would meet the growing demand for Wi-Fi, by tapping into the spectrum set aside for Globalstar in areas where the company doesn’t need satellite phone service — like major U.S. cities and airports.

“We think we’ve given the FCC a compelling case in providing us with additional flexibility to use our spectrum for mobile broadband,” Ponder said. “We think this is inherently valuable and there are enormous benefits.”

Ponder said the ball is in the FCC’s court, but an actual notice of proposed rulemaking could come in the next few weeks.

If the FCC allows Globalstar to create the new Wi-Fi channel, the company would work with potential business partners to determine how to maximize the service while having the minimum impact on its satellite service.

“This would be a good way to address that financial issue,” said Farrar. “They would be in a position to get some partner to inject funds.”

One thing that isn’t a possibility for Globalstar is a merger with Iridium, its major competitor in the satellite phone industry, Farrar said. Each company’s satellites and satellite systems are incompatible, he said.

Ironically, Iridium is now getting ready to replace its satellite network. The first batch of satellites will launch in 2015.

“Iridium benefited a lot from Globalstar’s problems,” Farrar said. “Globalstar may be hoping Iridium has the same problems.”

The satellite phone market is small and extremely competitive, Farrar said. “There are billions and billions of dollars spent on these new satellites,” he said. “But the revenue people spend on communications is not enough to pay back the cost of those systems and make a profit.”

Stephen Moret, Louisiana’s economic development secretary, said in an email statement that Globalstar has overcome a number of challenges in launching the second generation of satellites, but he looks forward to the company continuing its growth plan.

“With this new constellation of satellites in service, the company now is increasing its sales and marketing efforts, with plans to hire 30 additional employees this year,” Moret said in the statement.

When Globalstar moved its headquarters to Louisiana, the company committed itself to relocating or creating more than 200 jobs by 2013 in order to secure $4.4 million from the state in performance-based relocation reimbursements.

Ponder said the company has “slipped a little bit” in terms of staffing commitments and that the benefits from the state have been modified to reflect current staffing. He said Globalstar has a total of 263 employees worldwide. Now that the satellite network is in place, the company plans on catching up on the number of employees.

Moret said Globalstar has about 100 employees in Covington, which is “four or five times” as many people as worked at Axonn before the merger.

Editor’s note: This story was changed March 11, 2013, to correct two figures regarding Globalstar subscribers. L. Barbee Ponder IV, Globalstar’s general counsel and vice president of regulatory affairs, said Globalstar has more than 250,000 SPOT subscribers, not 550,000. Ponder also said Globalstar has around 100,000 customers for its voice service, and not 100,000 for voice and SPOT service.