How to spoil a decent product launch

Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services, TerreStar, Thuraya at 2:37 pm by timfarrar

Inmarsat has now launched its ISatPhone Pro, which I was lucky enough to try out the other week. Although the phone itself is not particularly attractive, the call performance was better than I expected – voice quality was good (with the other party easily recognizable), and the ability to ‘walk and talk’ was far superior to my experience with the TerreStar Genus phone. Latency was also somewhat better than on the Genus phone. The main limitation was that the phone only registers on the Inmarsat satellite when the antenna is extended and pointed in the direction of the satellite, which means there is a delay of 1-2 minutes before a call can be made, and calls will rarely, if ever, be received on the phone (assuming the user doesn’t want to carry it around with the antenna extended).

Though Inmarsat’s phone is not expected to perform well at high latitudes (particularly in Alaska), it should generally be a good alternative for those MSS voice users who aren’t worried about carrying such a large device. The phone itself has been priced very aggressively, with pricing currently around $599 and in some cases close to $500.

However, the most surprising development is the airtime pricing that Inmarsat has set. Postpaid wholesale pricing has been set very low, leading to retail offers of $150 per year with 60 free minutes of calls. Even more extraordinary is the prepaid pricing, where a user can buy a 25 minute card, valid for 2 years, for only $20.

In my view the fact that Inmarsat has selected a uniform 2 year expiry date on its prepaid cards is a huge mistake, which I can only assume is due to the limitations of Inmarsat’s prepaid billing system (note also that prepaid service is currently not available in the US, due to patent litigation over the prepaid platform that Inmarsat uses). Iridium has previously indicated that about half of handheld MSS users are “glovebox”-type customers, who only use the phone for emergencies (and rarely use any minutes). To date such users have been paying at least $30 per month for satellite phone service (apart from occasional dual mode roamers on Thuraya), but now they will be able to get service for less than $1 per month. Inmarsat has thus completely undermined the economics of a significant part of the handheld MSS market, making it impossible for its service providers to justify targeting these customers (especially as SPs are busy competing away the margins which Inmarsat expected would be available on its handsets). In addition to leaving large amounts of money on the table, this action may also create added costs for Inmarsat, as these users are the least likely to be familiar with the limitations of satellite communications and thus may well end up consuming disproportionate levels of customer support resources.

Inmarsat may well have had a reason to act in such a destructive manner a few months ago, when it thought it might have the opportunity to prevent Iridium gaining funding in the public markets to pay for its NEXT contract. However, now that Iridium can rely on more money than expected from COFACE, such a calculation looks less sensible.

Despite having an attractive proposition for low end users, Inmarsat may still prove less successful than it hopes amongst higher volume users. In particular, these users will gain less of an advantage from the low occasional use tariffs, and may be somewhat reluctant to churn after making a substantial investment in buying an Iridium or Globalstar handset in recent years. Inmarsat has stated that it believes the average lifetime of a satellite handset is around three years, but in reality Iridium and Globalstar handsets are used for up to 8 years (and there is a thriving market for secondhand phones). As a result, churn in the handheld MSS market is much lower than Inmarsat apparently expects (even for Globalstar users, who have had to cope with a lack of two-way service in recent years), which will make it difficult to persuade large numbers of existing users to switch over rapidly to Inmarsat’s new service. On the other hand, competition from Inmarsat will potentially force Globalstar to offer rather more aggressive pricing as it tries to rebuild its subscriber base in 2011 and 2012.

In the end therefore, Inmarsat may end up being able to trumpet a fairly large number of handheld subscribers (potentially up to 150K by 2014), but many of these will be less desirable customers and ARPUs may be rather lower than expected. Thus the overall impact for the handheld MSS market of Inmarsat’s new service (even when combined with Globalstar’s two-way relaunch in 2011) may remain subdued, and at best we expect wholesale revenue growth of no more than 10% p.a. in the next five years. Indeed a more pessimistic view, assuming significant erosion of ARPUs at the low end of the handheld market could put wholesale revenue growth at less than 5% p.a. over this period.


  1. PCSTEL said,

    July 14, 2010 at 6:13 pm

    I believe a large percentage of Globalstar’s revenue comes from North America, and specifically Canada and Alaska. Both markets that I would expect poor functionality of GEO based MSS services. I would suggest that the Inmarsat pricing plans will have a much more profound effect on Iridium than Globasltar. As Globalstar’s future focus will be on medium-rate (256kbs) IP data, and Simplex SENS technology.

