06.07.11

Why is Iridium outselling Inmarsat?

Posted in Handheld, Inmarsat, Iridium, Operators, Services at 1:50 pm by timfarrar

Last July, I suggested that although the performance of ISatPhone Pro was better than I had expected, the pricing strategy adopted by Inmarsat seemed to be mistaken and their expectations of rapid churn from Iridium were wide of the mark. Some criticized this opinion as biased, suggesting that the ISatPhone Pro would actually be “a huge hit“. Based on conversations with distributors last fall, I encountered a quite diverse set of views, with some expecting the low price of the ISatPhone Pro to open up significant new markets, and others concerned that they would not be able to make up for the lower revenues through increased volumes and (what were supposed to be) better margins.

Now that the first results are in from Q1 of this year, it appears that Inmarsat sold only 6K-7K handsets (total revenues of $3M including accessories), while Iridium sold well over twice that quantity (15K+), with handset unit sales up 39% on the previous year. These results come as quite a shock, because even though I was relatively skeptical about the potential of the ISatPhone Pro to open up new markets, I still found it hard to envisage a scenario where Iridium sold more handsets than Inmarsat this year. However, unless things turn around dramatically in the second quarter of the year (which is the key sales window for handheld MSS phones), that will very likely be the outcome for 2011 as a whole. (Note that Inmarsat did have slightly more net adds than Iridium in the quarter, ~7K as opposed to 4K-5K for Iridium, but that reflects the fact that Iridium has well over 200K commercial handheld subscribers, some of whom will inevitably terminate service each month).

Distributors now seem far more downbeat about the prospects for the ISatPhone Pro than they were even late last year, presumably because so far it doesn’t look like substantial untapped markets have emerged, and customer response to the phone itself (as opposed to the price) has not been that positive. In addition, the ARPUs being generated by those ISatPhone Pros that have been sold appear to be rather low, because Iridium seems to have been quite successful in targeting multi-unit sales and retaining its high value customers, while leaving the low end individual market largely to Inmarsat, by not reducing the headline price of the handset too much.

Will Inmarsat therefore fall short of its target of reaching 10% of the MSS handheld market after 2 years? In terms of active handsets the target remains achievable (if now somewhat more challenging), because Inmarsat needs to gain around 70K-80K handheld subscribers by the end of 2012 (compared to around 15K ISatPhone Pro users at the moment). However, it seems all but impossible for Inmarsat to generate the $30M in annual wholesale service revenues it would need to gain a 10% share of handheld MSS revenues. Indeed, unless Inmarsat does gain much greater traction amongst high end users, it is plausible that its annual wholesale service revenues from the ISatPhone Pro may be as low as $10M (and in any case are unlikely to be more than $15M) in 2012.

4 Comments »

  1. geoff goodfellow said,

    June 7, 2011 at 7:47 pm

    posit #1: the ISatPhone Pro didn’t offer data capability during the Q1 period (but now has it with their sw upgrade as of 31 March 2011 ref: http://blog.isatphonelive.com/wordpress/?p=319 so anyone who wanted or needed data had no alternative but to choose Iridium’s 9555 and service vs. the ISatPhone Pro and Inmarsats service

    posit #2: given the “you can buy about two ISatPhone Pro’s” for the cost of one Iridium 9555, the dealers of sat phones are steering customers towards the Iridium 9555 and away from the ISatPhone Pro because they get a sigificantly better SPIFF on the Iridium 9555 vs. the ISatPhone Pro? meaning that the satellite dealer sales person is “working for their bottom line” (i.e. which one is gonna get me more take home pay) vs. working for The Prospective [less price sensitive] Customer?

  2. Relax said,

    June 7, 2011 at 8:13 pm

    Well, the absence of prepaid service in the USA is a major issue also. I don’t believe that Data was such an issue though. Customers also worried about the GPS lock requirement and the time it takes to get a connection.

  3. jgrove said,

    June 8, 2011 at 9:58 am

    DP’s possibly make more from an Iridium phone sale than an isatphone sale. The product is still new and with Inmarsat offering the handset for free on certain packages will mean a larger take up. In fact, in the UK, isatphone’s were sold out at most places. New firmware now allows data via the phone and this will again increase user base, call costs are lower as well, not to mention the phone costs!

    Iridium has the advantage of not requiring a gps fix to use, but you can bet that the new system from iridium does. The main problem for inmarsat is that the pre-pay system in the USA still isnt allowed, and they really need to resolve this in order to gain further market share.

  4. TMF Associates MSS blog » May the Force be with you… said,

    September 7, 2011 at 9:23 am

    [...] It seems the aim of the AxcessPoint hotspot will be to increase usage of existing phones, via a low incremental cost (~$200) accessory, which is likely to provide a better financial return for existing service providers than a more disruptive low cost standalone device. Indeed Iridium expects to achieve a premium price for the new Extreme phone and does not see a need to lower the price of the 9555 for now (given its strong sales so far this year despite competition from the ISatPhone Pro). [...]

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