ANALYSTS QUESTION ICO, IRIDIUM INVESTORS’ CONTRIBUTIONS TO GLOBALSTAR

Existing competition among Globalstar, Iridium and ICO, particularly with recent FCC ruling on ancillary terrestrial components (ATC), has some analysts curious about motives. “This move is an indication perhaps that the consolidation that we've been expecting is happening,” Mobile Satellite Users Assn. (MSUA) Pres. Ahmad Ghais said. Coudert Bros. analyst Tim Logue said consolidation would be reasonable outcome given market size: “The market isn’t as big as everyone thought and network designs aren’t as good as everyone expected.” Iridium spokesman said Iridium Investors was group of investors separate from company that happened to have invested in Iridium as well. Their identities weren’t available. ICO didn’t provide details on ICO Investment.

Financial contributions by Iridium and ICO investors “obviously suggests that they think that there is some benefit in terms of some sort of collaborative effort. The question is what the nature of that would be,” Legg Mason analyst Rebecca Arbogast said. Various analysts have different ideas, but she said ATC might be key to next move: “It could be something that involves some sort of joint effort to work together to develop ATC.” Logue said it was possible that ICO’s Craig McCaw was taking first step in attempt to consolidate Big LEO licensees. “His strategy seems to be to roll up these licenses and it would make sense,” Logue said. “Globalstar’s assets would be preserved, they wouldn’t have to go into Chapter 7 and ICO could get a better look at the books.” Tellus Venture Assoc. Pres. Stephen Blum had similar idea, saying investment could be way to make something of what ICO already had: “ICO isn’t really a direct competitor, so maybe they're looking at a backdoor way of doing a merger.”

Iridium investors also may be considering combined operations in near future, Blum said: “You wouldn’t expect them to put money into Globalstar if they expected to be in dead heat competition in 5 years or so. Conceivably, down the road, you could come up with a business plan that combines the 2 systems, and that may be what they're thinking.” Analysts agree that both systems couldn’t work together as they are, but Ghais said next-generation systems could because new systems would have to be developed as satellites approached end of their lives.

“Keep in mind that this all started because the Globalstar creditors thought that the company might be worth more with ATC authorization,” industry official said. “It’s their duty to see that the stakeholders get the maximum value for their holdings.” Investments by Iridium and ICO investors don’t assure anything but they do keep both companies in game, official said: “Like the dot-com industry before us, the MSS industry has had a tough time, but we won’t disappear. The demand is there, just not enough to support so many companies. Is this the beginning of industry consolidation? Maybe.” Ghais said he would like to see some consolidation ventures succeed, but he remained skeptical: “In all of these developments, I remain very concerned about what happens to existing and potential users. They usually don’t come out ahead. I have my doubts, but I will remain hopeful for the users’ sake.”

Globalstar spokesman said financing plan had been expected to be approved Tues., but snowstorms on East Coast delayed hearing. New date hasn’t been set. Company will be looking for best bid, but not necessarily highest, he said: “The final plan may be in the form of one company taking control, or it may be several. We're going to really look closely at all the offers and evaluate each one.” Globalstar spokesman didn’t specify investment amounts for each entity, but said each investment “is relatively proportionate to the others.”