    Iridium is at a point where I believe it will be required to show continued growth in both Equipment Revenues, Service Revenues, and EBITDA, while Inmarsat currently, and Globalstar will soon re-enter the MSS Voice/LDR marketplace. The most tenuous phase of the COFACE based financing was the loan syndication process. At several points, Debbie Hirst who was the Managing Director – Head of Export Finance Americas at BNP Paribas claimed the syndication process was dead. If you look at the terms of the loan covenants. You will see that Globalstar has a schedule of minimum consolidated EBITDA requirements that begins at (25.0) million for 2009 increasing to 78 million in 2013. I would assume that Iridium’s syndication will require similar operational EBITDA loan covenants.

    In addition. Iridium’s total Thales contract price (2.1 Billion) has increased by almost 75 million dollars US due to $/€ fluctuations since the announcement of the guarantee.

    With Globalstar’s recent announcement of their intention to move their Corporate Headquarters to Covington, LA. It appears they are preparing for a low cost “knock-down, drag-out” in the MSS marketplace. I would suggest that the third member of the global MSS marketplace take notice.

    In other developments. The recent appearance of the Blackbird Technologies Asset Tracker (BAT) personal recovery beacon, which is obviously intended for troop tracking as per their 450 million Troop Tagging, Tracking, and Locating contract with the US Air Force appears to show there is some synergies within the DoD for Globalstar’s Simplex Network.


  2. wizardome said,

    July 15, 2010 at 3:22 am


    I felt the report by TMF Associates was not quite as informed as it was biased. Some fundamental issues were overlooked by the report. Firstly, important to note that it is called an IsatPhone Pro, not an IsatPhone. IsatPhone is the PRO version’s inferior predecessor which was essentially an ACES product.

    The article states that “the main limitation was that the phone only registers on the Inmarsat satellite when the antenna is extended and pointed in the direction of the satellite”. See, all satellite phones only register on the network when their antennas can see the satellite. The fact that an Iridium is able to do so while maybe it is stored in a belt-mounted pouch may come in handy to some, but I’ll argue the substance of any proposition that claims that the said functionality is of any significance to the average user. Most people do not even wear their phones on their belts, let alone require it to be constantly on the air so they can be ‘quick on the draw’.

    Also overlooked is Iridium’s particular fussiness over obstructions, i.e. by the (proportionally) huge person obstructing a good 50% of the horizon from where the phone is in its belt-pouch, or maybe trees in the area. So then just because the Iridium phone may be registered on the network, certainly does not mean the user will be able to make a call without first moving to a position without any obstructions nearby and/or possibly holding the phone out in front of them pointing up into the sky. (Remember, it requires significantly less bandwidth to be registered on the network than to make a call…)

    In my seven years in this business I have had many complaints from Iridium users struggling to make calls from ‘seemingly’ unobstructed locations. Our advice to them is to position themselves in an open wide area with horizon to horizon view of the sky, the antenna upright and fully extended, and then only you have the best chance of successful calling without issues. The very same thing the report by TMF Associates is now trying to slate IsatPhone Pro for.

    Furthermore, contrary to the TMF report you are not normally required to point IsatPhone Pro’s antenna AT the satellite (as it was with its predecessor), you only need to do that closer to the poles (above 50 degrees north and below 50 degrees south), which means that right across Africa, the bulk of the Americas, and Australia, pointing is a non-issue. So on the majority of the earth’s surface a user can simply point the antenna more-or-less straight up and it will work without any hassle. Another very handy feature of IsatPhone Pro that was overlooked is that the phone has been designed to lay on its side with the antenna upright and extended, and then has a Bluetooth feature (for a Bluetooth headset) which allows for highly practical use, and, unlike Iridium, means the phone can even be used to make reliable calls indoors when the phone is placed by a window with a view of the satellite.

    The fact that there is about a minute’s delay for IsatPhone Pro to register on the network while it is obtaining a GPS fix is probably equivalent to the time most people spend getting good signal on an Iridium phone, and of course, then you also get the significantly better call quality and stability from the IsatPhone Pro – worth ‘waiting’ for isn’t it?

    As to incoming calls, we’ve always said the best way to make contact with a satellite phone, is not to call it at all – but instead to send a free SMS from the satellite operator’s website messaging facility which the satellite subscriber (phone user) can then respond to by making an outgoing call if required/desired. This serves a dual purpose, because in case the subscriber is offline for whatever reason (as the TMF article purports), he will get the SMS the next time he switches on his phone, and also, it is generally (especially in third world countries) far cheaper to call from a satellite phone than to it. So why would you want to call it then if you can send a free SMS to the user to call you back? This then validates TFM statement of “calls will rarely, if ever, be received on the phone (assuming the user doesn’t want to carry it around with the antenna extended)”. Exactly, yes, why would you want to?

