I’m told that after a fair amount of difficulty and a month or two of delay, Greg Wyler has now successfully secured commitments of about $500M to start building the OneWeb system, and he will announce the contract signing with Airbus at the Paris Air Show next week. The next step will be to seek as much as $1.7B in export credit financing from COFACE to support the project with an objective of closing that deal by the end of 2015.
This comes despite Elon Musk’s best efforts to derail the project, culminating in an FCC filing on May 29. That filing proposes the launch of 2 Ku-band test satellites in late 2016, which would presumably be aimed at ensuring OneWeb is forced to share the spectrum with SpaceX, as I predicted back in March.
Clearly Musk is not happy about the situation, since I’m told he fired Barry Matsumori, SpaceX’s head of sales and business development, a couple of weeks ago, after a disagreement over whether the SpaceX LEO project was attracting a sufficiently high public profile.
Most observers appear to think that Musk’s actions are primarily motivated by animus towards Wyler and question whether SpaceX is truly committed to building a satellite network (which is amplified by the half-baked explanation of the project that Musk gave in his Seattle speech in January, and the fact that I’m told SpaceX’s Seattle office is still little more than a sign in front of an empty building).
Google also demonstrated what appears to be a lack of enthusiasm for satellite, despite having invested $900M in SpaceX earlier this year, when its lawyers at Harris, Wiltshire & Grannis asked the FCC on May 20 to include a proposal for WRC-15 that consideration should be given to sharing all of the spectrum from 6GHz to 30GHz (including the Ku and Ka-bands) with balloons and drones (see pp66-81 of this document). Needless to say, this last minute proposal has met with furious opposition from the satellite industry.
However, one unreported but intriguing aspect of SpaceX’s application is the use of a large (5m) high power S-band antenna operating in the 2180-2200MHz spectrum band for communication with the satellites. Of course that spectrum is controlled by DISH, after its purchase of DBSD and TerreStar, and so its interesting to wonder if SpaceX has sought permission from DISH to use that band, and if so, what interest Charlie Ergen might have in the SpaceX project.
Nevertheless, it looks like Wyler is going to win the initial skirmish, though there are still many rounds to play out in this fight. In particular, if Musk truly believes that the LEO project, and building satellites in general, are really going to be a source of profits to support his visions of traveling to Mars (as described in Ashlee Vance’s fascinating biography, which I highly recommend) then he may well invest considerable resources in pursuing this effort in the future.
If that’s the case, then the first to get satellites into space will have a strong position to argue to the FCC that they should select which part of the Ku-band spectrum they will use, and so Wyler will also have to develop one or more test satellites in the very near future. Fortunately for him, Airbus’s SSTL subsidiary is very well placed to develop such a satellite, and I’d expect a race to deploy in the latter part of 2016, with SpaceX’s main challenge being to get their satellite working, and OneWeb’s challenge being to secure a co-passenger launch slot in a very constrained launch environment.
At last week’s Satellite 2015 conference, considerable attention was focused on new LEO constellations, most prominently OneWeb, whose founder Greg Wyler made a keynote speech to introduce the system and a couple of mockup terminals. Although many doubts exist about the feasibility of the OneWeb system (particularly with regard to the very ambitious cost estimates and the plausibility of building a profitable global Internet access business), its clear that OneWeb is moving aggressively to try and secure funding and sign a contract for satellite construction with one of five bidders in the next month.
Much less was said at the conference about SpaceX’s proposed 4000 satellite constellation, which Elon Musk announced in January with a half-baked speech in Seattle, which included many off-the-wall and some completely incorrect statements (such as that Teledesic “were trying to talk to phones”). Back in January, Google’s investment of $900M in SpaceX was seen as initiating a partnership to launch this new satellite system. However, at Satellite 2015, SpaceX made clear that the satellite venture was in the “very early stages” and Google’s investment was “not for the global internet project we’re exploring right now.”
