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2HRS2GO: Globalstar keeps staggering

COMMENTARY -- A company has severe perception problems when the fact that it can pay bills is considered newsworthy.

"Globalstar CEO says will make interest payments" reads the Reuters headline. The sentence reads like a description of CEO Bernard Schwartz's personal credit card situation, but things haven't gotten that bad for him. As for Globalstar Telecommunications (Nasdaq: GSTRF), that's another matter.

Schwartz -- also the leader of Globalstar's main investor, Loral Space & Communications (NYSE: LOR) -- had the unpleasant task of delivering Globalstar's third quarter report this morning. The company couldn't muster more than a "modest growth" description in its news release, and admitted that its expansion has been "unacceptably slow".

That's a delicate way to describe a company whose total subscriber base wouldn't even fill one side of a stadium.

Technically, Globalstar isn't dead yet. Although Schwartz told the Wall Street Journal that Loral won't pour any more money down the Globalstar drain, he insisted that the company could still survive. The company says it has enough cash to last until May.

Maybe so, but the Corporate Grim Reaper already has his sickle drawn and ready to swing. Only people with more money than sense would invest in Globalstar at this point.

Globalstar sounded like a good idea when it was founded in 1991, roughly the same time period when plans were also drawn up for Iridium and ICO Global Communications.

If you listen to various executives and some analysts, you might think these companies could have succeeded with better execution. The marketing was flawed. The pricing was wrong. The right audience wasn't targeted at first.

Most or are all of that is true. I've leveled many criticisms myself, especially on prices.

But there was a bigger problem: the technology simply turned out to be unnecessary.

Nine years ago, satellite voice communications seemed an attractive alternative to the fickle, unreliable and somewhat expensive cellular phone system, especially in the United States. It offered wireless phone service anywhere in the world. No incompatibilities from system to system, no searching for a cellular tower, no roaming charges -- just one handset, usable whether you're in New York City, Ulan Bator, the Andes Mountains or the middle of the South Pacific.

Unfortunately, satellite backers failed to anticipate speedy strides in ground-based wireless service. The quality of connections improved, phones shrank, services expanded and the cost-per-minute became cheaper as subscriber volumes increased. Nowadays, wireless isn't bad in the United States and is very good in Europe, where networks quickly coalesced around a workable standard.

Meanwhile, Globalstar and Iridium and ICO forged ahead with solutions applicable a decade ago, and did it on a platform that isn't easily upgradeable to cutting-edge technology. You can't simply pluck a satellite out of orbit and stick in a new plug-in card.

The best Globalstar could do was switch to handsets usable with both satellite and ground wireless systems. But if you're going to use a ground system much of the time anyway, why would you go with Globalstar?

Globalstar now pins its hopes on data transmission rather than voice. So does the ICO-Teledesic service planned by Craig McCaw.

However, satellite data faces the same problem as voice: terrestrial wireless broadband offerings are already starting to appear. Companies like Ricochet, whose service is already available in areas such as San Francisco, are building wireless data networks across the United States.

Globalstar and Iridium are merely the latest companies to illustrate that investing in grandiose, multi-billion technology plans carries risks far beyond those of more traditional investing, which is already dicey enough. Most people are aware of the dangers, yet many folks continue to bet on large, unproven projects.

Obviously venture capitalists and specialty funds will invest in these things, because that's what they do for a living. But I'm amazed that individual investors take the chance.

When you're looking at a company that has to spend billions just to get its platform up, let alone market and maintain it, you have to wonder if it's such a smart idea. Even if a company is so visionary that its offering stays ahead of other rapidly moving technologies -- which didn't happen in the case of satellite telecom firms -- these capital-intensive experiments are extremely difficult to execute, competition or no competition.

Sure, some of them will be successful. But when there are so many other avenues for investment, there's no reason to wager your money on the off chance that the big swing which usually results in a strikeout will suddenly connect for a home run.

That's the most regrettable aspect of the whole satellite communications experiment. If a company goes under, at least good workers can get other jobs; shareholders get nothing, except for the relief of knowing it's over. And in Globalstar's case, they'll have to suffer a little longer. 22GO

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