12.08.16

Chinese checkers, Indonesian intrigue…

Posted in Broadband, Financials, Handheld, Inmarsat, Operators, Regulatory, Services, Spectrum at 9:18 am by timfarrar

UPDATED Feb 5, 2017

There’s been a lot of recent news about Chinese investments in satellite companies, including the planned takeover of Spacecom, which is now being renegotiated (and probably abandoned) after the loss of Amos-6 in September’s Falcon 9 failure, and the Global Eagle joint venture for inflight connectivity.

There were also rumors that Avanti could be sold to a Chinese group, which again came to nothing, with Avanti’s existing bondholders ending up having to fund the company instead in December 2016. The latest of these vanishing offers was a purported $200M bid from a Chinese company, China Trends, for Thuraya in mid-January 2017, which Thuraya promptly dismissed, saying it had never had discussions of any kind with China Trends.

Back in July Inmarsat was also reported to have approached Avanti, but then Inmarsat declared it had “no intention to make an offer for Avanti.” I had guessed that Inmarsat appeared to have done some sort of deal with Avanti, when the Artemis L/S/Ka-band satellite was relocated to 123E, into a slot previously used by Inmarsat for the ACeS Garuda-1 L-band satellite (as Avanti’s presentation at an event in October 2016 confirmed).

However, I’m now told that the Indonesian government reclaimed the rights to this slot after Garuda-1 was de-orbited, and is attempting to use the Artemis satellite to improve its own claim to this vacant slot before these rights expire. I also understand that with Artemis almost out of fuel, various parties were very concerned that the relocation would not even work and the Artemis satellite could have been left to drift along the geostationary arc, an outcome which thankfully has been avoided.

The action by the Indonesian government seems to hint at a continued desire to control its own MSS satellite, which could come in the shape of the long rumored purchase of SkyTerra-2 L-band satellite for Indonesian government use, similar to the MEXSAT program in Mexico. If that is the case, then presumably the Indonesians would also need to procure a ground segment, similar to the recent $69M contract secured by EchoStar in Asia (although that deal is for S-band not L-band).

Meanwhile Inmarsat still appears to be hoping to secure a deal to lease the entire payload of the 4th GX satellite to the Chinese government, which was originally expected back in October 2015, when the Chinese president visited Inmarsat’s offices. That contract has still not been signed, apparently because the Chinese side tried to negotiate Inmarsat’s price down after the visit. Although Inmarsat now seems to be hinting to investors that the I5F4 satellite will be launched into the Atlantic Ocean Region for incremental aeronautical capacity, last fall Inmarsat was apparently still very confident that a deal could be completed in the first half of 2017 once the I5F4 satellite was launched.

So it remains to be seen whether Inmarsat will be any more successful than other satellite operators in securing a large deal with China or whether, just like many others, Inmarsat’s deal will vanish into thin air. China has already launched its own Tiantong-1 S-band satellite in August 2016, as part of the same One Belt One Road effort that Inmarsat was hoping to participate in with its GX satellite, and Tiantong-1 has a smartphone which “will retail from around 10,000 yuan ($1,480), with communication fees starting from around 1 yuan a minute — a tenth of the price charged by Inmarsat.” Thus Inmarsat potentially faces growing pressure on its L-band revenues in China, and must hope that it can secure some offsetting growth in Ka-band.

11.13.14

Assessing Globalstar…

Posted in Financials, Globalstar, Handheld, Operators, Regulatory, Services, Spectrum at 10:57 am by timfarrar

I’ve just released my new 69 page Globalstar profile, analyzing both Globalstar’s MSS business and their spectrum valuation and potential partnerships. Over the last month its been interesting to observe the rather hyperbolic comments from both supporters and opponents of the company, and unfortunately those on both sides appear poorly informed about the potential value of the TLPS spectrum and the growth of the MSS opportunity.

In the MSS business, its crystal clear that growth has fallen far short of expectations in the business plan presented to COFACE in summer 2013, and it is expected that Globalstar will need to make equity cures to address an EBITDA shortfall in 2015, and perhaps even at the end of this year. However, those amounts will be modest, nothing like the $200M raised by Iridium earlier this year, and so there is no need for concern that MSS challenges will disrupt Globalstar’s attempts to monetize its spectrum in the next year or two.

