Dean Hirasawa – Director, Investor Relations
Jay Monroe – Chairman of the Board and Chief Executive Officer
Fuad Ahmad – Vice President and Chief Financial Officer
Anthony Navarra – President, Global Operations
Jonathan Chaplin – JP Morgan
Joel Miller - Merrion Group
Kipling Peterson – CVC
Globalstar, Inc. (OTCQB:GSAT) Q1 2008 Earnings Call May 7, 2008 5:00 PM ET
Welcome to the first quarter 2008 Globalstar, Inc. earnings conference call. (Operator Instructions) I would now like to turn the call over to Dean Hirasawa, Director of Public and Investor Relations for Globalstar, Inc.
Thank you for joining us for today’s conference call to discuss the results for Globalstar, Inc. for the quarter ended March 31, 2008. Before we begin please note the following.
This call may contain forward-looking statements within the meaning of Federal securities law. Factors that could cause results to differ materially are described in the Safe Harbor section of today’s press release and in Globalstar’s SEC filings including the quarterly report on form 10-Q for the three months ended March 31, 2008 which will be filed in the next few days.
Both the press release and this conference call include discussions of certain non-GAAP financial measures as defined under SEC rules. We have provided a reconciliation of each of those non-GAAP measures to the most comparable GAAP measure in the press release. Please note that the information in this call is accurate only as of the date of this live teleconference which is Wednesday, May 7, 2008. Today’s press release containing certain financial information is available on the company’s website at www.GlobalStar.com.
Later this afternoon an audio recording of this conference call will be available via telephone dial in and a web cast recording will also be made available on the company’s website.
On the call we are joined today by Jay Monroe, Chairman and CEO of Globalstar, Inc.; Tony Navarra, President of Global Operations; and Fuad Ahmad, Vice President and CFO. Each of these gentlemen will be presenting this afternoon and all three will be available following the prepared remarks to take questions as time allows.
At this time I would like to turn the call over to Jay Monroe.
Thank you for joining Globalstar’s quarterly earnings call. Before beginning I’d like to welcome our new stockholders and thank all investors for their long-term commitment to Globalstar.
We completed the quarter with about 22,000 more subscribers than we had at the end of the same period in 2007. With this net increase we finished the month of March with just over 293,000 subscribers and maintained our position as the largest North American provider of mobile satellite voice and data services.
During the first three months of the year Globalstar’s average monthly retail churn rate decreased from 2% in the fourth quarter of 2007 to 1.3% in this quarter. Fuad will go through our detailed three-month financials shortly.
Following the quarter we completed a convertible note offer which combined with the over allotment options exercised by the underwriters has provided a total of $150 million in funding before offering expenses. Despite being pleased by the completion of this financing and the fact that our business financials remain strong as a stockholder I must also acknowledge my dissatisfaction with the company’s current stock price, more about this later.
As I stated before, during the next year I will update four areas which are key to Globalstar’s long-term business success. First, the design, manufacture and launch of the Second gen Satellite Constellation. Second, the utilization of our spectrum for the provision of ATC services in the United States and abroad. Third, new Simplex data products and services including the progress of the award-winning SPOT satellite Messenger. Fourth, Globalstar’s numerous international initiatives.
Here are the latest updates regarding our Second generation space segment. During the first quarter we continued prep for the launch of the Second generation Constellation. The initial assembly and test of the first of our Second gen satellites is now less than a year away and we remain on schedule to begin launching the Second generation satellites in the second half of next year.
Thales Alenia Space and Arianespace continue to complete their design, testing and delivery of major subsystems to meet this launch schedule. We mentioned in previous calls that six of the new eight satellites which were launched in 2007 were now in service. The seventh satellite has just gone into service with the eighth expected to become operational very shortly. Tony will provide a more complete update regarding our space segment in a few seconds.
The second key area of our business which I update quarterly concerns ATC Spectrum and our worldwide spectrum opportunity. On March 10, the FCC granted Globalstar expanded authority to use up to approximately 20 MHz of our L and S-band spectrums for ATC in the U.S. This expanded ATC capability enables Globalstar to partner with a number of industry service providers for a broad range of new communications services to unserved or underserved customers.
