In what could be the most important election of 2016, TheStreet is looking for the Worst Stock in the World and we need your help. In these times of market turbulence, it's our job to watch out for the worst investments that can sink your portfolio. Our search is not merely limited to the worst stock in the Dow or S&P. We are going global and accepting nominations from our readers for the absolute worst stock in the world. This article is part of an ongoing series talking about these stocks and why they're the worst. If you have an idea as to what the worst stock in the world is, email us at email@example.com.
Globalstar Inc. (GSAT) - Get Report has been petitioning the Federal Communications Commission for more than two years to let it offer customers access to a Wi-Fi channel it owns, which is its main asset. In November, 2013, the FCC introduced a proposal reviewing whether Globalstar should be permitted to offer the service, known as Terrestrial Low Power Service, or TLPS, on Channel 14 in the 2.4GHz band. The petition has been languishing for two years and it's questionable whether consumers will pay for this service if it does get approved when they already have Wi-Fi in their homes and in many other places.
Over the past three years, the stock has fluctuated as investors at first believed the company's story of how it will succeed -- and then less so:
Here are five reasons GlobalStar is the worst stock in the world:
1. The petition approval process has gotten bogged down over a variety of petitions by high-profile critics of the company, including Microsoft Corp., Sony Electronics Inc. and the Bluetooth Special Interest Group, which argue that Globalstar's use of the spectrum would interfere with other Wi-Fi services. The group argued in January that a recent demonstration Globalstar made to the FCC had a number of flaws, including the use of "unrepresentative equipment" and testing transmitters at far lower power levels than "what would be allowed under the rules Globalstar seeks." A new plan by the company to address interference when it receives complaints, they say, is unworkable. "From a physics perspective, there has to be interference when you have two devices operating on the same frequency," said Lee Badman, a wireless network architect and adjunct professor at Syracuse University (his views do not necessarily reflect that of the university). "That is the case here."
2. Even if GlobalStar's petition before the FCC is approved, it's possible that it will never be used because there are already 25 other Wi-Fi channels available as alternatives.
"If Globalstar got their way the only way I would get to use channel 14 is if I added their system to my system and the cost would be nonsensical for running cables and a management system to get one channel when you have all these others channels available," said Lee Badman, a wireless network engineer and adjunct professor at Syracuse University.
Another technical expert, Devin Akin, a Wi-Fi architect at Divergent Dynamics, argues that the company's "core idea is technically unsound and makes little sense." He noted in a recent paper that the small swath of spectrum will not support effective channel reuse "which is the single most important driver of Wi-Fi spectrum capacity" and that trying to reuse a channel over and over when the "penetration characteristics of the channel's frequencies are so high is a futile effort."
3. In addition, technical experts suggest that technology is shifting to 5GHz from the legacy 2.4GHz band GlobalStar is seeking to employ. Akin argues that 2.4GHz is "dead for Wi-Fi connectivity." In addition, he contends that Cisco and Apple have essentially declared 2.4GHz dead and are recommending a 5GHz only coverage design for Apple devices on a Cisco wireless network.
4. Globalstar's other business, a mobile satellite service that sells voice and data products in a niche market for satellite phones and similar devices, has been described by some short-seller activists as essentially insolvent. According to Globalstar's most recent quarterly report, for the period ending Sept. 30, the principal amount of its long-term debt was $656 million while its "adjusted EBITDA" was $14.6 million over the 12 months ended Sept. 30. As a result, it has a debt to EBITDA ratio of about 45 to 1, significantly outside the range of normalcy. Globalstar's operating income hasn't been positive in about a decade.
"This level of indebtedness would be unthinkable for the satellite business alone," said Shane Wilson, analyst at activist short-seller Kerrisdale Capital Management LLC, which is known for its deep dives into companies about which it is skeptical.
5. And, so far, the market has agreed with activist short sellers in the stock.
In October 2014, Kerrisdale founder Sahm Adrangi set up a website titled "Facts About Globalstar" to promote a report, slide show and three-hour New York webcast and presentation he put together arguing that the company was "overhyped, overleveraged and ludicrously overvalued."
After the launch of campaign and presentation, Globalstar's stock dropped from about $3.01 a share -- and never recovered (it currently trades around a dollar). Even at depressed levels, the company has a $1.1 billion market capitalization.
Another short sale activist, Gerst Capital LLC's Greg Gerst, argues that the congested areas where Globalstar's TLPS band would be most useful are those areas where 5GHz are "readily available and lightly utilized" and where additional 2.4GHz "noise" would risk the operation of other devices and services such as Bluetooth.
Bottom line -- even if GlobalStar does get FCC approval for its Wi-Fi services its chances of survival look pretty bleak. Globalstar did not return calls and emails requesting comment.