Nevertheless, it seems unlikely that the new Hughes-based devices will dramatically change this picture: MSS terminals offering WiFi links to smartphones but no standalone functionality have generally been fairly unsuccessful in comparison to self-contained communications devices (compare SPOT Connect vs SPOT or the original inReach vs inReach SE/Explorer), and low price terminals/consumer distribution channels have not altered the dynamics of the handheld market very much (for example, the SPOT Global Phone has not changed Globalstar’s business prospects materially). Its also little use selling a new device for $100 if the customer still has to choose from the existing handheld airtime plans (which have a four times higher ARPU than SPOT). So overall, we don’t expect Globalstar’s MSS business to generate enough value to match the $1B invested, or even the current COFACE debt.

While the MSS picture may not be encouraging, I’m more positive about Globalstar’s TLPS opportunity. It’s clear that Globalstar’s spectrum does have potential value to partners, since Globalstar came close to a deal with Google in early 2013, and we suspect a deal with a different partner was almost reached earlier this year. I also expect the FCC to approve TLPS without material concerns, although it seems likely to come in Q1 not Q4, and may involve giving up some L-band spectrum to Iridium, as happened in the past when Globalstar was seeking ATC authority.

The key question is therefore whether a partner can now be secured who will pay a substantial sum for access to the spectrum, from a limited universe of possibilities in the service provider category. Equipment and infrastructure providers are more likely to want to make money from selling equipment to Globalstar (and its service provider partner), than to pay Globalstar for access to the spectrum. The second question is then what the appropriate valuation would be if a deal can be struck: based on comparable valuations for high band spectrum and the alternative sources of spectrum out there (including AWS-3) it is hard to believe that anyone could seriously envisage a $6B or $10B valuation for TLPS. However, the debate should be about what Globalstar’s spectrum is worth, not whether it is worthless.

All of these issues are discussed in more detail in the report: we give specific forecasts for the MSS business by product through 2018 and explain what we believe to be the most appropriate valuation benchmarks for TLPS and who is now the most likely partner. Contact us if you’re interested in more information.

02.10.14

GOing to FIght about it?

Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services, Thuraya at 4:20 pm by timfarrar

Last week, at its partner conference, Iridium announced the launch of its new GO! product, which will provide the ability to relay calls and data to and from a smartphone via WiFi, at a reported retail cost of $700-$800. Iridium is looking to boost its revenues from handheld data (i.e. email, texting, etc.) which to date have been fairly modest in the satellite phone market, and will offer lower cost bundles of data minutes, including unlimited packages for intensive users. Indeed, one of the likely use cases is on yachts and fishing boats, which don’t need a full blown high speed data solution. This is slightly different to Thuraya’s SatSleeve, which is more likely to stimulate incremental voice usage, because the SatSleeve is physically attached to an iPhone or Samsung S3/S4 phone and so is easier to use for voice communications.

Globalstar also threw its hat in the ring, pre-empting Iridium’s announcement with the Sat-Fi, which is “expected to receive final FCC certification…during the second quarter of 2014, with shipments starting shortly thereafter.” Globalstar has had a “puck-like” device on its roadmap for several years, but has always wrestled with whether it is worthwhile to invest in product development for a product based on its existing Qualcomm air interface, with a potentially limited lifespan, or if it is better to wait for the new Hughes chipsets in 2015, which will offer improved data capabilities and will be supported throughout the lifetime of the second generation constellation.

Its therefore interesting to note that (according to my sources) the Sat-Fi will be based on the Qualcomm GSP-1720 voice and data module rather than the Hughes chipset. This suggests that Globalstar either perceives a large near term opportunity, which would justify making the investment now, or was particularly focused on spoiling Iridium’s announcement. Iridium clearly thinks it was the latter, and doesn’t believe that the Sat-Fi is actually “real”.

Globalstar has kept details of the Sat-Fi pretty quiet (although it filed a patent application on some aspects of the concept two years ago), and none of the MSS distributors I’ve spoken to seems to know much about the size, price or market positioning of the Sat-Fi device. However, despite Globalstar’s greater focus on the consumer market, it does not appear likely that Sat-Fi would sell in significantly higher volumes than Globalstar’s existing satellite phones, assuming a comparable price point. Indeed estimates that there might be 150K hotspots in use by 2022 would represent only 10%-20% of the expected satellite phone market in that timeframe.