    IsatPhone Pro has certainly not been priced ‘cheap’ to make up for ‘flaws’ in the product as alluded to by Raymond James & Associates – it was designed to be an affordable phone from day 1, and personally I have long criticized Iridium for its exorbitant hardware prices. IsatPhone Pro’s affordable hardware and airtime pricing is an extremely welcome development especially for us here in Africa, where paying $1500 per phone and $40 per month on Iridium is just way out of the reach of just about all but corporate users.

    The small vouchers that Inmarsat has available for IsatPhone Pro is nice from a flexibility standpoint (i.e. mix and match to create your own), and the 2-year across-the-board expiry is quite nice from a manageability standpoint (presuming you pro-actively manage your pre-paid subscribers the way we do) – but certainly has nothing to do with the Red-Knee pre-paid platform : these vouchers have been in use on Inmarsat BGAN for quite some time and actually used to all have different validity periods. 2 years across the board is just much simpler. However I would have to agree anything below the 100 minute voucher is insignificant and I expect to see Inmarsat drop them as the product matures. Yes sure Inmarsat might initially gain a low ARPU subscriber base as part of an aggressive product launch, but be assured they will have a sound plan for how to increase ARPUs once the product gains more widespread acceptance.

    I do not see TMF’s reasoning when it says: “despite having an attractive proposition for low end users, Inmarsat may still prove less successful than it hopes amongst higher volume users”. If something is attractive for a low volume users, surely it should then be even more attractive for high volume users?? If your car gives you more mileage per gallon you would certainly expect to save even more when you’re doing a lot of mileage than a low-mileage user would.

    I also do not see TMF Associates’ reasoning on Inmarsat incurring added support costs as firstly, like Iridium, Inmarsat does not offer consumer support and secondly, you would expect a product that offers better performance to incur less support calls, not more.

    Charles Barber • Ashbury SatCom™
    The Business Centre • 377 Rivonia Boulevard • Cnr 12th Ave
    Rivonia 2128 • Sandton ZA

  3. timfarrar said,

    July 15, 2010 at 5:56 am

    I would certainly agree that the ISatPhone Pro has not been “priced cheap to make up for flaws in the product” – the pricing was a deliberate choice by Inmarsat to attack the handheld market. Indeed, as the title of the post indicates, I believe the ISatPhone Pro is a decent product, which for many customers should be a perfectly good alternative to Iridium. Some customers will find the coverage in Alaska and the ability to receive incoming calls to be an advantage, some won’t care.

    It appears there is some confusion about my remark on registration: the initial registration on the network (after the antenna is extended) does require some level of pointing accuracy, whereas making a call itself (after registration) does not. This is because the first process uses the regional spot beams and the second uses the small spot beams on the I4 satellites. While this is a minor inconvenience (because the natural reaction of a user upon completing a call is to retract the antenna), it is certainly not going to be determinative of the competition between Inmarsat, Iridium, Globalstar and Thuraya across the board. All of the systems have their own advantages and disadvantages, which make them more or less competitive for certain segments of the market.

    The real question is whether there is some big untapped market for handheld MSS, which has been deterred by price in the past and can now be addressed by the ISatPhone Pro, and if so, whether the current Inmarsat pricing is the way to do that. I would argue that the new subscribers that can be attracted by low pricing are generally low value customers, and Inmarsat is leaving too much money on the table with its pricing structure.

    From the point of view of a successful service provider, you have got to believe that there is some huge untapped market that will replace the revenues that would be lost by churning existing customers across to Inmarsat (this assumes that the higher margins promised by Inmarsat are competed away, as already seems likely). Customers may like cheaper service, but its not in the interests of an SP to provide it unless there is significant elasticity of demand. It appears from the pricing strategies employed by Iridium and Thuraya in recent years that they do not believe this is the case. Perhaps Inmarsat believes otherwise, but their past statements have indicated that Inmarsat is more interested in trying to destroy the business of their competitors. That is unlikely to be in the long term interests of SPs.

    Inmarsat’s fairly linear airtime pricing with a low monthly line rental charge means it is perfectly possible to be more attractive to low end users than high end users, just as Globalstar has used a bundling approach which has given most value to high end users. The current Inmarsat pricing structure certainly makes it easier for Iridium to proactively defend its high end customers and leave low end customers to churn over time.

  4. wizardome said,

    July 16, 2010 at 2:32 am

    But if an IsatPhone Pro can lie on its side with its antenna upright, as it specifically has been designed for, then it ‘can receive incoming calls’ – right? The remotest evidence I can see for the proposition that Iridium is superior with regards to incoming calls, is the fact that it can do so while on a belt clip – and that “advantage” I feel is of insignificant value to the average user. And if people have a natural tendency to stow the antenna away after making call, I have no doubt they will very quickly learn to leave the IsatPhone Pro on its side with the antenna upright if they want to receive incoming calls. In fact, maybe I’ll specifically point it out to them too.