In its decision, the FCC specifically acknowledged that this action will allow greater capacity and flexibility for MSS ATC and will allow Globalstar to provide improved service to customers particularly in urban and under-served rural market areas of the United States. This decision provides potential Globalstar ATC partners with both the ability and the incentive to proceed with plans to develop and offer innovative ATC wireless services in conjunction with our satellite system.
We will also continue our ATC leadership by establishing with open-range communications the first rural mobile broadband and satellite service and by continuing to develop other products using hybrid satellite and terrestrial networks. In late March it was announced that Open Range had secured approval for a $267 million broadband loan from the Department of Agriculture’s Rural Utilities program. This is an important announcement because the financing moves Open Range one step closer to offering a service to over 500 American rural communities initially covering 6 million people using our satellite spectrum.
The structure of our agreement with Open Range provides both fixed and variable revenue streams to Globalstar. The fixed payment is augmented by a variable per subscriber per month payment. Using Open Range’s cost of capital and the subscriber growth rates embedded in their business plan which was provided to the RUS for their loan application, we calculate the combined payment to be between $0.30 and $0.40 per Mhz top.
Although Open Range’s business initially covers only 6 million people they have options to increase to 50 million outside of the 150 largest U.S. cities. We expect these two revenue streams to contribute meaningful additional revenue to Globalstar’s long-term earnings potential.
On a worldwide basis other regulators are implementing or considering ATC-like proceedings and we believe opportunities will exist for us to obtain ATC rulings in Europe, Canada and elsewhere internationally in the relatively near future pending appropriate regulatory approval. There exists no other company in the world which is similarly situated to Globalstar in this way.
Now that we have purchased the independent gateway operations in Brazil we can begin discussions with potential partners about developing ATC solutions for the nearly two million people in that country. ATC in Brazil is compelling because the country is already rolling out [inaudible] systems and we could offer a terrestrial and satellite infrastructure similar to Open Range there.
Also, through the relationship with SingTel, discussed in more detail below, SingTel and Globalstar could offer satellite and terrestrial hybrid services in areas of southeast Asia where SingTel has a strong historical presence.
The third area of quarterly focus relates to our core business offering of enhanced Simplex data solutions including the SPOT satellite Messenger. Our customers use Simplex data products and services for a number of asset, personal tracking, fleet management and data monitoring applications. The Globalstar Simplex data network continues to provide greater than 99% messaging reliability for all customers within the primary Simplex coverage area. During the first quarter Globalstar started the Hard Launch campaign for the SPOT satellite Messenger resulting in expanded distribution and sales.
SPOT is a personal safety device using our Simplex network which represents a whole new class of affordable, mobile, satellite based consumer products. SPOT provides customers with the ability to send a message from virtually anywhere with the push of a button and because it contains a GPS receiver it can let rescue workers know where to pinpoint a person in trouble.
Subscribers can also track their location and permit friends, family or employers to track their locations using Google Maps. No other GPS technology can offer these return-path services. Not Garmand. Not TomTom. Not Magellan. No one else can. SPOT is becoming more widely available as we more deeply penetrate consumer retail outlets.
Since the beginning of the year we have increased our distribution to approximately 3,000 points of retail presence and this number continues to grow each month. We have already received orders for over 40,000 SPOT units. I’m also pleased to announce that SPOT satellite Messenger is now available on both the WalMart and Amazon online retail websites.
We plan to continue filling out the distribution network throughout the year. SPOT’s addressable market is difficult to calculate on a worldwide basis, however we have already signed distribution agreements in Latin America, Europe and Canada and we will begin selling SPOT in Brazil in June. Brazil could be a huge market for this product.
We also expect to finalize agreements with a select number of our Independent Gateway Operators (IGO) allowing them to initiate distribution of SPOT later this quarter. At this moment it looks as if Mexico and Australia will be the first two to offer the product.
Other Globalstar Simplex integrators will introduce additional data solutions to the marketplace in 2008 and we are working with several of these companies to launch these new products. I am pleased to announce today that we have also signed a Simplex distribution agreement with SkyBitz.
SkyBitz is a North American leader in providing asset tracking and management solutions to the transportation, energy, construction and agricultural industries. The agreement calls for SkyBitz to purchase and activate up to 100,000 Simplex data modems over the next 30 months.