I’m sure this will be make for a fascinating discussion during the MSS CEO panel at Satellite 2014 and perhaps even a return to some of the contentious debates of prior years. Ironically, the barbs being thrown around over the GO! and Sat-Fi don’t fully reflect the competitive landscape in the MSS industry, with Iridium and Globalstar focusing to a significant degree on different distribution strategies, target customers, and (to some extent) geographies.

In that context, both could be successful in different parts of the market, which would make this much like prior arguments over Inmarsat’s ISatPhone Pro and its supposed advantages over Iridium (reflected in the Gabby Wonderland video produced by Inmarsat’s marketing agency in 2010). In that case Inmarsat’s initial belief was that the ISatPhone Pro would hurt Iridium’s satellite phone business significantly, but in reality Iridium continued to dominate the higher end of the MSS handheld market (and sold more satellite phones than Inmarsat at much higher equipment margins), while Inmarsat expanded the low end of market instead.

10.21.13

Gravity…

Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, LDR, Maritime, Operators, Services at 9:33 am by timfarrar

I won’t belabor the errors of physics in the movie, instead just noting that even though you might think that in space things can keep going in a straight line indefinitely, they are still subject to gravity and you can’t get to a higher orbit without some form of propulsion.

We’ve now seen confirmation from Iridium of what I pointed out last week, that Q3 was very bad for the MSS industry. Iridium missed its expectations for equipment revenues (i.e. handset sales) and subscriber growth (i.e. M2M net adds), although at least the government contract renewal is more favorable than expected – the unlimited nature of the contract removes the incentive for the DoD to scrub its user base to remove unused handsets, which has been a headwind for Iridium in the last couple of years.

Its far from clear that anyone else is doing better: it looks like Iridium’s competitors also saw pretty poor handset sales in Q3 and the SPOT 3 has been very slow to arrive in stores as well. Moreover, the government business is dire – Intelsat’s profit warning (which included its off-net business reselling MSS) is a bad sign for Inmarsat, as are the large scale layoffs in Astrium’s government business last week.

Inmarsat has now followed up its promise not to raise FleetBB prices in 2014 with an enormous 48% rise in maritime E&E prices from January, in an attempt to sustain maritime revenue growth next year. While the stated intention is to persuade the remaining pay as you go customers to move off the E&E network and choose FleetBB instead, the vast majority of higher spending B and Fleet customers have already migrated and many of the remaining users are mini-M voice-only users or really want the PAYG service because they are only occasional users, so FleetBB is not necessarily the ideal option.

Inmarsat is clearly calculating that these customers won’t want to risk moving to Iridium after the OpenPort problems earlier this year and has stepped up its efforts to portray Iridium’s network as “failing”. Despite all this, no-one believes that Inmarsat could possibly achieve its 8%-12% revenue growth target for 2014 and I expect this to be “softened” in the near future as well. Inmarsat is also likely to emphasize its opportunities for internal cost savings next year and move to dispose of some retail business units like Segovia.

Its interesting to speculate about implications for the wider satellite industry as well. Last time around (in 1999-2003), problems in the MSS industry were a harbinger of a downturn in the FSS industry a couple of years later. That came in the wake of a peak in satellite orders in the 1999-2001 timeframe and after the launch of these satellites, which resulted in a sharp decline in prices, the FSS industry took a big hit. We’ve seen a similar peak in orders in recent years (2009-10), and while the major operators are much more likely to retain pricing discipline (in a far more consolidated industry than a decade ago), the advent of High Throughput Satellites, especially those owned by smaller players like Avanti (who might become the most desperate for contracts), could pressure prices in certain market segments and geographies.

Just as an example, in recent years, underlying transponder demand has grown at roughly 4% p.a., but revenues have been boosted by around 2% p.a. by price rises. Even if demand growth continues (not a foregone conclusion in some sectors like government where WGS is an alternative), a reversal of the pricing trend would certainly make a big difference to the FSS revenue outlook. As I said at the beginning of this post, gravity clearly exerts a force, even in space.

10.14.13

Wretched, isn’t it?

Posted in Financials, Globalstar, Government, Handheld, Inmarsat, Iridium, LDR, Operators, Orbcomm, Services at 10:03 am by timfarrar


Incredible…it’s even worse than I thought

That’s been the reaction to my 57 page Globalstar profile, released on Friday (you can see the contents list here and get an order form here), because of the history of challenges that the MSS industry has faced in the past and more particularly the difficulties that the industry is seeing this year.