A logical conclusion to draw, given Musk’s usually impeccable technical depth and the later change in description of Google’s investment, is that the announcement of the SpaceX constellation was rushed out in order to overshadow Wyler’s announcement of the much more modest investment he had secured from Qualcomm and Virgin.
However, what SpaceX has already done (on March 2) is make a filing at the FCC, which “support[ed] the extension of proposed changes to the Commission’s ITU coordination procedures to NGSO systems to encourage such filings through the U.S. administration”. SpaceX noted that there were “incentives for foreign administrations to pursue NGSO broadband satellite filing strategies that effectively block access to available spectrum and orbital resources” in contrast to the FCC’s “modified processing round” approach.
SpaceX proposed that licensees also be required to launch and operate a percentage of the authorized number of satellites (such as 5%) within 3.5 years and then 75% of the authorized satellites within 6 years, rather than the current milestones of 1 satellites then the entire constellation. In addition, it was proposed that the initial milestones for contracting for, and beginning construction of, the satellite constellation should each be shortened by 6 months.
All of these proposals are clearly intended to make OneWeb’s life more difficult. However, the more important subtext of SpaceX’s submission is that it would clearly like to be subject to the FCC rules, which mandate a sharing of both Ku-band and Ka-band NGSO spectrum between all entrants, regardless of ITU filing priority, based on avoidance of inline interference events.
Under these rules, the spectrum is split in half when two satellites from different systems are inline with one another and would therefore interfere with terminals at a particular location on the ground, and the first system to launch simply gets to indicate which (fixed) half of the spectrum it will use during these inline events. Given the large number of satellites that SpaceX and OneWeb both propose to launch, this splitting of the spectrum would happen almost all the time, and therefore for all intents and purposes, OneWeb would lose access to half of the Ku-band NGSO spectrum once both systems were operational.
Some have argued that OneWeb could simply rely on its ITU priority and not seek a license from the FCC. However, its hard to imagine that ignoring the US market is practical, given that the vast majority of the world’s satellite broadband subscribers today are in North America, and OneWeb has expressed its ambitions to provide inflight connectivity services, when most equipped aircraft are also based in North America. Moreover, if as many suspect, one of Qualcomm’s reasons for investing in OneWeb is to gain access to spectrum that could eventually be authorized for terrestrial 5G use (just like the ATC applications by LightSquared, Globalstar and others for 4G in the L-band and S-band), it is hard to imagine trying to pursue such an approach through any administration other than the FCC.
While it might be more difficult for the FCC to enforce its mandated allocation on systems licensed through other administrations when they are operating outside the US (notably Globalstar licensed its second generation constellation through France for precisely this reasons, after the FCC reallocated some L-band spectrum to Iridium), mutually assured destruction could potentially result if a US-licensed system decided to transmit in half of the spectrum in accordance with US rules, wherever its satellites were operating around the globe. (Note that, in contrast, Iridium and Globalstar have reportedly not noticed any interference from the two systems operating at relatively low levels of loading in the portion of the L-band spectrum that the two operators share.)
With OneWeb looking to close an investment round of between $300M and $500M in April, and start manufacturing satellites, it would therefore not be in the least surprising if SpaceX decides to ask the FCC to initiate an NGSO processing round in the very near future (perhaps in both the Ku-band and Ka-band) as a way of impairing OneWeb’s ability to move forward, and perhaps even preventing the investment round from closing. Musk certainly seems to have decided that he wants to destroy Wyler’s project (perhaps because he doesn’t like any potential imitator as a publicity-seeking space entrepreneur), and it is notable that the Steam filings, through Norway, which are generally believed to be controlled by SpaceX, were received at the ITU on June 27, 2014, when Wyler and Musk were still in discussions about potential collaboration.
