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Mackay News
2.26.07
Globalstar Constellation - Update
Globalstar Satellite Constellation - Update
In a recent filing with the U.S. Securities and Exchange Commission (SEC) Globalstar reported, among other things, an anomaly in the satellite S-band antenna amplifier affecting the Globalstar satellite constellation and how the constellation may perform over the coming years.
The report described a potential scenario of what would occur if the performance of the amplifiers continues to degrade at the current rate, or further accelerates, and if Globalstar is unsuccessful in developing additional technical solutions. Globalstar is examining a number of potential options to reduce the effects of this problem and is making every effort to resolve this service issue and extend the service quality of its network. According to the report, if technical solutions can be found to minimize the anomaly, then the impact on Globalstar customers would be correspondingly reduced.
Earlier this year Globalstar completed a re-configuration of its satellite constellation to maintain the highest possible service availability and to facilitate the launch of eight new satellites into orbit by mid-2007. Subscribers’ service will continue to be available. However, at certain times in any given location it will take substantially longer to establish calls and the average duration of calls may be impacted adversely. Globalstar will soon be able to forecast the duration of service coverage at any particular location in its service area and intends to make this information available to its customers.
At Mackay Communications we understand that you may be concerned about the Globalstar service in the medium term and we are committed to keep you informed of the latest events and information regarding quality of service on the Globalstar Network.
This letter and the following Q&A will summarize key information from the recent Form 8-K, addresses the current state of the satellite antenna power amplifier issue and discusses what Globalstar is doing to attempt to resolve or minimize the impact of this problem.
For more updated information please visit www.globalstarusa.com or continue to visit this news section of our website.
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INFORMATION PROVIDED BY GLOBALSTAR USA
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Questions and Answers Regarding the Globalstar Satellite Constellation
IS GLOBALSTAR PROCEEDING WITH THE LAUNCH OF ITS EIGHT SPARE SATELLITES SCHEDULED TO BEGIN IN THE SPRING 2007?
Yes. Globalstar is spending approximately US$110 million for two launches of four satellites each. The launch windows are currently being finalized, and all eight satellites are scheduled to be launched by mid-2007. We expect that these eight satellites, as well as the satellites from our first generation constellation that continue to function properly, will provide two-way voice and data satellite service to our customers until the launch of the second-generation constellation, although some coverage gaps may occur.
WILL THE CURRENT COVERAGE AND SERVICE LEVELS REMAIN CONSISTANT FOR THE REMAINDER OF 2007 AND GOING INTO 2008?
Now that we have completed the reconfiguration of the satellite constellation in order to facilitate the insertion of the eight additional satellites, coverage has already improved. With a successful launch of the eight satellites noted above, we expect to provide the current level of service throughout the remainder of this year and into 2008.
BECAUSE THE SATELLITES ARE ALREADY IN ORBIT, CAN GLOBALSTAR REALLY DO ANYTHING TO IMPROVE THE SATELLITE CONSTELLATION?
Globalstar personnel have been operating this constellation since the first satellites were launched in 1998. Our experienced satellite operations team, working with industry experts, have identified and implemented enhancements to resolve other satellite-based challenges in the past. Working out of the Globalstar Satellite Operations Control Center in California, they work to manage our assets and maintain the quality of service to our customers. We cannot promise a solution but are making every effort to come up with a technical solution that will minimize this issue until our next generation of satellites is launched.
THERE ARE SOME RUMORS AND MEDIA REPORTS THAT CLAIM THAT GLOBALSTAR IS GOING TO SUSPEND SERVICE. ARE THOSE REPORTS TRUE?
No. At no time has Globalstar ever said that we are going to suspend service. Naturally some of the media and our competition are inclined to emphasize the worst possible results of this problem for Globalstar and our customers.
WHAT IS BEING DONE TO REDUCE ANY POSSIBLE SERVICE IMPACT?
If we are unable to reduce substantially the impact of this problem through technical adjustments to the satellites, we intend to attempt to take other steps to reduce the impact on our customers. These steps include other alterations to our satellite operations, ground infrastructure and user terminal equipment and making use of higher gain antennas for subscribers with fixed units or mobile car kits that will provide better connections to the satellites as they age.