After discussions with a number of people in the industry over the last few weeks, it looks like Q3 has been pretty disastrous for MSS sales across the board, with none of the usual surge in demand expected in the summer months, as customers stock up to prepare for outdoor adventures or potential hurricanes. Part of that relates to slow government orders, as a result of the sequester (predating the current shutdown), but commercial demand has also been poor, and that’s much harder to explain.

In the handheld segment, one suggestion is that Hurricane Sandy proved that terrestrial cellphone networks are now considerably more reliable during disasters (and far more data capable than MSS phones), so companies are no longer giving as high a priority to MSS equipment in their disaster planning. In the M2M segment, a fairly convincing explanation is that service providers who formerly specialized in MSS are now focusing more and more on selling cellular-based solutions to customers who find they don’t need MSS as a backup.

As a result, I’m now convinced that subscriber growth (and equipment sales) will fall short of expectations this year, particularly in the handheld and M2M segments, for almost all of the major MSS players, with knock-on effects for subscriber revenues in Q4 and more particularly next year. The defense business also looks poor (as shown by Intelsat’s recent profit warning): the word on the street is that Inmarsat may dispose of its Segovia government FSS business, as revenues in Inmarsat’s US Government business unit fell by 11% year-on-year in the first half of 2013 and appear to have eroded further in recent months, particularly in Segovia’s VSAT business. The sale price would be a fraction of what Inmarsat paid for Segovia, but in exchange Inmarsat would hope to secure a GX airtime contract, similar to its RigNet deal in the energy sector.

In the case of Globalstar, the implications of the MSS downturn are that while Globalstar should be able to meet the new bank case revenue forecasts, it won’t be easy to beat them. However, unlike some other players, Globalstar is fortunate in having the potential upside from monetizing its spectrum, if it can complete a deal with Amazon or another company. The report looks at spectrum valuation for both LTE and TLPS and concludes that there could be substantial value for Globalstar, although realizing this will require both rapid approval from the FCC and for a deal to be struck fairly quickly, before new spectrum bands such as 3550-3650MHz develop an alternative ecosystem at what will likely be much lower prices. If you are interested in getting a copy, please contact me for more details.

09.19.13

Oh puck!

Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, Operators, Regulatory, Services, Spectrum at 9:32 am by timfarrar


Why didn’t Phil think of this first?

With MSS revenues in a bit of a funk this year, its not surprising that MSS operators are pursuing opportunities to attract consumers and expand the voice market outside the traditional verticals. We saw this first of all with Thuraya’s SatSleeve, announced at the Satellite 2013 conference in March. The SatSleeve connects via Bluetooth (and in the latest version WiFi) to an iPhone allowing the customer to use their iPhone contacts and touch screen interface. However, a key limitation is the need for compatibility of the sleeve with a particular phone form factor, and Thuraya has just launched a new version of the SatSleeve compatible with the slightly larger iPhone 5 handset rather than the original iPhone 4.

One way to overcome this handset compatibility issue is to use an external puck-like device, similar to a SPOT Connect or DeLorme inReach product, but offering voice and data capability in addition to simple messaging. This concept has been around for many years, and indeed was part of Craig McCaw’s new business plan when he bought ICO out of bankruptcy back in 2000: ICO told the FCC in its original ATC application in March 2001 that

“The use of already-permitted wireless technology such as Bluetooth or IEEE 802.11 could allow a whole range of consumer devices – standard terrestrial phones, PDAs, or laptop computers – to communicate with a satellite transceiver that houses the antennas, amplifiers, and other electronics unique and specific to the satellite link”.

Subscribers to my MSS research service heard 6 weeks ago about Iridium’s new handheld product, scheduled for launch at the end of the year, which is apparently exactly this puck-like device. It will be positioned to compete at the low end of the handheld market with a broadly comparable price to Thuraya’s SatSleeve (which was originally announced at $499 but is now selling for $599 to $799) and the Inmarsat and Globalstar handheld phones. I’m now told that Inmarsat is working on a similar device for release towards the end of next year, and meanwhile Globalstar has announced that it is “aiming to bring a $100 satellite device to market in 18 months time…to enter into a totally different market”.

