01.15.16

Smitty, Smitty, give me your answer do…

Posted in Financials, Globalstar, Operators, Regulatory, Spectrum at 3:17 pm by timfarrar

“I’m half crazy all for the love of you” is a good description of the state of mind of Globalstar investors and perhaps even more appropriately, this is the song HAL sings as he’s shut down in 2001: A Space Odyssey. But now Globalstar apparently has its answer, delivered by “Smitty” and the heads of the International Bureau and the Office of Engineering and Technology in a meeting on January 14.

It seems Globalstar was nervous about the outcome, carefully scheduling its Odeon conference call several days before this meeting (on January 11), so that the company could say that it “has not been asked by the Commission to provide any further technical data or engage in any additional testing.” Even now there would not be any formal demand made by the Commission, merely a discussion of how the proceeding could be brought to a conclusion.

Globalstar’s hopes were raised by the intervention of Public Knowledge in November, who (while not thinking much of Globalstar’s attempt to devise “yet-another-sure-fire-plan-to–make-beaucoup-bucks-using-ATC-and-this-time-TOTALLY-not-go-bankrupt“), saw this as an opportunity to set a precedent for the upcoming rulemaking on LTE-U, requiring new users of unlicensed spectrum (i.e. cellular operators) to guarantee that they will prevent interference and resolve any complaints that do arise.

However, numerous technical issues remain outstanding, because Globalstar has steadfastly maintained that its program of demonstrations (rather than cooperative laboratory testing) provides a sufficient record for the FCC to reach a decision, and as I indicated previously, Globalstar rejected a proposed FCC compromise last summer.

What is notable about the latest ex parte filing is how half-hearted Globalstar’s statements are compared to its submission in December, which at least tries to highlight some of the technical arguments. In the new filing, Globalstar doesn’t even bother to put additional details about its “Network Operating System” for resolving interference on the record, despite Public Knowledge stating last week that “For the Commission to formulate service rules, Globalstar must provide greater detail on how its proposed mitigation mechanism would work” and Globalstar apparently telling investors on the Odeon call that the “Company will succinctly address ‘framework’ and ‘additional testing’ from the new PK Ex Parte in the coming days.”

Its therefore pretty easy to conclude that far from this representing the last step before approval as some of Globalstar’s “half crazy” investors apparently think, the FCC indicated that more information will be required before they are prepared to even consider moving forward, likely in the form of a cooperative testing plan agreed with opponents. Some have suggested that if such a discussion had happened, Globalstar would have been obligated to put it in the ex parte filing, but the FCC’s ex parte rules at §1.1204 (a)(10)(iii) specifically note that “information relating to how a proceeding should or could be settled, as opposed to new information regarding the merits, shall not be deemed to be new information” that must be summarized.

Given these developments, and a share price which has now fallen by more than 50% in the last six weeks, it hardly seems like great timing for Globalstar’s new COO to start work. However, if TLPS is not going to be approved any time soon, Globalstar will have to focus on making something (however modest) of the MSS business, if only to minimize the cure payments due under the COFACE agreement in the next couple of years, and hope that additional funding can be found to meet these obligations.

01.08.16

The exploding inflight connectivity market?

Posted in Aeronautical, Financials, Inmarsat, Operators, Services at 2:27 pm by timfarrar

Its been interesting to see Inmarsat’s stock price rising recently based on excitement about the prospects for its inflight connectivity business, as well as the fourth GX satellite (which Inmarsat hopes to lease to the Chinese government as the Financial Times also reported in October).

We published our new Inmarsat profile in December which highlights the company’s prospects for strong revenue growth from GX over the next few years, although since then Inmarsat has faced a few setbacks, with the Intelsat appeal of Inmarsat’s US Navy contract win being sustained and Apax finally emerging as the purchaser of Airbus’s Vizada division, despite Inmarsat telling people before Christmas it expected to buy this business in early 2016.

However, there is the potential for an even more worrying development in the near future, with ViaSat expected to give more details of its ViaSat-3 project in early February. This seems to represent something of an acceleration in ViaSat’s plans since last November, and it now looks possible that this announcement could include deals with some large new airline customers to provide advanced passenger connectivity services.

If it can be realized, ViaSat’s proposed 1Tbps capacity for ViaSat-3 would have a dramatic impact on bandwidth expectations and more importantly the low cost of capacity would make it feasible to offer low cost or free Internet connectivity, including streaming video, to airline passengers, even as data consumption continues to grow rapidly in the future. ViaSat could potentially do deals with Southwest and/or American, the first of these sounding the long awaited death knell for GEE/Row44′s connectivity business and the second proving disastrous for Gogo, which currently gets about 40% of its passenger connectivity revenues from American Airlines (though any fleetwide migration to ViaSat wouldn’t happen until after the current 10 year contract expires in 2018, just as seems likely for Virgin America).

That really would represent an explosion in the inflight connectivity market, though not one which would be welcomed by other satellite operators and service providers, many of whom have a difficult relationship with ViaSat. Indeed its notable how ViaSat is now also throwing its one-time partner Thales LiveTV under the bus, claiming that they mounted “a campaign of whispers…alleging that Exede did not meet its advertised performance.”

The implications of deals that could ultimately bring ViaSat’s number of served aircraft in North America up to as many as 2000 planes (i.e. half the equipped fleet) would be wide ranging, not least for inflight connectivity service providers, who’ve become used to seeing Gogo and Panasonic as the market leaders, and passengers, who’ve become accustomed to a market where “Inflight Wi-Fi Is Expensive, and No One Uses It.”

Even amongst satellite operators there could be some upheaval, with Inmarsat having just ordered $600M of I6 satellites (actually $900M+ including launch, insurance and ground segment costs) carrying what looks, in comparison, like a puny ~30Gbps per satellite, SES having signed a ten year $290M bandwidth contract with GEE in November 2014, and Intelsat potentially set to lose some of its claimed “73% share of today’s aeronautical satellite communications market.” Most importantly, if passenger expectations of free or low cost inflight WiFi start to spread beyond North America, then Inmarsat’s estimate that its European Air-To-Ground network will generate $300K per plane per year (more than double Gogo’s current run rate) would look even more questionable.

Widespread angst about the effects of new HTS satellites and slowing revenue growth is already weighing on the outlook for the satellite industry, but if ViaSat really does have one or more big deals to announce next month, then it would take concerns over future capacity and pricing trends to a whole new level. In that case we’d better all buckle in and get prepared for a very bumpy ride.