Investor says Globalstar's Wi-Fi tests are 'not real tests'

The short-seller activist investor who declared war on Globalstar is not backing down, releasing yet another scathing report (PDF) against the company.

In its latest salvo, hedge fund Kerrisdale Capital released a report saying it conducted tests using an independent firm, Allion Engineering Services--the same firm that Comcast (NASDAQ: CMCSA) uses to test its Wi-Fi--and found the test results that Globalstar filed with the FCC in June 2013 "do not reflect real-world tests."

Kerrisdale says it believes the test results touted by Globalstar about the benefits of terrestrial low power service (TLPS) were only computer simulations, or "predictive surveys," not real tests.

While other parties have raised concerns about TLPS affecting the performance of existing Wi-Fi systems using the unlicensed bands, Kerrisdale believes it is the first to conduct tests that produce hard data illustrating the size of the effect.

"Depending on the scenario, our lab tests show that TLPS activity could reduce the capacity of nearby unlicensed networks by ~60-70%. In some cases, when just two TLPS interference sources were introduced, a usable Channel 11 connection went dead," the Kerrisdale report said. "This data, the first of its kind, confirms that TLPS would cause interference. That said, we do not believe that TLPS will ever be commercially viable, so this potential interference is merely hypothetical, from our perspective."

Covington, La.-based Globalstar is awaiting a decision by the FCC regarding a request it made to have the FCC alter its existing rules and allow the company to offer mobile broadband service over the spectrum it has in the upper 2.4 GHz band. The satellite company has proposed to offer the TLPS that makes use of that 2.4 GHz band as well as the adjacent unlicensed industrial, scientific and medical (ISM) spectrum at 2473-2483.5 MHz.   

In an earlier 66-page Oct. 6 report, Kerrisdale Capital called into question Globalstar's entire business and said it is worth nothing, adding that it takes "little more than a rudimentary understanding of wireless communication to realize that." It's on a mission to make live presentations, webinars and other information available to demonstrate its position that Globalstar's TLPS concept is "laughable" and will never be commercially viable.

Some are calling into question the timing of Kerrisdale's efforts, led by its publicity-seeking chief investment officer, Sahm Adrangi, who The New York Times described as "a little-known activist investor" who might be borrowing a page from the script of billionaire investor William A. Ackman, who targeted Herbalife in a larger-scale hedge fund battle.

In a research note last week, Chardan Capital Markets analyst James McIlree reiterated a "buy" recommendation and $6 price target for Globalstar, noting that Kerrisdale continued its assault on Globalstar with an Oct. 10 ex parte letter in the FCC's Notice of Proposed Rulemaking (NPRM) on TLPS. "We believe the letter is more for the benefit of investors, and not the FCC, since the comment and reply comment periods for the NPRM have long past and Kerrisdale adds nothing new to the docket," the research note said.

McIlree believes the FCC's final rule on TLPS will broadly follow the NPRM issued earlier this year and enable Globalstar to engage partners and monetize the spectrum. "The big unknown, in our view, is the nature of the partnerships Globalstar will be able and willing to engage in after the final ruling is released," the analyst's note said, adding that Globalstar has hinted that it has narrowed potential parties to wireless or cable operators.

In a nearly two-hour Oct. 9 conference call with investors, Globalstar CEO Jay Monroe III called Kerrisdale Capital's report flawed and said it was based on mischaracterizations. In addition, Monroe assured investors that Globalstar's spectrum could definitely be used to ease congestion problems that currently exist with Wi-Fi networks in the United States.  

A representative on Friday said that Globalstar did not have a comment in response to the latest report from Kerrisdale.

For more:
- see this Small Cap Network post
- see this Times-Picayune article
- see this story
- see this Bloomberg article

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