07.13.10
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.
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06.24.10
Posted in Broadband, Financials, Inmarsat, Maritime, Operators, VSAT at 5:12 pm by timfarrar
In recent discussions we’ve heard rumors that Inmarsat may soon make a bid to take over Thrane & Thrane, its biggest equipment supplier. Inmarsat has certainly been in acquisition mode over the last year, taking over Stratos and Segovia and investing in SkyWave. Nevertheless, such a move would still be quite a shock for many in the MSS industry.
However, it would be a logical accompaniment to Inmarsat’s Ka-band strategy: Inmarsat would be able to reduce the price of L-band equipment (particularly FleetBroadband terminals) and thereby help to fend off the threat from Ku-band VSAT for the next few years until its new Ka-band satellites are in orbit. Thrane could also play an important role in development of mobile Ka-band terminals, which are clearly the biggest technical risk in Inmarsat’s entire Ka-band plan.
Though the threat from Ku-band has been hyped up recently, most notably in Comsys’s recent maritime VSAT report, our view continues to be that L-band has a very sustainable market position, outside the highest spending ships. To date, Ku-band VSATs have achieved only limited penetration within Inmarsat’s core maritime commercial transportation market (which incidentally is much smaller than 100,000 ships), and most of these ships spend far too little to ever contemplate a move to VSAT.
By reducing the cost of L-band equipment, in concert with its aggressive moves on airtime pricing over the last year, Inmarsat has a very viable opportunity to hold off Ku-band VSAT incursion. Even the recent concerns about shortfalls in Inmarsat’s maritime revenue growth during the first quarter of 2010 appear to stem much more from the price reductions that Inmarsat and its distributors have used to remain competitive on high spending vessels, rather than any substantial loss of market share to VSAT in the commercial transportation business. Indeed many maritime VSAT service providers had a very disappointing year in 2009, and quite a number of them are now up for sale, in what we would view as an attempt to exploit the perception of rapid future market growth before they actually need to fulfill these expectations.
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06.02.10
Posted in Aeronautical, Broadband, Financials, Globalstar, Handheld, Inmarsat, Iridium, Maritime, Operators, Services, VSAT at 2:57 pm by timfarrar
So Iridium has finally announced the contract to build its NEXT satellites, which was won by Thales Alenia Space (TAS) with the support of a stunning $1.8B loan package which will be 95% guaranteed by COFACE, the French Export Credit Agency (ECA). By the sound of it, Lockheed had been confident of winning the contract, but the US Ex-Im Bank simply couldn’t match the level of support offered by COFACE.
Even Iridium appears surprised by the $1.8B Promise of Guarantee, given the suggestions in their March 2010 results call that the company would need to raise additional unsecured or subordinated debt in the public market. We had expected Iridium might need to raise $300M or more in backstop financing, based on Iridium’s April 2010 investor presentation which stated that the company was “seeking support for a[n ECA] facility of approximately $1.5B”. COFACE’s additional support therefore clearly appears to have tipped the balance in favor of TAS, because it removes the risk that Iridium would have faced in trying to tap the public markets at this point in time.
We now expect Globalstar to point out that Iridium has received an even more favorable financing package than Globalstar did last year (when Thermo was required to provide additional backstop funding as a condition of the $586M COFACE-backed facility) and potentially to seek a $200M+ extension of its current facility. This would provide funding so Globalstar could exercise its option to purchase the last 24 second generation satellites, allowing them to add more satellites to their constellation before NEXT becomes operational (and before radiation problems are expected to start impacting their 8 first generation spares in about 2015). Such a facility could also give Globalstar more firepower to market its new second generation services in 2011 and 2012, without the risk of eating into the contingent equity and debt service reserve accounts previously established by Thermo.
The next stage in this war of the Export Credit Agencies may then come in the shape of Inmarsat’s upcoming Ka-band constellation, which we expect to involve 3 or 4 dedicated Ka-band satellites (costing at least $200M each including launch and insurance), providing oceanic coverage to complement and extend its existing FleetBroadband and SwiftBroadband services. With Inmarsat’s new satellites expected to be deployed between 2013 and 2015, an order could well come as soon as this summer, when Inmarsat announces its investor guidance for the next five years. More details of Inmarsat’s plans and our expectations for their future Ka-band revenues were given in the March 2010 report, available to subscribers to our MSS information service.