The effects of an FCC processing round would be to delay any regulatory certainty about NGSO spectrum allocations for at least a year and possibly much more, while the FCC decided whether to confirm its existing rules for spectrum sharing, and it became clear whether this approach would be adopted elsewhere. There could also be some notable knock-on effects from any Ka-band processing round on O3b, whose FCC authorization specifically states that O3b’s use of the NGSO Ka-band spectrum is “subject to the sharing method specified in Establishment of Policies and Service Rules for the Non-Geostationary Satellite Orbit, Fixed Satellite Service in the Ka-band, Report and Order, IB Docket 02-19, 18 FCC Rcd 14708 (2003) and 47 C.F.R.§ 25.261.”
Thus the FCC has mandated that O3b must share its existing NGSO Ka-band spectrum with future systems, and the launch of a new large NGSO Ka-band system (which might include SpaceX’s constellation, if it operates in both Ku- and Ka-band) could have a meaningful effect on O3b’s operations in the future, whether O3b complies with the FCC ruling or withdraws from operating in the US in (what might end up being) a futile attempt to evade these constraints.
Over the last two weeks rumors have swept the satellite industry about Google’s plans to build a huge new broadband satellite constellation (dubbed “son of Teledesic” in a February article). I’ve done a fair amount of digging and since it looks like we will see this story in the mainstream press pretty soon, I thought it would be useful to summarize the analysis I produced for research clients last weekend.
As The Information reported on Tuesday, last month Google hired Brian Holz (former CTO of O3b) and Dave Bettinger (former CTO of iDirect) to work on the design of a massive new broadband satellite system, as part of Google’s Access division.
What has so far gone unreported are the technical details of the planned system, which is expected to involved 360 LEO Ku-band satellites using a filing by WorldVu in Jersey. The constellation will have 18 planes of 20 satellites, with half at an altitude of 950km and the remainder at 800km. I would expect the constellation to be launched in two phases, with the higher altitude satellites providing complete global coverage, and the lower satellites being added later, in between the initial 9 planes, to provide additional capacity. It also seems likely that the system could include inter-satellite crosslinks (within each of the two halves of the constellation) given the near polar orbit that is planned. WorldVu is apparently owned/controlled by Greg Wyler, the founder of O3b, who is rumored to have a handshake agreement with Larry Page to move ahead with the project.
The satellite system is budgeted to cost $3B, which is a very aggressive price target (recall Teledesic was supposed to cost $10B back in 1999), based on a plan to use very small (100kg) satellites. If this ultimately proves infeasible then the cost would certainly rise: for example the O3b and Iridium NEXT systems (700kg and 800kg respectively) cost at least $40M per satellite to build and launch.
UPDATE (6/1): The WSJ now has more details of the plan, confirming my supposition that it would start with 180 satellites and add the rest later. I was quoted in that article as stating that “180 small satellites could be launched for as little as about $600 million” but that should not be interpreted as a total cost for building and launching the satellites. If the target of 100kg could be achieved, the all-in cost for the first 180 satellites would certainly approach $2B, and if the satellites end up being more like 200-300kg, which a satellite designer suggested to me might be easier to achieve, then that all-in cost could reach $3B. The full 360 satellite system would likely cost $3B for the 100kg satellites and $4B-$5B for the 200-300kg satellites.
Notably the satellites would use the Ku-band, not the Ka-band which has been popular for broadband in recent years. This takes advantage of the FCC and international rulings secured by Skybridge in the late 1990s, which made over 3GHz of spectrum available for NGSO Ku-band systems, so long as they avoid interfering with satellites along the geostationary arc. In practice this means turning off the satellite when it is within about 10 degrees of the equator and handing over to an another satellite that is outside this exclusion zone. WorldVu apparently has priority ITU filing status with respect to this huge amount of spectrum on a global basis.