In order to prepare the constellation for the insertion of the eight satellites, we have realigned our satellites to optimize their orbital locations. This has caused some service interruptions to our customers, but the realignment is now complete. We will continue to adjust constellation operations to seek to maintain its performance and longevity. We are also discussing with Alcatel the feasibility of accelerating the delivery of our second-generation satellites.
WHAT WOULD THE POTENTIAL IMPACT BE ON GLOBALSTAR CUSTOMERS?
It is important to emphasize that this information involves predictions about operating events in space and in the future. At this moment we don’t know if the rate of degradation of the amplifiers will continue at its present pace, will accelerate or diminish. If we are unable to fix the amplifier problem or substantially reduce its impact through technical adjustments to the satellites, then the impact to our customers could vary depending on the manner in which they use our services.
This could mean that at some time, at a particular location, a fully functioning satellite is not overhead and, therefore, the customer may need to wait for some period of time until a call can be made. When connected, the voice quality will remain at the same level our customers are used to. A substantial portion of our customer base that use the phones or data devices infrequently may not notice any change except that it could take longer to establish a connection, and under certain circumstances call duration may decrease.
LATE LAST YEAR GLOBALSTAR PROVIDED AN UPDATE ON ITS PRESENT AND FUTURE SATELLITE CONSTELLATION. IS THERE ANY FURTHER UPDATE?
Yes. In the letter to customers and dealers in December 2006, Globalstar outlined plans to improve the performance of the network. Step 1 has already been completed, the reconfiguration of the Globalstar satellite constellation. Step 2 is on schedule, with eight additional satellites scheduled to launch by mid- 2007. Globalstar continues with its plans for its second-generation constellation, and Company personnel are in Europe working on the new satellites with personnel from Alcatel Alenia Space. Beyond working on many additional ways to enhance service, Globalstar is discussing with Alcatel methods to accelerate the delivery of the second-generation satellites.
The new constellation is being built to be compatible with our current products and services as well as the eight satellites scheduled to be launched this year. As a result, once the launch of our second-generation satellites begins, they will enhance our customer’s service experience. The new satellites are also being designed to support higher data rates from direct connections to mobile phones and other devices.
WILL THE SECOND-GENERATION SATELLITES HAVE THE SAME PROBLEM?
The prime contractor for our second-generation constellation, Alcatel Alenia Space was not the prime contractor for the current satellites that are affected by this anomaly. Alcatel has developed a completely different design for the S-band antenna power amplifier subsystem and spacecraft configuration. We believe that this new design will eliminate similar problems with the second-generation constellation, which is expected to last at least until 2025.
WHEN WILL THERE BE ANOTHER UPDATE?
We have not yet received the final analyses from our outside consultants. Once those reports are received and the results understood, we will be able to assess the findings as they relate to our business and strategy and will communicate this to you promptly.
Globalstar also plans to provide periodic satellite and constellation updates for the foreseeable future in order to provide the most up to date information concerning the current and second-generation satellite constellation.
WHY ARE WE REPORTING THIS INFORMATION NOW?
We constantly monitor and assess the operating performance of Globalstar’s constellation. In the course of our operating review, we noticed that operating performance of many of our satellites was trending downward more than we had expected attributable to the aging of our constellation. We felt this problem merited an in-depth look so we engaged independent consultants to review the data and advise us. That work is still ongoing, and the results to date were discussed in our public filings.
We obtained a similar third party review of our constellation about a year ago. That review led us to conclude that the constellation, although showing some signs of aging and degraded performance of some components, would continue to provide commercially viable two-way communications services until we place into service our next-generation constellation. It also made sense to do these performance reviews at this time because it is consistent with our normal financial audit cycle. Although our first generation constellation does not have substantial remaining net book value due to its age and the effects of our restructuring a few years ago, we are still required to look at its valuation at least annually.
As a public company Globalstar is obligated to provide material new information to all investors at the same time. We are obliged to provide this information even if it involves the possibility that the past level of service quality may not be consistently maintained.
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Certain statements made in this letter are forward-looking in nature, involving known and unknown risks, assumptions, uncertainties and other factors that may cause the actual results, performance or achievement of the Company to be materially different from those projected or implied by such forward-looking statements. For a discussion of these factors, we refer you to the “Risk Factors” section of our Quarterly Report on 10-Q filed with the SEC and the cautionary language in our press release issued on February 6, 2007.
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