On Monday, Thrane & Thrane announced an agreement with KVH Industries to distribute KVH’s TracPhone V7 mini-VSAT product. At first sight, this seems to be an expression of confidence in the potential of maritime VSATs, with Thrane noting that “the market for Ku-band equipment for maritime satellite communication is expanding strongly” by about 1500 terminals per year. However, Thrane’s original plan was to pursue development of its own maritime Ku-band VSAT product and service, the SAILOR 900, announced last June, which has now been cancelled.
The Ku-band maritime VSAT market has grown dramatically in recent years, taking market share amongst high end users, who can afford the expensive terminals (typically $50,000+) and need the flat-rate, always-on connectivity that Inmarsat cannot provide with its L-band satellites. However, the Achilles heel of Ku-band systems has always been coverage: as Connexion-by-Boeing found out in 2006, the cost of leasing a global Ku-band network far outweighs the near term revenue that can be gained in what is a very fragmented business, with the largest players (Vizada/Marlink, SeaMobile/MTN, Caprock and ShipEquip) each having a market share of less than 20%. As a result, providers have to date offered C-band systems to customers requiring global coverage, and focused Ku-band solutions on intra-regional users.
KVH and Viasat have promised to change this model with their mini-VSAT network, building out global Ku-band coverage for both aeronautical and maritime applications, along similar lines to the concept envisaged by Connexion (though with smaller, cheaper terminals costing around $30,000). Thrane’s decision to join with KVH is an acknowledgement that even a company such as Thrane, with it’s very strong maritime brand, is unable to justify the costs of establishing global Ku-band coverage on its own. The question now is whether KVH and Viasat can afford the investment needed to complete their 2009 coverage expansion plans.
Orders have remained strong for maritime VSATs, even in recent weeks, but in the current financial climate, maritime VSAT looks far more vulnerable than Inmarsat to ship operators seeking to cut back their communications spending: it generally has a high fixed cost every month (compared to Inmarsat’s pay-by-the-use) and is usually sold on the basis of getting “ten times more data for double Inmarsat’s cost”, not on the basis of saving money over current expenditures. Most importantly, in many cases it is seen primarily as an investment in crew welfare: when there are few jobs going either at sea or on land, crew retention in 2009 will be much less of a problem than in 2008. As a result, Thrane looks amply justified in getting cold feet over pursuing its own VSAT product.