The total system capacity is unclear, but it could certainly be 1-2 Tbps or more for the full constellation, although not all of this will be usable (for example in polar and oceanic regions). Importantly, any LEO system would be critically dependent on the successful development of Kymeta’s new flat panel meta-materials antennas (which are being developed initially for Ka-band, but could also be extended to operate in Ku-band), because otherwise the need for tracking dish antennas makes it impossible to build terminals cost-effectively. After all, this terminal problem ultimately proved terminal for Teledesic in the late 1990s, and O3b is already telling potential enterprise customers that they should look to Kymeta to provide a viable low end terminal in a couple of years time.
Construction and launch of the first half of the constellation could probably be achieved within 5 years, if the satellites were small enough for dozens of them to be launched at once, and sufficient launch slots could be secured. However, it seems Google has not yet engaged actively with satellite manufacturers to seek their input on design feasibility (let alone bids) and so it might be premature to expect any formal announcement (and for the clock to start running on construction) at this stage.
Nevertheless this prospect is causing considerable excitement amongst satellite manufacturers, who had been bracing for a potential decline in business after record orders in recent years, and corresponding trepidation amongst satellite operators, who were already wary of a potential price war (and accelerated depreciation in the value of some older satellite assets) brought on by new high throughput Ku and Ka-band GEO satellites. Those investing in new broadband satellite systems of their own (like Intelsat, Inmarsat, ViaSat and Hughes) will certainly have to take this wildcard into account, but like the movie, only time will tell if Google’s space odyssey is going to be regarded as more than just dazzling special effects.
Without any hint of the PR blitz that I had expected, Intelsat has quietly updated its website to confirm my blog post in March, that it is about to order at least two new satellites, IS-29 and IS-33 to provide high capacity spot beam Ku-band service in the North Atlantic and Indian Ocean regions. These satellites will be in-service in 2015 and 2016 respectively, and are intended to “provide four to five times more capacity per satellite than our traditional fleet” with total throughput “in the range of 25-60 Gbps” (this appears to be a total not a per satellite figure – I would guess the throughput per satellite is around 12Gbps, roughly the same per satellite as Inmarsat’s GX, including its high capacity overlay beams).
UPDATE (June 7): Intelsat has now put out a press release and added more data to its website including a fact sheet, which states specifically that the throughput of 25-60 Gbps is per satellite. Obviously this figure is a wide range but it is clearly much greater than the Global Xpress per satellite capacity. I understand that one reason for Intelsat’s lack of publicity is the quiet period associated with its proposed IPO, but Intelsat definitely considers this a very important development and has been trumpeting it privately to distributors at its recent partner conference.
Intelsat is planning to integrate these new satellites into its existing maritime coverage as shown below (indeed there is less high capacity oceanic coverage than I expected, presumably because it will take time before Intelsat’s existing capacity fills up) and it appears that Intelsat will now be looking to compete head-to-head with Inmarsat’s Global Xpress as well as Viasat (both of which Intelsat appears to be referring to with its comment that “Unlike many new satellite operators, Intelsat is not constrained to Ka-band“)
What we haven’t yet seen are the details of Intelsat’s launch partners. It is clear that one partner is Panasonic, but the more important question is who Intelsat might have managed to secure in the maritime market. Inmarsat’s recent list of XpressLink distribution partners was notable for the absence of Vizada and most other major maritime VSAT providers, so if one or more of these maritime players now makes a substantial commitment to Intelsat, it will be another important sign that the transition to Ka-band in the maritime and aeronautical sectors is far from a foregone conclusion.
I noted back in November that the MSS industry was seeing a dramatic deceleration in revenue growth, but 2012 is already bringing even more challenges across the sector. As I predicted last month, Inmarsat’s price rises are causing a substantial backlash in the shipping industry, with the latest Digital Ship magazine including a devastating letter from AMMITEC (the Association for IT Managers in the Greek Maritime Industry), asserting that:
The handling of the pricing restructuring shows a blatant disregard for the long-term loyalty and trust that, up until a couple of years ago, the majority of the shipping world has had in Inmarsat and its maritime offerings.