I understand that Globalstar’s new device is likely to be the long-awaited two-way SPOT product, and may not be voice-capable like Iridium and Inmarsat’s new devices. It remains unclear whether the form factor will be a smartphone-connected puck (like SPOT Connect) or a standalone device: certainly the standalone device has sold much better for Globalstar to date, but equally well this might make it harder to expand beyond the current market of techie-focused backpackers and outdoorsy people (the vast majority of SPOT users are like me: 40-something relatively high income males with an interest in technology). Given the 18 month timetable stated by Globalstar, its also unclear whether this would be based on the new Hughes chipset or the current SPOT uplink plus a similar downlink channel, as the second generation ground segment upgrades are supposed to take about two more years to complete.

As Globalstar moves to raise its profile with investors, it seems the next stage will be a new round of fundraising (Globalstar noted in its 2013Q2 10-Q that “In June 2013, the Company entered into an agreement with Ericsson which deferred to September 1, 2013 or the close of a financing approximately $2.4 million in milestone payments scheduled under the contract”), presumably helping to reduce some of Thermo’s $85M backstop commitment (of which $40M had been provided by the end of July and $4.4M had been offset by receipts from termination of the 2009 share lending agreement). Indeed, it would be plausible for fundraising to go beyond this ~$35M level given the rise in Globalstar’s share price in the expectation of a positive outcome from the FCC, though it appears unlikely Globalstar will order more satellites anytime soon, given that the legal disputes with Thales are apparently still ongoing (Thales has “alleged that Thermo had failed to pay Thales $12,500,000 by December 31, 2012 as required by the Settlement Agreement“).

It seems Globalstar is highly confident that its NPRM will be issued by the time Chairman Clyburn leaves office, so it would be reasonable to suspect that this new financing is intended to take place in the next month or so, helping to cover payments of $20M+ due to Hughes between August 2013 and January 2014). Last week’s grand bargain over the 700MHz A&E blocks, DISH’s AWS-4 downlink waiver request and the H block auction, certainly indicates that I was too pessimistic in believing that Clyburn didn’t want to address spectrum issues and would leave these for Wheeler, and it would therefore now not be in the least bit surprising to see the Globalstar NPRM released at or around the time of the September FCC Open Meeting (when Clyburn will have what might be the last chance to trumpet her accomplishments as Chairman). Clyburn also appears less likely than Wheeler to pursue the “harm claim threshold” approach favored by the FCC’s TAC, which is good news for Globalstar in terms of how long it would take to issue an FCC order, although given that the FCC highlighted the speed with which it had moved to complete the DISH ruling last December (within 9 months of issuing the NPRM), it is still hard to imagine a final ruling on TLPS before early summer 2014.

So the key issues for Globalstar are likely to be how successfully it can build up its MSS business (note that the revenue projections given for the bank case in the new COFACE agreement generate just enough cash to cover debt, interest and capex payments through 2022 but little else) and more importantly whether Globalstar can find a partner to exploit its spectrum assets. We know about Amazon, but will there be other interest either from the cellular industry or (perhaps more plausibly) from non-traditional players? What are the best comparisons for spectrum valuation for TLPS and/or LTE authorization? I’ll be publishing my updated profile of Globalstar shortly and all of these issues will be discussed along with my revenue projections for the MSS business.

04.22.13

Inmarsat throws its weight around…

Posted in Globalstar, Handheld, Inmarsat, Iridium, KVH, Maritime, Operators, Services, VSAT at 9:22 am by timfarrar

Its interesting to note that Inmarsat has been competing much more aggressively against key competitors in the last few months. First, I’m told that Inmarsat offered a bounty to Telemar to capture Anglo Eastern, a key Iridium Open Port customer with 350 ships, from Globe Wireless, in the fourth quarter of 2012.

Then Inmarsat announced in March that Nordic Tankers, one of KVH’s earliest headline customers, was migrating to XpressLink “for enhanced reliability”. Apparently the pricing on that deal is well below the standard list price for XpressLink, but Inmarsat was very keen to demonstrate its ability to take customers away from KVH.

