October 2014 Globalstar, Inc. (GSAT) The Most Egregious $4 Billion Stock Promotion Since Sino-Forest Globalstar’s equity is worthless. It is not worth $4 billion, or $3 billion, or $1 billion. It is worth nothing, and it takes little more than a rudimentary understanding of wireless communications to realize that. In this report and future reports, as well as live presentations, webinars, and our website www.factsaboutglobalstar.com, we will demonstrate clearly and irrefutably that (1) Globalstar’s Terrestrial Low Power Service (“TLPS”) concept is laughable and will never be commercially viable and (2) Globalstar’s spectrum holdings are unlikely to generate material value in any other use case. In virtually all scenarios, the combined value of the company's unprofitable core satellite business and the potential terrestrial applications of its spectrum assets falls below its massive debt burden, making the stock a zero. Though some speculators view final FCC approval of TLPS as a positive “catalyst” for Globalstar, we already assume that TLPS will be approved. (If it isn’t, or if the rules are merely less favorable than expected, then the Globalstar bubble will just deflate that much more rapidly.) Globalstar (GSAT), currently trading at a fully diluted market capitalization of $3.6 billion after successfully convincing numerous hedge funds to buy into its story, is by far the most ludicrous stock promotion we have seen since our time exposing fake Chinese companies in 2011. The fourth-largest player in the slow-growing mobile satellite services (MSS) market, GSAT uses its constellation of low- Earth-orbit satellites to offer basic mobile voice and data services in remote areas of the planet. Over the twelve months ended June 30, 2014, GSAT generated just $88 million of revenue, $15 million of adjusted EBITDA, and negative $95 million of operating income. Since emerging from bankruptcy in 2004, it has racked up cumulative operating losses of $463 million, increased its share count by a factor of 13, been de-listed from the NASDAQ in 2012, defaulted on its debt in 2013, and put itself on a path to violate its financial covenants again in the near future. Yet GSAT today has a $4 billion enterprise value thanks to an outpouring of misleading and ill-informed hype over its plan to exploit its spectrum licenses terrestrially. According to the company and its cheerleaders, this plan will unlock tremendous riches and incite a frantic bidding war among every technology and telecom company of significance. In reality, in the words of one of the many subject- matter experts to whom we have spoken, “If it [the TLPS proposal] went through, no one would care.” GSAT’s TLPS concept is nothing more than the addition of one new Wi-Fi channel in the legacy 2.4GHz band – a licensed, for-profit channel that only authorized devices could use. In a world that already has three free, unlicensed channels in the 2.4GHz band and an additional 22 in the 5GHz band, the notion that one more channel, hypothetically accessible to only a circumscribed subset of users, could be worth many billions of dollars has elicited chuckles of ridicule and disbelief from every Wi-Fi engineer we could find. Notwithstanding GSAT’s fear-mongering about debilitating “Wi-Fi congestion,” modern technology and network design have rendered co-channel interference perfectly manageable even in challenging settings like the Super Bowl and the Olympics, let alone less extreme but still densely populated environments like university lecture halls and Starbucks cafés. The immense success of Wi-Fi in high- density areas using free, unlicensed spectrum relies on spreading traffic across multiple channels; by contrast, TLPS, with just a single channel, is terribly ill-suited for exactly those places where GSAT claims it will help. Ironically, TLPS, pitched as a solution to “congestion,” would suffer from it dramatically more than true Wi-Fi. The irrelevance of TLPS will be reinforced by the rapid ascent of the next-generation Wi-Fi protocol 802.11ac, which operates exclusively in the 5GHz band and will achieve performance that the 2.4GHz-only TLPS could never match. Ultimately TLPS is nothing more than GSAT’s latest gimmick to stave off bankruptcy, a stunt that rivals Allen Chan’s fake forests as the most successful stock-market fantasy we’ve ever come across. Outside of TLPS, many analysts value GSAT as if its spectrum holdings – currently authorized only for use in its satellite business – were about to become on par with AT&T or Verizon’s, but this is profoundly mistaken. While mobile network operators have the legal authority to transmit over their proprietary frequencies at high power levels – for example, 1,640 watts – TLPS would neighbor the