Troubled satellite-phone operator Globalstar Telecommunications Ltd. announced Tuesday it is indefinitely suspending payment on its debt, as it attempts to develop a new plan to salvage the business.
"The action Globalstar has taken assures that funds will continue to be available to fund our ongoing operations," said Chairman and Chief Executive Officer Bernard Schwartz on a conference call broadcast via the Internet. "Our customers will see no change in their service, or in the customer support activities." He added that the company is pushing forward with plans to expand coverage and to market more aggressively to new subscribers.
Globalstar, like other players in the satellite phone field, has been plagued by poor usage rates -- the company counted only 31,200 subscribers last week, Schwartz said.
"There's no question that the performance to this date in terms of the pickup rate is not what we wanted it to be. But we're buying time here to add the kinds of resources that we think are necessary to turn the situation around," he added.
But observers were skeptical about Globalstar's prospects.
"I don't think their future is very bright, because we're increasing both the service levels and the availability of terrestrial systems," said telecommunications analyst Bernt Ostergaard of Giga Information Group Inc. in Copenhagen. "The land mass is basically covered, and that leaves only a very, very specialized niche market for satellite."
"What has killed the satellite industry is that they offer you global access, from the top of the Himalayas etc., but not a lot of people go to the top of the Himalayas. So for all the people on land masses, it is much cheaper and more convenient to send an SMS (short message service)," he continued.
The same problems plague competitors like the former ICO Global Communications Ltd., said Ostergaard. ICO emerged from bankruptcy proceedings last year as part of a new holding company, ICO-Teledesic Global Ltd., after an injection of cash from investors led by cellular communications pioneer Craig McCaw.
Another entrant in the field, Iridium LLC, filed for bankruptcy in 1999. A successor company, Iridium Satellite LLC, acquired the company's assets, including its satellites. Last month it won a two-year, US$72 million contract to provide secure wireless communications to U.S. government employees.