The competition to build Inmarsat’s new satellites appears once again to be shaping up as a US vs European battle with TAS, SS/L and Astrium all bidding for the contract. Will ECA financing once again prove to be a key factor in the decision, even though Inmarsat has much less need for a guarantee than Iridium and Globalstar? Certainly Inmarsat has not been reluctant to seek cheap government-backed funding when it is available, as seen in its recent European Investment Bank loan to fund the Alphasat project.
In summary, its clear that ECA financing is now going to play a very substantial role in supporting the MSS industry. As a result, the prospects for a long awaited consolidation of the sector appear to be diminishing. That is certainly good news for end users of MSS, as well as service providers and distributors, who will be able to take advantage of an increasing range of competitive alternatives. This is particularly true in the maritime and aeronautical markets, where Iridium is really the only potential MSS competitor for Inmarsat. Indeed Iridium’s ability to serve these markets gives it a much more sustainable long term position than some other systems, because most maritime and aeronautical opportunities are much less likely to be undermined by the buildout of terrestrial wireless systems.
Nevertheless, it also seems hard to justify the $8B+ of capital investment that has been committed by Iridium, Globalstar and all of the other players (Iridium NEXT, Globalstar 2, Inmarsat 4, Orbcomm, ICO/DBSD, SkyTerra and TerreStar) in an industry sector which only generated $1.1B in wholesale service revenues in 2009, and though growing healthily, doesn’t appear poised to breakout from the 8% annual growth rate seen in recent years. Unless new sources of value appear (spectrum monetization being the obvious option for several players) it appears unlikely that all of the MSS operators will be as successful as they and their investors hope.
Indeed the main story of the next decade is likely to be the competition between Iridium and Globalstar, as they both strive to be the second biggest player in an MSS market that will continue to be dominated by Inmarsat, while other providers may fall by the wayside. If Iridium can grow from its current 19% share of wholesale service revenues to about a 25% market share, or Globalstar can grow from its current 5% share to 15% or more (based on its lower cost satellite system), then that should be sufficient to achieve an attractive return on capital for either company. However, with Inmarsat holding a more than 60% market share today, it appears unlikely that both Iridium and Globalstar could achieve this level of success simultaneously.
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05.14.10
Posted in Financials, Handheld, Operators, Services, Spectrum, TerreStar at 10:26 am by timfarrar
Back in March, I was lucky enough to try TerreStar’s Genus phone at the Satellite 2010 conference. At that time it was clear that the phone needed further work to get it ready for commercial service, and recent filings from TerreStar indicate that the company is now working with HNS on an “ATT-QoS Workaround” to address some “APN Issues” (APN or Access Point Node relates to data services, which I did not try to use back in March).
UPDATE: I’m told by a technical expert in this area that the GMR1-3G protocol used by TerreStar treats all information as packet data, including voice (which has the highest QoS). Given that AT&T’s terrestrial network carries voice over GSM and does not normally provide an equivalent voice over packet data service at this point in time, it appears quite plausible that the workaround relates to an attempt to optimize voice performance rather than being an issue for TerreStar’s data services.
However, my concerns about the viability of the Genus phone relate much more to whether the orientation-sensitivity of the phone will actually be acceptable in real world usage conditions. To use the phone you need to know where the satellite is located (roughly southwest when you are on the East Coast) and have clear visibility in that direction. Though that was simple at the Satellite conference, where this direction was out over the Potomac river, it certainly won’t always be the case in rural areas, unless its a desert or a prairie. I still remember only too well the joke I was told by a Globalstar engineer ten years ago – that their system was designed for a “man out standing/outstanding in his field”. More to the point you also need to stand still and not turn around – very different to the situation with Iridium and Globalstar handsets, where the extending antenna goes above your head and allows you to “walk and talk”.
If orientation-sensitivity does prove to be a big problem for potential users, as I think it will, then TerreStar is faced with an unpalatable choice: design a phone with an extending antenna, which will work fine, but would have no mass market appeal, or sell a phone like the Genus, which could conceivably have wider appeal, but won’t provide acceptable performance in satellite mode. Fundamentally, I therefore don’t see any reason to change the opinion I expressed last year during the DBSD bankruptcy, that “the part of TerreStar’s business plan directed to a mass market service is very unlikely to succeed”.