Inmarsat’s (not terribly reassuring) response indicates that:
Inmarsat is listening to our customers. We recognise that some of these price changes will be difficult for smaller vessels, and so we will be introducing a small boat package to which they can transition.
However, to the best of my knowledge, this “Small Vessel Pricing Plan”, which Inmarsat told its distribution partners a couple of weeks ago was “in the final stages of development”, has not been announced before the pricing changes come into force tomorrow, and I’ve even heard suggestions that Inmarsat doesn’t actually intend to implement this plan unless it really does suffer from a significant number of customer defections.
Of course, Inmarsat is not alone in experiencing some self-inflicted wounds at the moment. Last Friday brought news that Iridium is implementing a “complete recall” of its new Iridium Extreme handset, while on March 30, Thuraya told its distributors that it had been unable to reach a manufacturing agreement with Comtech for its high speed MarineNet Pro maritime terminal (intended to compete with Inmarsat’s FleetBB) and so the terminal would not be in the market until “the end of the year”. As announced on its Q4 results call, Globalstar ran out of SPOT and simplex devices for a period of time in the first quarter after changing its manufacturer, and will shortly learn the results of its arbitration with Thales Alenia over its satellite contract.
Let’s just hope that all of this mess doesn’t harm the reputation of MSS providers for providing reliable service when its really needed, and in particular doesn’t make it even more difficult for the MSS sector to boost revenue growth in this challenging competitive environment.
The biggest news of this week’s Satellite 2012 show was only hinted at in the background, with many elements of the announcement (which I’m told was originally scheduled for Monday March 12) apparently delayed while the final details are worked out. Panasonic hinted at their role in this deal on the in-flight connectivity panel, stating that they would be investing “more than any other player in the aeronautical sector” in a new network, while Inmarsat backpeddled on their recent aggressive approach to potential Global Xpress partners, by indicating that they would allow GX maritime distribution partners to keep their own VSAT services rather than being forced to resell Inmarsat’s XpressLink Ku-band service for the next 2-3 years.
What has shaken up the industry is that Intelsat apparently planned to announce additional elements of their global Ku-band maritime and aeronautical service, using new spot beam Ku-band satellites in the Atlantic, Indian and Pacific ocean regions. Although Intelsat did issue a press release on Monday, highlighting their focus on mobility, this largely reiterated existing commitments, and omitted both new satellite plans (including IS-29, which is expected to be a high capacity satellite in the Atlantic, and will likely be built by Boeing) and Intelsat’s anchor tenant(s). More details on both of these elements are expected soon. Panasonic will apparently be the anchor aeronautical tenant for this new network and is expected to make an upfront commitment (for purchase of capacity) to help fund Intelsat’s satellite program which could exceed $100M. Many maritime VSAT providers are also looking actively at potential use of the network, as an alternative to Inmarsat’s Global Xpress project, because Intelsat have promised to operate purely as a wholesale capacity provider, rather than competing with their own customers as Inmarsat is doing. The cost of Intelsat’s Ku-band capacity is said to be comparable to Global Xpress (though that will undoubtedly be disputed by Inmarsat), and with Intelsat’s numerous Ku-band mobility beams, coverage will apparently be nearly as great as on Global Xpress.
The repercussions of this development are far-reaching, not least because it will make Inmarsat’s already challenging GX transition plan even more tricky. Inmarsat have recently backed off their original plan to select Rockwell Collins as the aeronautical terminal and distribution partner for GX and now appear poised to use Honeywell (who were originally Panasonic’s terminal development partner before Panasonic opted to bring that work in-house). Up until this week Inmarsat were requiring potential GX maritime distributors to drop their own VSAT service and instead act as agents for XpressLink until GX was launched, but Inmarsat’s CEO indicated on Wednesday that this is no longer the case. And Inmarsat are raising their prices for FleetBroadband service to try and prevent maritime VSAT competitors from using FleetBB as a backup, driving some of them such as KVH into Iridium’s arms with their new (and very aggressively priced) OpenPort backup service, which can cost less than 20% of Inmarsat’s on-demand FleetBB price per Mbyte.