SkyBitz and Globalstar are providing a worldwide data platform allowing assets to be tracked using the same equipment and the same back office wherever they are around the globe. We are extremely excited about working with SkyBitz and look forward to many years of collaboration with them.
During the quarter we also continued with plan to expand our global Simplex data coverage. The completion of the purchase of the Brazilian gateways paved the way for us to immediately install a Simplex appliqué in Petrolina, Brazil. Service was initiated last month and we are now providing expanded coverage throughout all of Brazil into parts of northeastern Argentina and the Atlantic coastal maritime region. With this expansion we are now able to offer customers seamless Simplex data coverage in North and South America stretching from Alaska south to Peru.
Finally, I’d like to update you on our global initiatives. We sell our satellite voice and data products in over 120 countries. We intend to continue the strategy of constructing new Globalstar facilities in order to expand the geographical area to which we can market these products. As mentioned we have initiated discussions with a number of our IGO’s concerning the distribution of the SPOT satellite Messenger. These arrangements are being finalized now and the product will likely be shipped sometime during the current quarter.
Gateway hardware and Simplex appliqué installation has been completed at our new gateway in Singapore. This gateway will be operated by Singapore Telecommunications and will serve significant parts of southeast Asia. Commissioning and system operations testing will begin later this month with both Simplex and SPOT friendly user trials expected in June. Southeast Asia represents a large opportunity for all Simplex products including SPOT. This gateway is on schedule for commercial service in September.
Late last month our Nigerian gateway operator began construction of its gateway in Kaduna, Nigeria. They expect to become operational during the first half of 2009. Nigeria is a market that can benefit from Simplex asset tracking as well as from SPOT for both personal security and personal tracking applications. Tony will provide additional details on these two gateways shortly.
Now I’d like to turn the call over to our Chief Financial Officer, Fuad Ahmad.
Let me start by reiterating that our aggressive focus on subscriber retention and sequentially stable revenues remains on track. We ended the first quarter of 2008 with 293,300 total customers in our system, an increase of 9,100 customers from December 31, 2007. For the first quarter of 2008 we had $22.1 million of total revenue and $23 million of total adjusted revenue. This compared to total revenue and total adjusted revenue for the fourth quarter of 2007 of $23.7 million and $24.4 million respectively.
For the three months ended March 31, 2008 equipment revenue was $6.1 million compared to $4.1 million for the fourth quarter of 2007. This increase is attributable primarily to the sales of our new SPOT product.
Total operating expenses for the first quarter ending March 31, 2008 were $33.7 million compared to $31.5 million for the fourth quarter of 2007. This increase was due primarily to the higher cost of subscriber equipment sales of $2.6 million related to the higher equipment sales, increased MG&A costs of $0.8 million and higher depreciation and amortization expense of $.05 million.
The fourth quarter of 2007 also included an asset impairment charge of $1.9 million related to certain first generation product inventories.
For the quarter ended March 31, 2008 we recorded an adjusted EBITDA loss of $1.5 million compared to an adjusted EBITDA of $3.9 million for the fourth quarter of 2007. It is important to note that the first quarter of 2008 included SPOT product launch and related costs of approximately $4.3 million.
We recorded retail [RCU] of $38.14 and adjusted retail [RCU] of $40.28 for the quarter ended March 31, 2008 compared to $46.45 and $47.78 respectively for the fourth quarter of 2007. The reduction in [RCU] is the result of our proactive approach to pricing to retain customers and keep our churn historically low. Churn for the first quarter of 2008 was 1.3% compared to 2% for the fourth quarter of 2007.
Cash capital expenditures for the first quarter of 2008 were approximately $70.2 million which included approximately $65.1 million for the second generation satellite procurement and approximately $2.4 million for the launch of our spare satellite. We ended the first quarter of 2008 with available liquidity of approximately $150.2 million. Our liquidity position was augmented by recently completed convertible debt offering of $150 million.
With that I’ll turn it over to Tony.
In the first quarter we have continued to optimize our constellation performance. Our ground infrastructure is performing reliably as expected and I’m pleased to say that the third satellite of four from our October launch began service on May 1. Therefore seven of the eight satellites we launched in 2007 are now operational and providing service.
Our customers continue to see service and availability improvements due to the addition of these satellites and through the use of our optimum satellite availability tool (OSAP). When using the information provided by the OSAP tool users are experiencing 95% certainty that their voice and data calls will be processed. In March we received over 10,000 requests to run this OSAP tool.
