Globalstar, Inc. (NYSEMKT:GSAT) is running up on news that the FCC has drafted a new proposed order in response to a revised proposal that the company filed on Nov. 9. The order relates to a plan that Globalstar has had in the works for some time now, rooted in the use of satellite frequencies to increase/improve the scope of its broadband offerings. The announcement was pretty vague, but it’s implications are strong, and that’s why the company is gaining in value.
Here’s a look at what’s important, and what’s next.
Globalstar bills itself as a leading provider of mobile satellite voice and data services. The company hooks up to the network of satellites that are spinning around the planet, and uses these to provide connectivity to networks where it would otherwise be difficult, or impossible. Think disaster areas, floods, earthquakes, that sort of thing, as well as more stable but difficult regions – mountains, deserts, jungles etc.
The latest announcement relates to an effort made earlier in the year by Globalstar to hook its network up to a frequency that is currently in use for a range of applications outside of commercial broadband. Theoretically, there shouldn’t be any problem with this, however, when the company submitted its proposal to the FCC, it came up against some pretty high profile competition. Microsoft Corporation (NASDAQ:MSFT) kicked off, as did Alphabet Inc (NASDAQ:GOOG), arguing that if the FCC agreed to Globalstar’s proposal, it would amount to preferential treatment. Further, the companies suggested that the hijacking of the frequency in question may impact the connections already hooked up to the satellites. This latter point is questionable – it may just be an attempt by the tech giants to halt the proposal – but it has been made, and so the FCC has to take a look at it.
Our take is this: that the above mentioned companies are attempting to stop Globalstar in its tracks suggests that the prospects (and in turn, the competition) are strong for the technology and its application to the global broadband space. In other words, if Microsoft doesn’t want Globalstar to do it, that tells us it’s a valuable venture if the latter can push it through.
So, what’s next?
This announcement is just a middle step in a lengthy process, so don’t expect Globalstar to get moving with implementation any time soon. Having said that, it’s a project that has been in the works for a long time, and it’s one on which markets have placed a lot of value for the company. So much so, that the Globalstar lost more than 50% of its market capitalization when the FCC first turned down its proposal. As this fresh effort matures towards a successful outcome, we expect Globalstar will gain value, and close the gap on this 50% decline.
It’s not risk free, of course. When you’re up against names like Google and Microsoft, there’s plenty of litigation capital waiting to try and shut you down, so there’s no guarantee that this effort will ever come to fruition, even with an FCC blessing.
Globalstar is also struggling on the numbers. The company generated $24 million net income during the third quarter of 2015. During the same period this year, this number dropped to a loss of $2.1 million. It’s attributable to a non-cash derivative gains decline, so that takes the edge off the situation, but it’s far from a ideal situation. Cash on hand isn’t great either, recorded at$12.9 million at September 30, and debt is worrying – a little over $585 million as things stand.
That said, at its current cap of $1.4 billion, we think there’s plenty of room to appreciate as the FCC situation plays out.
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Disclosure: We have no position in GSAT and have not been compensated for this article.