Table A Comparison of Mobile Satellite Service Providers Iridium Globalstar ICO Ellipso Total cost ($ billions) 5.5 3.3 4.6 1.4 Satellite life span 5-8 years 7-8 years 12 years 5 years Orbit LEO LEO MEO MEO Initial/expected cost per minute Wholesale $0.50-$1.99 $0.30 $0.30-$0.50 $0.33 Retail $3.00-$7.50 $2.00-$4.00 $1.50 $1.00-$1.50 Number of 12 ground stations 50-80 12 6-14 Headset cost (initial) $3,000 $750-$1,500 $700 $750-$1000 Number of satellites 66 48 10 17 Market share (estimate) 2000 72.6% 26.2" 0.9% 0.0% 2005 35.4% 26.6% 23.5% 8.3% Source: Project Management International, July 29, 1998, Issue 150; CS First Boston, "The Sky's the Limit", December 23, 1998; Sandra Sugaware, "Battle in the Skies" The Washington Post, October 18, 1993; case writer estimates.Question 2 [25 marks] Please, refer to table A, and exhibits 1 and 4A. 1. The following table summarizes the revenue projections for Iridium based on exhibit 4A, prepared by Merrill Lynch: Year Sales ($ billions) Higher boundary | Lower boundary 1998 0.3 0.0 1999E 1.2 0.1 2000E 2.6 0.2 2001E 3.2 0.7 2002E 4.6 1.3 2003E 6.1 2.1 2004E 6.9 2.8 2005E 7.3 3.9 2006E 7.8 4.6 Considering the project cost of Iridium, sponsored by Motorola (see exhibit 1), in voice transmission segment, Calculate the minimum and maximum net present values (NPV), assuming that the free cash flows represent 40.00% of the projected sales. Please, consider the perpetual growth of rate of 10% beyond 2006E. (15 marks) Hint: Use the same discount rate you used in the previous question. 2. Based on Table A, the following NPVs are calculated for selected mobile satellite service providers using the equity summaries prepared by top equity analysts of Wall Street in 1998: Iridium Globalstar ICO Ellipso Project cost ($ billions) 5.5 3.3 4.6 1.4 NPV 4.5 7.1 0.7 1.3 Using the above table and other information in Table A provided in the case, discuss at least three strengths and three weaknesses of Iridium project compared to other three projects. (10 marks) Hint: You may use any information given in table A, and exhibits 1 and 4A.Exhibit 4A Merrill Lynch's Revenue Forecasts for Iridium by Research Report Date (note: phone service began 11/1/98) $9.0 $8. $7. $5.1 $ Billions $4.0 $3.0 $2.0 $1.0 $0.0 1908 1999 2000 2001 2002 2003 2004 2005 2006 7/15/97 -11/5/97 3/25/98 1/22/99 5/17/99 Exhibit 4B Analyst Revenue Forecasts for Iridium as of Year-end 1998 $9.0 $8.0 $7.0 $6.0 $5 0 $ Billions $4.0 $3.0 $2.0 $1.0 $0.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 -M- Lehman Brothers (12/30/98) Merrill Lynch (1/22/99) -Salomon Smith Barney (2/1/99) - Credit Suisse First Boston (12/1 8/98) -O- CIBC Oppenheimer (12/7/98) Source: Case writer AnalysisExhibit 1 Existing and Proposed Satellite Systems Estimated Segment/Project Lead Sponsor Constellation Specifications Cost ($ billions) Voice Transmission 1. Iridium LLC Motorola Low orbit, 66 satellites, plus 6 5.5 spares 2. Globalstar Loral, Qualcomm, Vodafone, Low orbit, 48 satellites, plus 8 3.3 Airtouch spares 3. ICO Inmarsat, TRW, Hughes, Medium orbit, 10 satellites, plus 4.6 various PTTs 2 spares 4. Ellipso Mobile Communications 17 satellites, most in elliptical 1.4 Holdings orbit 5. ECCO Constellation Communications Low orbit, 46 satellites, plus 8 3.0 spares 6. ACaS Pacific Satellite, Philippine Long Distance 2 geosynchronous satellites 0.9 7. Thuraya Etisalat (United Arab Emirates) |2 geosynchronous satellites 1.0 Total Cost (Voice Transmission) 19.7 Data Transmission 1. Teledesic Gates, Mccaw, Motorola, Low orbit, 288 satellites, plus 10.0 Boeing 12 spares 2. Skybridge Aclatel, Loral Low orbit, 90 satellites 4.2 3. CyberStar Loral 3 geosynchronous satellites 1.6 4. Astrolink Lockheed Martin 9 geosynchronous satellites 4.0 5. Spaceway Hughes Electronics 8 geosynchronous satellites 3.2 6. Orbcomm Orbital Sciences "Little LEO", 36 satellites 0.3 7. Leo One Leo One "Little LEO", 48 satellites 0.5 Total Cost (Data Transmission) 23.8 Total (Voice & Data) 43.5 Source: Various newspaper and industry articles Exhibit 2 Global Telecommunication Service Segments Segment 1999 Size ($ billions) 1990-1999 CAGR % 2000-2004 Est. CAGR Wireline 609.0 8.0 8.0 Wireless 206.8 14.2 15.0 Satellites MSS 1.9 21.4 60.3 FSS 17.3 31.7 28.0 Total 835.0 10.2 10.1 Source: Adapted from Mckinsey & Company