Now the question is whether Inmarsat will have to engage in a further rethink of their maritime distribution strategy (prior to their hastily arranged maritime partner conference in May) as they look to assuage the widespread anger amongst distributors. Many distributors are openly delighted about Intelsat’s move, after they were told at Inmarsat’s January 2012 partner conference that they would just have to accept Inmarsat’s terms, and hand over their VSAT customers for XpressLink, because there was no other choice available. Inmarsat will also have to consider whether their revenue forecast for Global Xpress (of $500M in wholesale revenue by 2019 and $200M-$300M in 2016, based on their 8%-12% p.a. wholesale revenue growth target in 2014-16) is still achievable, especially if some of the key potential partners for maritime GX want to continue to use well-proven Ku-band services and therefore opt to stay with Intelsat for their maritime VSAT capacity.
Ease your trouble
We’ll pay them double
Not to look at you for a while
And you rely on
What you get high on
And you last just as long as it serves you
Explode or implode
Explode or implode
We will take care of it
This rather dark song seems to sum up perfectly Inmarsat’s current dilemma: will the recent price rises enable Inmarsat’s revenue growth rate to “explode” or will the souring relationship with customers and distributors ultimately cause their business to “implode”? As an article in Cruising World points out, the basic price of Inmarsat’s low end FleetBB plan (the Intellian version of which costs $55 per month) will “more than triple” in May, and “it’s surely looking like the company doesn’t feel much obligation to the boaters who purchased expensive but yacht-size FB hardware once able to get online most anywhere at reasonable costs if carefully used”.
I understand that the amount of bundled data included will double from 5 Mbytes/month to 10 Mbytes/month (which may not be terribly relevant to low end users), but the plan will not longer include any voice and SMS – that will be charged on top, increasing the costs further. Cruising World attributes the price increases to Inmarsat’s loss of LightSquared revenues, which is partially true, though I’m told that internally Inmarsat has set a target of double digit revenue growth within its maritime business, and with the core shipping business very depressed, the only way to do that is to force dramatic price increases upon existing Inmarsat customers.
Almost 60% of all FleetBB users are on this basic plan, and so nearly 15,000 maritime customers will be helping to “ease [Inmarsat's] troubles” by “pay[ing] them double”. More importantly, many of these customers bought their FleetBB terminals in the last two years, and now will most likely feel that they have been the victims of a bait and switch by Inmarsat.
The price changes in Inmarsat’s handheld business are equally dramatic, with roughly 90% of customers using either the basic plan or low end prepaid cards, which are also expected to more than double in price at the retail level. Thus Inmarsat will also be faced with something over 30,000 handheld customers who have bought their phones in the last 18 months and will similarly feel that they have been victims of a bait and switch.
‘Cause you’re deserted
What’s good, you hurt it
And it kills you it keeps you alive
So give it up
In a world of puppets
It’s a shame what they do to us all
Inmarsat will presumably counter that neither group of customers accounts for a large share of their revenues (I would estimate the basic FleetBB plan accounts for perhaps 10% of FleetBB revenues, while handheld is still generating only ~$1M of service revenues per quarter), but it can’t be good for long term business if there are something like 45,000 end users who’ve been hurt by Inmarsat and will be expressing their negative perceptions (“What’s good, you hurt it…It’s a shame what they do to us all”) of the company pretty openly.
Distributors are also likely to be deluged with complaints by these end users, and many service providers are already actively focusing on alternatives to Inmarsat, as we saw with the recent KVH-Iridium partnership. Distributors are thus understandable furious about Inmarsat’s moves, with the (printable) comments I’ve heard ranging from “harsh and irrational” to “just unprofessional” and simply have no idea what Inmarsat will do next.