unlicensed 2.4GHz band and thus face power limits that are 400x lower, dramatically increasing the number of base stations needed to cover a given physical area. These onerous power restrictions, as well as other features specific to GSAT’s spectrum that we’ll discuss later in the report, render GSAT’s spectrum useless to potential acquirers. Though GSAT sought the FCC’s permission for full flexibility to use its spectrum terrestrially in a high-powered LTE network – akin to the treatment DISH Network (DISH) received for its spectrum – the FCC snubbed this request and only agreed to move forward with the lower-value TLPS option. Even if GSAT were to abandon its ludicrous, quixotic dream of one day using its 1.6GHz spectrum for terrestrial purposes (despite more severe GPS interference problems than the disastrous LightSquared), its 2.4GHz band still wouldn’t add up to much. It’s not exclusive to GSAT; it runs the risk of severe interference with important and heavily used neighboring bands; and it’s difficult and impractical to incorporate into a plausible consumer device. Amusingly, even if we ignore all of these fatal flaws, GSAT is still trading at a valuation far in excess of what appropriate precedent transactions suggest. For example, applying the price that Sprint paid just last year for Clearwire’s high-frequency spectrum – which GSAT’s CEO has characterized as “functionally equivalent” to GSAT’s own – implies ~80% downside for GSAT’s stock price. Given how many optimistic assumptions are imbedded in that estimate, 100% downside is perfectly reasonable as a more realistic base case. GSAT’s shareholders are baselessly ascribing enormous value to the company’s TLPS concept and its spectrum, hoping that a greater fool will write a multi-billion-dollar check to cash them out. No such fool exists. Fundamentally, the company’s equity is worth nothing. Like its satellites, GSAT’s stock price has a long, long way to fall before crashing back to Earth. Disclaimer: As of the publication date of this report, Kerrisdale Capital Management, LLC (“Kerrisdale”), other research contributors, and others with whom we have shared our research (the “Authors”) have short positions in and may own option interests on the stock of the Company covered herein (Globalstar, Inc.) and stand to realize gains in the event that the price of the stock declines. Following publication, the Authors may transact in the securities of the Company. The Authors have obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented “as is”, without warranty of any kind – whether express or implied – and without any representation as to the results obtained from its use. All expressions of opinion are subject to change without notice, and the Authors do not undertake to update this report or any information contained herein. Please read our full legal disclaimer at the end of this report. 2 Table of Contents I. INVESTMENT HIGHLIGHTS ............................................................................................ 4 GSAT’S WI-FI CONCEPT WILL NEVER BE COMMERCIALLY VIABLE ..................................................... 4 GSAT’S SPECTRUM IS NOT VALUABLE FOR TERRESTRIAL PURPOSES ................................................... 7 GSAT’S ACTUAL BUSINESS IS WEAK AND HEADED FOR DEFAULT ...................................................... 8 II. COMPANY OVERVIEW ....................................................................................................... 9 III. GSAT’S WI-FI CONCEPT WILL NEVER BE COMMERCIALLY VIABLE .................... 11 HOW DOES WI-FI WORK SO WELL? A BASIC OVERVIEW ...................................................................... 12 WI-FI IN ACTION TODAY: A LOOK AT THE DATA ................................................................................... 14 5GHZ WI-FI DEEPLY UNDERMINES THE HYPOTHETICAL VALUE OF TLPS ..................................... 18 WI-FI NETWORKS DON’T NEED MORE SPECTRUM TO MITIGATE CONGESTION ............................ 21 TLPS WOULD BE FAR SLOWER THAN STATE-OF-THE-ART WI-FI ....................................................... 22 TLPS WOULD ADD NO VALUE TO A LARGE-SCALE WI-FI NETWORK ............................................... 23 CONTRARY TO GSAT’S HYPE, TLPS CANNOT BE DEPLOYED “ALMOST IMMEDIATELY” .............. 27 TLPS HAS NO VALUE INTERNATIONALLY................................................................................................ 31 HOW MUCH DOES GSAT REALLY KNOW ABOUT WI-FI? ...................................................................... 32 IV. GSAT’S SPECTRUM IS NOT VALUABLE FOR TERRESTRIAL PURPOSES .............. 33 THE HISTORY BEHIND TLPS: LOW POWER, LOW VALUE .....................................................................