Regarding out network performance and features, Globalstar continues to enhance its web-based features for our Simplex asset tracking; location and status back office services. The newest SPOT web-based features allow users to share their location and status with approved individuals or the public and allow businesses to mass-activate their SPOT devices.
We will continue to analyze our constellation and network operations and report on the performance as the last satellite from our October 2007 launch joins the constellation. Our satellite launch contracts progress on schedule and on budget.
Thales remains on schedule to begin assembly, integration and testing of our second generation satellites. The engineering qualification test satellite and the prototype production validation satellite are being produced. Only one year from now we will be assembling and testing production satellites in Rome.
Arianespace remains on schedule for our first launch in the third quarter of 2009. Our sixth satellite dispenser design is on schedule and being finalized with long lead items purchased in the first quarter of this year.
Later this fall we will make the decision whether to launch out of the new Karu launch facility in French Guyana or from the Baikonur Cosmodrome where we have previously launched 32 of our satellites successfully.
We are in the final selection process of choosing our second generation ground radio access network and core infrastructure contractor. In the second quarter we expect to select a gateway upgrade manufacturer and finalize the newest service offerings for Globalstar. We expect these to include push-to-talk duplex SMS messaging and IP based network. We expect data speeds of up to 256 kb from the subscriber handset to the satellites and 1 mb from the satellites to the subscriber’s handset.
Such throughput is capable of supporting a number of broadband applications including mobile video. Of course our network will continue to offer backwards compatibility and support our current voice and data products. Globalstar’s network architecture is unique as all the features and services are housed in our gateways on the ground providing us maximum flexibility to upgrade capabilities over time easily facilitating the future ATC solutions for companies like Open Range Communications to offer [inaudible] service.
We believe this is a competitive advantage relative to the more limited suites of services that our principle competitors will be able to offer. Our second generation network is designed to provide an expected 40% increase in capacity translating to at least 15 times greater use than our current base of North American customers and even greater increase of international usage.
We are pleased to describe the construction of the Singapore gateway ground station continues on schedule with hardware installation, testing and certification scheduled to be completed this summer. SingTel Communications is finalizing its marketing and sales plans as we speak. SingTel will initiate sales of Simplex products for asset tracking and security application solutions as well as our SPOT satellite Messenger in the third quarter of this year.
As we replenish our constellation beginning in 2009 SingTel will market duplex voice and data products and services. SingTel will provide Globalstar service in key areas of southeast Asia and expand Globalstar’s coverage between our service providers DayCom in Korea and Vivatel Satellite in Australia.
Globaltouch, our newest independent service provider, has made significant progress in Nigeria. Within the last 60 days civil works contractors have been selected, the site has been readied for building construction and excavation has begun for laying the antenna pads. We remain on schedule to go into service in the first quarter of 2009.
With that let me pass the call back to Jay for some closing comments.
As mentioned last month we completed a convertible note offering which combined with the exercised over allotment raised a total $150 million before offering expenses. This is great news for the company especially considering the adverse state of the capital markets when we did the deal. It demonstrates our continued access to capital in the public markets.
This financing is required for the procurement and launch of our second generation constellation and all of the enhanced products and services it will bring especially given our newly expanded ATC authority.
Yet despite this good news Globalstar’s stock has recently dropped to disappointing levels and we feel the price does not fairly represent the intrinsic value of the company. Since we last reported to you, only 60 days ago, our company has more liquidity on the balance sheet, it has been granted expanded ATC authority, it has very successfully launched a new consumer product and with almost 300,000 subscribers remains the largest North American provider of satellite voice and data services. So the drop in the stock price is troubling. My personal belief is that the offering structure is not fully understood yet and the borrow facility that we employed which was to give our technical convertible purchasers the ability to hedge their positions is being equated to an increase in traditional short interest.
This may be causing an unwarranted drop in the stock price. I would like to remind you that our business fundamentals remain solid. To reiterate, we are positioning additional satellites into the current constellation and we are on schedule and on budget to begin second gen satellites in the second half of next year.
We continue to expand the domestic and international distribution for SPOT and other Simplex products. We control unique, expanded, coveted and valuable global spectrum and we have a signed ATC agreement to make use of initial amount of that asset. Designers are already working on our next generation of handsets and a host of future satellite only as well as ATC hybrid solutions all now being conceived.
