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CASH RESERVE WILL GET GLOBALSTAR ONLY TO END OF YEAR, COMPANY SAYS SATELLITE WEEK THIS WEEK'S NEWS August 20, 2001, Monday

Globalstar's projections for reaching "operating break -even point" were overly ambitious, spokesman said Aug. 15, and company now faces large-scale restructuring and possibility of bankruptcy (SW July 9 p2). "We've seen nothing to indicate that projections for demand were wrong," he said. "We just miscalculated the speed at which the company can tap that demand. We still believe there is room for even 2 or 3 different operators" in global satellite telecommunications industry. Company reported Aug. 14 that it had $145 million net loss in quarter ended June 30 on revenue of $2.3 million. Comments came as Globalstar announced it would reduce its staff 50%, laying off 175 employees, which it said would ensure it would have enough funding, including $98 million cash reserve, to finish out year while it sought outside investors to help revive it. "Up until very recently we had been using cash at about the rate we projected," spokesman said. "What changes, as part of the restructuring, is that we will assume more direct sales responsibility in some countries that was previously handled by our service providers. That costs more money and it has to come from somewhere -- which means a reduction in head count."

Company said it was talking with several potential investors and would approach others later this month, but plan that could save company from liquidation was expected to be in place at least by Oct. because of time-sensitive nature of its cash position. It didn't rule out bankruptcy as option. "We've been saying for quite some time that we cannot rule out the possibility of bankruptcy," spokesman said. "It's not our preferred option by any means."

Bankruptcy is very likely for Globalstar, analyst Patrick Fuhrmann of C.E. Unterberg Towbin said.

Bankruptcy is very likely for Globalstar, analyst Patrick Fuhrmann of C.E. Unterberg Towbin said, but company would have opportunity to restructure debt while it continued service. "It would give the company an opportunity to go before its bondholders who could convert debt into equity," he said. "That would lower interest rates and the debt balance."

Competitors Iridium and ICO already have been forced into bankruptcy, but recent investors have bought into both companies with hopes of reviving them, indication that demand for type of service still exists, officials said. Spokesman said Iridium faced much greater obstacles than Globalstar confronts. "They had a much higher cost structure," he said: "They had to have enormous revenues. Our system cost $3 billion to build, and it cost Iridium $6 to $7 billion. Their monthly operating costs were double or triple ours."

Globalstar had 2nd quarter gross service revenue of $2.3 million, 13% over previous quarter. Net revenue, including royalties from phone sales and less discounts and promotions, was $1.8 million, up 21% over first quarter. Company said it had total of 5.4 million min. of use, including both mobile and fixed service, in 2nd quarter, 33% increase from previous quarter. Estimated number of mobile and fixed subscribers at end of June was 51,600, up 27% from previous quarter.

In the days following the attacks, Iridium Satellite LLC and its main competitor, Globalstar, a division of the British mobile phone giant Vodafone Group plc, donated airtime and equipment to groups helping in recovery efforts. Both companies report that activations and airtime traffic have quadrupled since Sept. 11. Iridium Satellite, a privately held company based in Leesburg, Va., launched commercial service in March after an investment group acquired the assets of the bankrupt Motorola-backed entity called Iridium. The earlier iteration of Iridium filed for bankruptcy less than a year after launching business and threatened to let its satellites fall to earth before investors made a $25 million bid for the company's assets. Iridium Satellite now operates a constellation of 66 low-orbiting satellites that float about 475 miles above the earth's surface.

"Satellite Phones Increase In Popularity After Attacks," Wireless Week; By Deborah M ndez-Wilson; October 01, 2001; News; Pg. 15