GlobeTel's (Not So) Excellent Russian Adventure

By Jeff Goldman

September 07, 2006

Russia is certainly an untapped market, but this company's claims of WiMax deployments and "stratellite" services may be nothing but fiction.

Back in February, we looked at GlobeTel Communications Corporation’s plans to install a $600 million WiMax network in Russia’s 30 largest cities. At the time, we noted that The Motley Fool was citing “open skepticism” among Russian communications analysts, saying the market was too small and competition too significant for GlobeTel’s plans to succeed.

Looks like the Fool may have been right.

On May 1st, GlobeTel announced a formal default by Russian partner Internafta – and Internafta responded later the same month that GlobeTel was the party responsible for the default. Cellular-News suggested at the time that “Internafta’s owners might have set up the company to obtain a developed business plan from GlobeTel for the WiMax project, without having any intention to cooperate with the U.S. company.”

Regardless, the company’s Russian WiMax plans were no more. As The Motley Fool’s Seth Jayson wrote at the time, “I do think it's possible that GlobeTel was outmaneuvered by the still-mostly-nameless Russian federation. But I won't be crying too many tears for GlobeTel managers and their $12 million worth of compensation last year – on gross earnings of only $413,729.”

Things haven’t gotten much better for GlobeTel since then. The company is also working on an airship called the Sanswire Stratellite which it says will fly 13 miles above the earth to provide wireless broadband access over a 125,000 mile wide area. But the American Stock Exchange now wants to de-list GlobeTel’s stock, and NASA recently lost interest in the Stratellite.

And so recently, The Motley Fool’s Jayson took another look at the company, looking back on “another series of failures and excuses from WiMax pretender GlobeTel, the company that has dazzled investors with tales of WiMax blimps and giant Russian WiMax deals – dreams that have a bad habit of, you know, not coming true.”

Jayson isn’t the only one questioning GlobeTel’s plans – The New York Post’s Chris Byron has also repeatedly attacked the company, writing in May that “the company said it would put its first blimp into orbit in January 2005. But the deadline came and went without a launch – the company didn't have a blimp that could get even 3 inches off the ground, let alone reach the edge of outer space.”

GlobeTel responded to Byron’s article with a press release quoting company chairman J. Randolph Dumas as saying, “We can only speculate and discuss with the regulatory authorities (as we have done over the past few days) the facts surrounding these apparently coordinated attacks which have been launched against our company recently by a series of law firms, tabloid journalists and professional short-sellers.”

Unfortunately, at the time this article was posted, the voicemail box for GlobeTel’s press representative was full, and e-mails sent to the company were not returned.

Regardless of GlobeTel’s corporate failings, JupiterResearch senior analyst Ian Fogg says there’s certainly room for a WiMax deployment in Russia. “The fundamental issue with those less developed markets in Eastern Europe is that they don’t necessarily have the basic infrastructure in place to offer ADSL broadband or cable broadband to the same extent that is prominent in Western Europe or the U.S.,” he says.

But Fogg admits that the Russian market is inherently challenging. Companies that work in the country, he says, “routinely report a difficult business environment in Russia. The basic framework that we expect to be in place in Western Europe and in North America to run a business is still somewhat patchy in Russia – and that’s an additional challenge, I think, when you look at the Russian market.”

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