We are managing the near term negative impact of our aging constellation with innovative technical solutions and creative sales and marketing programs. Sure we understand that in the short term we face some challenges but relatively speaking these pale in comparison to the enormous financial, technical and engineering hurdles Globalstar has successfully overcome before to conceive, design and implement a system such as ours.
In fact, this tremendous technical achievement is being recognized by the Mobile Satellite Users Association at its annual international conference next week as Globalstar’s former Vice President of Engineering, the inventor of the Globalstar concept, is being honored as a pioneer in the industry. Today we have a group of brilliant and resourceful employees, a financial sponsor who has demonstrated its commitment to unlocking the potential as we take Globalstar into the next decade. This is a marathon, it is not a sprint. We are in it for the long term.
We thank you again for joining the call today. We look forward to speaking with you again in about three months.
That concludes the prepared portion of the presentation. We will now take the opportunity to answer questions.
(Operator Instructions) Your first question comes from Jonathan Chaplin - JP Morgan.
Jonathan Chaplin – JP Morgan
Jay I think you said there had been 40,000 orders for SPOT. How does that equate to actual shipment? Have all those been put into inventory in distribution outlets? If you can give us an idea since the end of the quarter what the sales of those devices have looked like that would be really helpful.
Then I’m wondering if you can just give us a quick view of what the cash contribution per SPOT device sold and connected is and what that could contribute in cash flow for 2008? Finally, I’m wondering if you have any comments, we just saw Clearwire, Sprint and the cable people do a deal somewhere between $0.27 and $0.35 per megahertz pop. Nextwave is looking to sell their 2.5 ghz spectrum. They are talking about values between $0.40 and $0.55 per megahertz pop.
I’m wondering if you could, it just seems like there is a very wide gulf in spectrum valuations between those values and what your spectrum is getting and it seems from a utility perspective the spectrum is actually pretty similar. I’m wondering if you have any thoughts on that.
Finally, I’m wondering if there have been any transactions recently in international markets that could help investors get a handle for what the international spectrum is worth. I believe there may be have been some auctions in some Asian countries that might have set up our spectrum values there.
First, the general contribution per unit this product has a relatively high margin product on the service. We expect it to be about a 90% margin on the service revenue. In the service revenue range is between $100-150 per unit per year. On the device itself depending upon where it is sold in the channel the price to us ranges between $169 and as little as about $100. The average is presumed to be approximately $110 per unit. The cost of manufacturing and landing that unit is approximately $80. So that is the margin equation for that question.
When you go to the question of the spectrum values I can’t explain the wide gulf as you referred to it in the difference between our spectrum value and the values accorded other companies at this time. I think I have explained at least my best view and am interest in other people’s views about why Globalstar’s stock would trade where it does relative to those values.
It makes no sense to me and so I’m presuming my assessment that the structure of our transaction is what is resulted in the stock price being where it is right now as opposed to the underlying fundamentals of the business which are, as I said, improved with these new products and the additional ATC grant. So I can’t explain that.
I have heard that there were auctions and we haven’t evaluated those auctions substantially in Asia. The tidbit that I did pick up was that they were north of $0.50 per megahertz top. I’m not privy to any of the work that Nextwave is doing specifically on their asking price for the spectrum they hold. So I have no view on that.
Over the next month or so when things settle down in the Sprint, Clearwire, Comcast transaction those values will settle out and we’ll be able to look at those values and make an informed decision. From a utility perspective a lot of our spectrum abuts Clearwire and Sprint’s spectrum and so it is functionally equivalent. Another swath of our spectrum abuts MSV and is functionally equivalent there. So again it is not clear to me why we would have a spectrum value which was substantially different than others.
Jonathan Chaplin – JP Morgan
How much of the SPOT units that were put into inventory have been sold since the end of the quarter?
The number that we disclosed is over 40,000 as the number that is actually sold into the channel. There is a very small amount of orders that were not shipped, less than 5% of that total. So this is the units that are shipped into that channel.
Jonathan Chaplin – JP Morgan
It’s just that I had heard from a couple of accounts that it is difficult to get a hold of SPOT devices at the moment. I’m wondering how many of those SPOT devices of the 40,000 have been connected since the end of the quarter? I know that it was 9,000 in the quarter but it seems like there might have been a surge in connections since the quarter.
