Globalstar (s gsat) today closed on $738 million in financing, while rival satellite operator TerreStar (s tstr) launched its new bird, TerreStar-1. Globalstar plans to use its money to fund operations and launch a new generation of satellites in 2010 that will deliver all IP-based voice and data to its customers through 2025. Before celebrating, know that Globalstar’s new constellation of satellites will provide speeds of up to 256kbps down.
Like the slow data speeds, the financing is less exciting than it first appears. It mostly comprises a previously announced credit facility, which Globalstar will have to pay back. The financing combines the $586 million credit facility with convertible debt and warrants for $55 million, and a deposit by its majority shareholder of $60 million into a contingent equity account. The financing also includes funding of a debt service reserve account. Basically, Globalstar has a large credit line, and someone fronted the company the money to fill a reserve account in case some of that debt can’t be paid. That’s a position Globalstar has been in before. It filed for bankruptcy in 2002 and emerged from its financial failure in 2004.
While Globalstar plans to launch multiple satellites next year, TereStar today flung its single, huge satellite into space after a few delays. We’ve written about the capabilities of TerreStar’s new bird, as well as our doubts about the business of providing satellite data services to a consumer audience as TerreStar hopes to do. TerreStar-1 will be able to deliver speeds of 64kbps down to the smaller, consumer-style handsets, while truck-mounted phones such as those used by emergency workers could receive speeds of up to 400kbps down. But satellite service is expensive (and slow) compared with other available mobile data services, and few people really need the kind of coverage satellites provide. The industry went bankrupt en masse before, and I find it hard to believe it will fare well this time around, especially without some consolidation. However, like the orbits of their satellites around the Earth, I’m concerned these companies can’t stop coming around again.
Image of TerreStar-1 courtesy of Arianespace.