Though distributors might not be able to “desert” Inmarsat right now, ironically the low end customers that Inmarsat is alienating in the maritime segment are precisely those for whom Iridium’s OpenPort represents a competitive offering. Indeed, in terms of the opportunity that Inmarsat has just created, Iridium apparently feel like its February 2007 (when Globalstar announced that their satellites were failing) all over again.
Over the last couple of weeks I’ve thought about the value proposition for Viasat’s new Exede satellite broadband service on several occasions, but I still fail to understand what on earth Viasat were thinking when they came up with their new price plans. These plans all offer the same speeds (up to 12Mbps downstream and 3Mbps upstream) and differentiate only on the amount of data you can consume each month (7.5GB for $49.99, 15GB for $79.99 or 25GB for $129.99).
Viasat have been trying to highlight the superiority of their new service to earlier generations of satellite broadband and potentially also to “low end” DSL, and clearly hope that the new service will dramatically increase the potential market for consumer satellite broadband. However, by focusing on monthly data caps as the only difference between their price packages, when those data caps are precisely their weakness compared to DSL and the major problem as far as customers are concerned, Exede’s price packages appear to violate one of the cardinal rules of marketing, that you should sell your strengths not your weaknesses.
By providing direct price comparisons to 3G and 4G wireless data pricing (at $5-$7/Gbyte), Exede have also given up control of its future pricing (because 4G data could easily drop by 50% on a per Gbyte basis within the next year or two) and highlighted the relative unattractiveness of the service itself (because with 3G/4G wireless you can offload to WiFi for free and usually have a portable device that you can carry around). Although the comparison is certainly a little harsh, if Iridium in the 1990s was a business plan dreamt up by people who were international business travelers and thought everyone else was like them, this looks to me to be a business plan dreamt up by people with a weekend cabin in the mountains who think everyone else is like them.
None of this is to discount the potential of the consumer satellite broadband market, which could certainly expand to roughly double its current 1M users, just by serving consumers as the “last resort” option. However, Viasat has much bigger ambitions (with targets of 5M+ subscribers mentioned) to compete with at least some terrestrial alternatives and is making investment plans for a Viasat-2 satellite on this basis.
To have any chance of success in this endeavor, it seems to me it would have been much better to use traditional price differentiation by data rate (or simply have a basic capped plan and upsell to an “unlimited” plan with a Fair Access Policy) and focus instead on controlling the data consumption of the highest users (as AT&T does with the “unlimited” iPhone users). Of course Exede would then face complaints from those “power” users about how they had not been honest and upfront about the data caps, but at least Exede might then have a more compelling marketing message about how it is superior to low end DSL for the “typical” consumer.
As I remarked in an interview for the Satellite 2012 downlink newsletter yesterday, 2011 has seen a dramatic deceleration in MSS revenue growth, with wholesale service revenues now expected to grow by less than 3% in 2011, compared to the 7%-8% growth seen in each of 2008, 2009 and 2010. Yesterday we also released our latest industry report which gives ten year forecasts for MSS industry growth. In the L-band market (including Inmarsat L-band, LightSquared, Thuraya, Iridium, Globalstar and Orbcomm) we project cumulative revenue growth from 2010 to 2020 of only 4% p.a. and even when Global Xpress is added to Inmarsat’s revenues in the latter part of the decade, the overall cumulative growth rate is only increased to around 6% p.a.