Now (perhaps showing a little pique at losing the recent tender for the AT&T Genus replacement contract) Inmarsat is going after Globalstar, with new North American ISatPhone Pro regional voice plans which will start on May 1, and match Globalstar’s recently announced Orbit and Galaxy plans (though without Globalstar’s “double time minutes” promotional offer). Inmarsat is once again offering a huge bounty to service providers for these new signups, equivalent to multiple months of service revenue.

All of these developments suggest that Inmarsat is determined to seek topline growth in its L-band business and is no longer reluctant (as in the past) to explicitly target its competitors with selective pricing, even though this runs counter to Inmarsat’s recent tendency to increase list prices. Of course, it is less clear whether the new deals will be profitable for Inmarsat, given the incentives needed to achieve these sales.

But with Inmarsat’s investors focused intently on whether the wholesale L-band Inmarsat Global business has returned to growth, and apparently willing to overlook the recent significant contraction in margins within Inmarsat’s Solutions business unit (blamed on a transfer of margin from retail to wholesale operations), that might not matter for now. However, if Inmarsat wants to make more acquisitions (and it is hard to see in the long term who else might end up operating LightSquared’s satellites), then regulators might wonder whether industry consolidation could give Inmarsat even more market power.

12.03.12

Let me count the ways…

Posted in Globalstar, Handheld, Inmarsat, Iridium, LDR, Operators, Services at 3:26 pm by timfarrar

Apologies for the lack of posts over the last couple of weeks – I’ve been buried in writing my latest MSS industry report, which is bigger and better than ever, and includes not only all the latest MSS industry developments such as an analysis of Inmarsat’s investor day, but 30 pages on everything you want to know about the current spectrum issues involving DISH, LightSquared, etc. I’ll be writing blog posts about that plus some of the latest inflight connectivity developments over the next few days, but I’ll start with a little noticed fact that emerged while I was analyzing MSS subscriber growth: surprisingly enough, the various MSS operators use very different definitions for what they count as a subscriber.

Now you might think that a subscriber is simply someone who is paying the operator for service (perhaps indirectly via a distributor) and if the customer is paying for x terminals, then the MSS operator will report that they have x subscribers. That is basically what Iridium do, now that there is a charge each month even for suspended terminals. However, until recently Inmarsat didn’t have a monthly access charge for most terminals, and only got paid for airtime. As a result, Inmarsat has always defined its subscriber count as terminals that have accessed the network in the last 12 months. Now that Inmarsat is charging monthly fees for most services, this leads to anomalies such as in its 2012Q2 results, where Inmarsat noted that:

“At the time of our consolidated financial results for the three months ended 31 March 2012, we announced having reached over 55,000 IsatPhone Pro subscribers. However, in our reported active terminals for land mobile, we included a lower number of approximately 49,800 terminals, the difference being the elimination of subscribers who had not used their IsatPhone Pro terminal in the preceding twelve months…”

Even more significantly the number of Satellite Low Date Rate (M2M) terminals reported by Inmarsat has declined quite noticeably over the last year, but as far as Inmarsat’s distributors like SkyWave are concerned, the number of subscribers is actually going up. However, once you realize that a key application for ISatM2M is stolen vehicle recovery, its pretty obvious that only a small proportion of terminals (i.e. those cars that are actually stolen) will need to access the Inmarsat network each year.

That’s a positive for Inmarsat, because their market share in the SLDR/M2M sector is actually quite a bit higher than many assume. However, Globalstar’s counting methodology goes the other way: SPOT customers are included in the published subscriber count even if their terminal is “suspended” for non-payment, because those terminals still have access to the network and Globalstar is attempting to collect payment for the service (although of course no revenue is actually being recognized for those subscribers unless and until collection occurs). The number of suspended SPOT subscribers has increased consistently since this statistic was first reported in early 2010, and by 2012Q3 amounted to 29% of SPOT subscribers. I’ve generally been pretty optimistic about the long term potential of the personal tracking market, but worringly, in the third quarter of this year the number of paying (i.e. non-suspended) SPOT subscribers actually fell from the previous quarter for the first time ever.

04.30.12

What a MeSS!

Posted in Broadband, Globalstar, Handheld, Inmarsat, Iridium, LDR, Maritime, Operators, Services, Thuraya at 8:49 am by timfarrar

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.

03.03.12

Explode or implode?

Posted in Broadband, Globalstar, Handheld, Inmarsat, Iridium, Maritime, Operators, Services at 8:23 am by timfarrar

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.

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