    I can understand your reasoning as to why the phone’s network registration procedure is a bit alien to you – when say, compared to an Iridium – but the average person who has not used an Iridium (before using the IsatPhone Pro) won’t know any different, and will accept it for what it is. It is only at the edges of the coverage zone that more accurate pointing is required during registration, certainly not everywhere. You seem to know perfectly well how to do it now, after only testing the IsatPhone Pro on one occasion, and surely that is a good indication that the typical user would too. And in fact – I’m quite sure that, once someone has become used to an IsatPhone Pro, and you then give them an Iridium phone to use, they may very well prefer the IsatPhone Pro. I surely would.

    As to the market analysis: the terms “untapped” and “churn” describe two very contrasting marketing phenomena, and I do not think one can do a realistic market analysis without segmenting the two. You certainly don’t “churn customers (in)to an untapped market”. You either churn existing customers, or you sign up new customers (possibly in an untapped market).

    I agree there certainly isn’t a very big ‘untapped’ handheld MSS market in the US (or other 1st world countries maybe), where –relative to earning Dollars or Euros, the Iridium phone is already relatively inexpensive buy – hence the markets there are already quite saturated. So indeed, in 1st world markets, all you will see is churn – plus the usual annual organic growth, and I think Inmarsat is likely to take a good chunk of that easy organic growth that Iridium has seen in its handheld subscriber base over the past decade.

    However in 3rd world countries it is a different story entirely. In South Africa, the price for an Iridium phone with a 300 minute African voucher is probably just about the average person’s monthly income, so believe you me, qualified buyers are few and far between. In my 7 years, I’ve only sold about 1000 Iridium phones – and I’ve done well here… compare that to the volume of sales in the US. So in Africa, I have no doubt there is a huge untapped market for the low cost of IsatPhone Pro, and, will they be low ARPU customers –on average probably yes- but, as a satellite SP that operates in a very difficult market, we’d much rather have low ARPU users than no users at all… So we’re going to attract customers we’ve never have seen in the past.

    I think it is a matter of time before we see Iridium drop the 9555’s price to bring it more-or-less in line with that of the IsatPhone Pro, and of course part of Inmarsat’s marketing strategy was/is to destroy Iridium’s pricing model, as is usually the case when a ‘new’ entrant is trying to dethrone an incumbent. Iridium has had it easy – having had carte blanche to charge pretty much whatever it likes for its products and services. Those days are gone and we’re happy for it, as lower prices means we will sign up customers we’d never have seen before.

    As to margins, I feel it is easier to make good margins on lower priced products than on expensive ones : for a 5 or maybe 10% difference, a customer is far less likely to shop around for a better price on a $500, than they would be on a $1000 product. Yes, cheaper prices are of course going to be more attractive to more-price sensitive (low-end) customers, but that does not mean the cheaper prices offers no benefit to high end users – it may just be perceived as less of a benefit, but it is a benefit nonetheless. I do not see how Inmarsat’s low IsatPhone Pro airtime prices can make it “easier” for Iridium to defend its high-end customers – every single business I’ve ever been in, having someone next door discounting your prices, makes it harder to defend your turf.

  5. PCSTEL said,

    July 16, 2010 at 11:48 am


    Speaking of incoming calls. Do you have any idea of what a fully terminated call to an ISatphone Pro costs from a terrestrial number in Africa? Does Inmarsat have a two-stage dialing system like Iridium. Personally, I almost use my Iridium 9505a as a dial-out only device, since attempting to educate people who want to contact me how to use two-stage dialing is a pain. Globalstar was much more simplified and cheaper for incoming calls. When Globalstar was at 100%, I had few problems receiving calls with the antenna stowed when outdoors.

    It would help to understand from a competitive vantage point what the fully terminated costs are of a Inmarsat vs. Iridium incoming call.


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  7. wizardome said,

    October 6, 2010 at 9:58 am

    Hi PCSTEL,

    The local telcos in South Africa charge in the region of 35-40 ZAR per minute to call to satellite networks, but Inmarsat’s wholly-owned Distribution partner Stratos does have a two-stage dialing platform called Mobile-Link (see http://www.ashburysatcom.com/value-adds/inmarsat-value-added-services/) that reduces it to a cheap land line call.

    You are right though in incoming calls can often be unpractical regardless of what phone you use and so we always recommend people rather use the free messaging facility to send message to satellite phones which the user can retrieve and respond to as and when they switch their phone back on.

    Charles Barber
    Ashbury SatCom

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    May 20, 2011 at 4:20 pm

    [...] You can read the full debate and original posting here. [...]

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