This represents a striking contrast with widely quoted forecasts from Euroconsult and NSR, that the MSS market (excluding GX) will grow at 7% p.a. over the decade (Euroconsult) or 10% p.a. from 2010-15 (NSR). These optimistic forecasts seem to have achieved wide currency with analysts and bankers, who have argued (for example at the Satcon conference in October) that the MSS industry is more attractive than the FSS industry because of its much faster growth profile. One example that stands out is a JP Morgan analyst report on Inmarsat, published last Thursday, which gives an upbeat assessment of Inmarsat’s prospects and projects a target price of 800p per share (roughly double the current level). Not only does JPM expect LightSquared’s spectrum lease payments to be continued indefinitely after they file for bankruptcy (which is ludicrously unrealistic once you understand that LightSquared’s political backing has evaporated and even the FCC has basically given up on them, but may reflect the fact that JPM co-led (with UBS) the sale of LightSquared’s first lien debt earlier this year), but they expect Inmarsat’s core L-band business to resume growth at 2.5% p.a. from 2012 and Global Xpress to achieve Inmarsat’s target of $500M in annual revenues after 5 years.
Where do we differ with Euroconsult and NSR? It appears the primary source of the discrepancy is in our expectations for the maritime and aeronautical L-band markets. According to the JPM report, NSR is projecting 11% p.a. and 13% p.a. growth respectively for the maritime and aeronautical segments between 2010 and 2015. We are told that Euroconsult also takes a relatively optimistic view of the outlook for the maritime and aeronautical L-band markets. However, our expectations are that wholesale maritime and aeronautical L-band service revenues will actually decline between 2010 and 2020, as customers move to Global Xpress and other VSAT solutions. As a result, future L-band growth will have to come from land-based services, particularly low speed data and (to a much lesser extent) handheld satellite phones. That’s relatively good news for Iridium and Globalstar (as well as Orbcomm, if they can continue to gain momentum), but its still unclear whether ~8% p.a. growth in land MSS revenues will be sufficient for all of these companies to thrive in the face of what will inevitably be an ever-increasing focus by Inmarsat on this part of the MSS market.
If you are interested in our latest report, which also includes a detailed analysis of Inmarsat’s maritime market outlook and forecasts for in-flight passenger communications services, as well as discussion of the current prospects for terrestrial use of MSS spectrum, please contact us for more details about our MSS information service.
On its results call last night, Viasat said that it is soliciting preliminary technical proposals from manufacturers for a ViaSat-2 Ka-band satellite to complement the ViaSat-1 spacecraft set for launch in the first half of 2011. Viasat is also aiming to sell around 10% of its Viasat-1 capacity to government users and another 10% of the capacity for mobile applications. With the possibility that the Viasat-2 satellite could add beams to target areas such as the North Atlantic ocean and/or various oilfields, it now seems plausible that Viasat will seek to challenge Inmarsat’s Global Xpress project directly, in several of its Inmarsat’s planned target markets (government, energy and maritime).
This would not be particularly surprising, because it is our understanding that (despite significant efforts earlier in the year) Viasat is not on the list of bidders for the Global Xpress ground infrastructure contract, which Inmarsat is expected to award early next year (and for which bids were received in mid-October). Inmarsat has a major advantage in that Global Xpress will provide coverage around the world, including hotspots for UAV demand such as Afghanistan. However, Viasat has dramatically more capacity on its satellite and so it could potentially cherry pick some high revenue opportunities in North America and the surrounding areas.
On balance I think Inmarsat is better placed to win this battle, because we have projected for many years that the satellite consumer broadband market would not live up to Viasat’s very high expectations. Indeed I still expect that the most that Viasat and Hughes can hope for in the North American consumer broadband market is 2-3 million customers between them, with growth stalling in 3-4 years time as terrestrial buildout continues. Fundamentally, I have a hard time seeing satellite broadband as anything other than a last resort technology, however much capacity Viasat throws at the customer, because the constraining factor is the need to install a relatively costly terminal, which then requires ARPUs of $50 per month and up, far above expectations for terrestrial alternatives (especially in less wealthy rural areas).
As a result, Viasat could well be left with excess capacity if it does decide to contract for Viasat-2 before Viasat-1 has proved its commercial potential, as was stated on the call. Of course that could lead to some destructive price cutting to capture the limited number of regional customer opportunities, but just as in the MSS market when regional players have made inroads in certain areas, Inmarsat could well emerge relatively unscathed.
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