Globalstar urges patience

Last week left Globalstar investors nervous. To remain funded throughout 2001, the company suspended indefinitely principal and interest payments on all of its funded debt, including its credit facility, vendor financing agreements and senior notes, as well as dividend payments on its preferred stock.

Globalstar said it will conserve about $400 million for the year to fund the new marketing initiatives it implemented after reporting another disappointing third quarter in September. The company lost about 95% of its stock value during 2000. Globalstar CEO and Chairman Bernard Schwartz originally estimated Globalstar would have about 1 million subscribers by the end of 2000 and later revised that figure to 500,000. But third quarter reports were disappointing. Globalstar reported just 21,300 subscribers, far below the 1.6 million customers analysts predicted the carrier would need to break even.

After the company released its third quarter results, Schwartz said Globalstar would implement plans for direct marketing to large industries and government accounts, rather than relying solely on marketing efforts from its local service provider partners. Now it needs the cash to execute those plans, which include ramping up data service, through 2001.

It wasn't clear that Globalstar's partners were willing to invest any more money in the company (see story on page 82). Yet it appears Globalstar will take longer to prove its business case. Subscriber numbers were 31,200 at the end of December. “We're disappointed in our performance, too,” Schwartz said in response to one investor's comments. “We believe some of the things we have done will fix that performance. The general consensus is that we will be able to demonstrate a viable business plan.”