06.15.09

Point it and they will come?

Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 11:53 am by timfarrar

As Inmarsat moves towards commercial launch of its new Global Satellite Phone Service (GSPS) some time in 2010, expectations have been building in the analyst community about the potential of GSPS to gain 10%+ of the $500M satellite phone business. In reality, the $500M market estimate (given by Inmarsat in 2006 when it acquired ACeS) represents retail service revenues and is an overestimate given the significant revenue declines experienced by Globalstar and Thuraya, two of the three principal handheld satellite phone providers, in 2007 and 2008. By our estimate, Globalstar, Thuraya and Iridium generated only about $270M in wholesale service revenues from handheld satellite phones in 2008, including a significant amount from Iridium’s US government contract.

While Inmarsat will start to compete in this market during 2010, what appears to have been completely overlooked by analysts are the significant limitations of the GSPS handset. As with the current SPS phone (see p17 of the user guide), we believe that customers will be advised to use the handsfree earpierce and physically point the phone antenna at the Inmarsat satellite. Some level of user cooperation in using satellite phones is not unprecendented, since Thuraya advises customers to ensure the antenna is pointed at the satellite when operating at low elevation angles, such as in south east Australia. However, Thuraya has never achieved much success in areas where this level of user cooperation is required, and the feedback we’ve heard on the first generation SPS phone that’s in use today has been pretty negative.

Inmarsat will certainly be able to improve the performance of the GSPS service within the EMEA region, to a level comparable with Thuraya, once its more capable Alphasat satellite is launched in 2012. However, Inmarsat will be constrained in the size of the antenna that it can use on future satellites, due to the need to maintain its existing levels of maritime coverage, so Inmarsat is unlikely to be able to extend similar levels of handheld performance globally without very substantial incremental capital expense.

Thus it does not appear that GSPS will be a realistic challenger to Iridium as a global satellite phone, and it may not be easy for Inmarsat to reach its target of a 10% market share within two years of launching the product, especially if Globalstar completes its next generation system and re-enters the market as a low cost handheld provider by early 2011. More importantly, as Iridium seeks to fund its next generation system (a prospect of which Inmarsat has been openly scornful), it will be able to make a very strong argument to the US government that Iridium NEXT is a necessity to maintain support for global handheld satellite services, on which US soldiers are increasingly reliant.

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