The situation we find ourselves in, Jonathan, in the retail chain is that we are just a bit hostage to the way the retailer actually stocks his shelf. The way that the process works at least for our product line to the retailer is it goes to a distribution center first. Because it is a fairly new product they send out discreet amounts to the stores. We bug them constantly and ask them to put more in the stores because like the example that you gave I have been to a single store, which is a flagship REI store in Denver, half a dozen times and never once have they had a unit on the floor. It is always sold out.
So they are taking them in small quantities, three to four at a time, and they are selling out of them immediately because there is so much PR that is positive surrounding the product in the press and because of the life saves that have occurred. People are trying to get their hands on it and it is just not available in the store. We have it. They have it. In many cases at their distribution centers. But until their algorithms catch up to actual delivery we end up with store shelves that are often empty even though that retailer’s distribution house might have 500-1000 units in it servicing 100 stores.
So it is something that is a constant battle for us. It is something that we are working through. We’re trying to drive it with them but it is just not an easy process.
Jonathan Chaplin – JP Morgan
Given the phenomenal demand that you have seen for this product so far, what is your best guess as to how many you could sell this year?
Jonathan you are asking the question that we have not provided any guidance on in the past. I think we are very bullish. You have to look at the orders we have seen from established retailers. What Jay didn’t tell you is that a lot of retailers have increased the frequency of their orders as well as the size of their orders over the last couple of months. We have seen demand pick up. We’re extremely pleased with the take up of the product. I think the key for the company is going to be add as many points of distribution over the next 9-12 months as it can. Quality points of distribution. That has been our focus since we launched this product.
As long as we can do that and get to where we need to be which is approximately we believe we can hit approximately 5,000 points of distribution before the end of the second quarter. We expect to be in 10,000 points of distribution in 2009. I think even a simple math where we are selling 1, 2 or 3 per month per distribution channel I think the numbers are astounding. That is where we intend to be in the next 12-18 months.
The next question comes from Joel Miller - Merrion Group.
Joel Miller - Merrion Group
The funding gaps, some of our customers have indicated somewhat of skepticism that you are actually going to reach the $250 million in operating cash flow that you need from 2008-2010 in your road show presentation. Some observers have said that the total amount is obviously coming from SPOT is their interpretation. Your comments on the new gateways in Singapore and Nigeria which I agree with which are coming online in 2008 and the acquisition of the Brazilian gateways, how rapidly do you expect other data products to contribute to cash flow?
Secondly in reference to the $250 million number and possibly to indicate the type of support that some of your competitors have seen from a well-known hedge fund, in the past I think in October 2007 you stated there was $1 billion available for investments, SPOT and other investments from thermo, could you somehow indicate continued support perhaps by purchasing the 3 million shares from employee stock options that were show in 2007 and donate them as treasury shares so you would reduce dilution around this area? Could thermo and potential ATC partners, like there seems to be so many attractive opportunities, could you provide some stand-by facility such as a letter of credit to be drawn only to cover any operating cash flow shortfall of that $250 million by the end of say 2010?
First of all from the perspective of other ATC partners yes of course. The conversations we are having with partners always revolve around what is the price and what is the payment schedule. For Globalstar it is always better to have money earlier rather than later so those conversations are absolutely ongoing.
As a core business, though Globalstar continues to generate cash. We generate it from a myriad set of sources. It is impossible to separate everything that comes out from SPOT versus any other part of our business because they all operate over the same satellite system. It takes the same people to operate the satellite system and therefore you can’t disaggregate it very easily.
It is absolutely true that we expect great things from data use out of Singapore, Brazil and Nigeria. We expect that Brazil will be completely cash flow positive almost immediately. We expect that Singapore will within a year or two after it begins operations. But even if it is not it is a very small consumer of cash and that doesn’t count SPOT in the equation because SPOT is operated through the United States.
So we expect those to provide substantial additional legs to Globalstar and more importantly as soon as the second generation constellation is launched what really happens is that all of the services that are coming out of those gateways and all of the phones that have been sold historically are expected to go back into service because people like the Globalstar value proposition.
The price for the handset, the price for the minutes is the best in the industry. The voice quality is superior. So we expect a very rapid increase in the revenue build at Globalstar as soon as the second generation constellation is launched.
I don’t anticipate anything other than a heavily revised situation for Globalstar as soon as that occurs. In terms of Thermos willingness to continue to back Globalstar, everybody should know how bullish we are. We have committed almost $400 million to Globalstar over the last four years. We are vitally interested in making certain that the company continues to prosper. I don’t have the slightest notion what the form of that continued involvement will look like but I can tell you that we are deeply, deeply interested in it and we will continue to help in any way we possibly can.
Joel Miller - Merrion Group
Your first caller had mentioned ATC values. I had a conversation with an international analyst who covers Taiwan and they mentioned that the minimum payments due under the spectrum were a certain amount of money and it seemed to be that value came out to minimum payments of $0.60 a megahertz pop and if they got more than the minimum payments you would be approaching something a little higher than that.
Given your comments on the international possibilities and the fact that Brazil wants to consolidate some carriers to better compete with the international carriers that are there and there is a cell operator in India that is rumored to be looking for an alliance in South Africa which could obviously complement your Nigeria gateway, would it be possible to tie in your S band satellite spectrum which is around 2500 to the ATC to allow international roaming to these carriers? Because obviously that would provide a huge advantage to them.
I think the short answer is yes. All we need to do would be to have the regulators there agree to an ATC structure so that someone can use our spectrum in the same fashion we are doing it today with Open Range. As to the $0.60 per megahertz pop I think you are driving home a point that we are fond of over here at Globalstar even if the market can’t get their arms around it at this juncture. That is when people look at the value of ATC they almost always look at it only within the context of the United States or sometimes the United States and Canada. They don’t look at ATC from a valuation perspective from Globalstar’s more worldwide perspective.
So you end up in a situation where somebody wakes up one day and says, “My lord Brazil has got 200 million people and spectrum there is worth $0.40 per megahertz pop where Taiwan has however many people they have,” and that starts to be baked into Globalstar’s value it changes substantially both the value of the company and the way that people think about the opportunity within and around Globalstar over the next few years. Apropos of your point of 2500 as the upper bound of the Globalstar spectrum that is also the lower bounds of the Sprint/Clearwire spectrum and in fact it overlaps us a little bit in BRS channel 1. So there is a little bit of an opportunity to do roaming with them as well. Whoever they elect as a roaming partners long term internationally.
Your final question comes from Kipling Peterson - CVC.
Kipling Peterson – CVC
As far as the overall industry, in looking at some of your competitors they all seem to want to put their constellations back into the sky or put new constellations up. I’m just wondering, when you view this do you look at it like the airline industry where it would be great if everybody would consolidate and we’re happy to play our part? Or that the services are so much different that it doesn’t really matter if everybody spends hundreds of millions of dollars putting new spectrums up?
I think that there are certain areas where consolidation makes a lot of sense and everybody has talked about those. There are logical dance partners for many of the people in the satellite world. I do think people offer substantially different services. Our services are distinguishable from others that are Leo operators and geo operators who are going to be in the U.S. ATC market like [inaudible] and Terrestar.
A few years ago people thought they would have been direct competitors to Globalstar in our ATC ambitions. But in fact most recently you probably witnessed how they have converted a little bit more towards a video product. So each of these companies is evolutionary and as they are I think the opportunity for them to put themselves together with other companies to reduce CapEx does make sense for sure.
I think in the case of Globalstar we are always open to those types of discussions with people but it hasn’t been clear to us at this point how something like that could work well for Globalstar so we haven’t really pursued it. It is most important to us to stick to our knitting and continue to grow all of our lines of business, get the second generation constellation up and return to that 30-40% growth rate that we historically had beginning in 2003 until we had constellation issues.
As soon as we do that we will be in great shape and clearly we’ll be a generator of a large amount of cash instead of a consumer of it. When we are back in that mode if somebody would like to have a discussion with us I think that is fantastic. We’d be pleased to do it. But I don’t see a lot of writing on that wall for Globalstar at least in the next little while.
With that we’ll bring the conference call to an end. Thank you again for joining us and please be reminded that later this afternoon an audio recording of the conference call will become available by telephone dial in and a web cast recording will also be available on the Globalstar website. Thank you and good afternoon.