However, there has been one important change in the environment for TerreStar over the last six months, because the FCC has now held out the possibility that 2GHz MSS spectrum holders will be able to participate in an incentive auction, which would potentially allow them to return their spectrum to the FCC for re-auction as terrestrial spectrum without any ATC restrictions. Given the difficulty in realizing value from a satellite roaming business plan, then unless Harbinger negotiates a lease agreement for TerreStar’s satellite spectrum, as part of its planned L-band ATC deployment, it seems likely that this would be the best exit TerreStar could hope for. However, given that the FCC would only give TerreStar a proportion of the proceeds from the auction, and it would probably take a couple of years before that auction even happened (during which period TerreStar will have to raise more money to keep its satellite in operation), it is hard to imagine that the proceeds could exceed the secured debt load that TerreStar has accrued to date. Even if TerreStar did enter some sort of lease agreement with Harbinger (some details of the draft term sheet for the Spectrum Pooling Agreement, which appears to contemplate a “potential purchase of the S-band Spectrum” as one option, but not a takeover of TerreStar itself, have also been publicly filed), then it seems implausible that this payment would exceed the value of SkyTerra’s lease agreement with Inmarsat, which calls for payments of $115M per year, and it could very well be much less. Unfortunately even $115M per year would be insufficient to pay the interest on TerreStar’s secured debt, when it becomes cash pay next year. Remember also that if TerreStar stays out of bankruptcy, it will at some point have to pay Sprint’s spectrum clearing expenses, which Sprint has claimed exceed $100M for each of TerreStar and DBSD.
At this point in time, the future for TerreStar therefore looks pretty uncertain. More importantly for the rest of the MSS market, it is far from clear whether the Genus phone will provide meaningful competition to other handheld MSS providers, and even whether AT&T will actually go ahead with any large scale commercial launch of the handset. I’m sure everyone will be watching with interest to see what news emerges over the next few weeks.
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03.30.10
Posted in Aeronautical, Inmarsat, Operators, Services at 9:23 am by timfarrar
Its turning out to be a good week for our predictions. After the announcement that Harbinger is going to build a new LTE ATC network, comes the news that Ryanair is discontinuing its in-flight connectivity service, after OnAir exercised its right to terminate the contract. Though the termination apparently “puzzled analysts”, we predicted back in 2006 and reiterated in 2008 that there wouldn’t be enough revenue for both Ryanair and OnAir to make money from the service, and so the fleetwide deployment would never be completed.
Thought Ryanair is putting a brave face on it, presumably in the hope of finding another sucker to take on the contract under similar terms and conditions, it was well known that the original contract was extremely unfavorable to OnAir (so much so that a major rival told us they wouldn’t touch it with a bargepole).
We believe that Ryanair got a cut of revenues off the top, with OnAir left to pay for the terminals out of what was left after paying expenses for airtime, termination, etc. Unsurprisingly it was therefore virtually all upside for Ryanair (bar the cost of flying the equipment around), but financially disastrous for OnAir when revenues came in at a small fraction of the EUR528K per plane per year that was originally predicted by the two companies.
OnAir Analyst Briefing Sept 27, 2007
It now seems that an approximation of reality is slowly returning to the in-flight communications market. Hopefully the next shoe to drop will be when Southwest doesn’t follow through on its fleetwide deployment plans with Row44, for exactly the same reason – there simply isn’t enough passenger revenue to pay for expensive VSAT or SwiftBroadband terminals, if both the airline and provider want to make a profit.
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03.17.10
Posted in Financials, Handheld, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:27 pm by timfarrar
This morning I had a brief chance to try TerreStar’s new Genus phone before the MSS CEO panel at Satellite 2010/MSUA-7. As pointed out in previous posts, the link is quite sensitive to phone orientation (remember not to turn around during a call). In addition, the phone software is still being optimized to address various issues such as the delay in establishing a voice channel after a call is answered, and the registration time necessary to switch from cellular into satellite mode. However, satellite SMS appears to work well (both to and from the phone) and may end up being more important to TerreStar than originally anticipated. It will therefore be interesting to see to what degree TerreStar is able to take customers away from Iridium and other MSS providers (as TerreStar’s CEO indicated was his ambition) once the phone enters commercial service in the next few months.
While some questions remain about TerreStar’s satellite service, more clarity is emerging about Harbinger’s likely ATC plans after the release of the National Broadband Plan yesterday. As we noted a few weeks ago, it appears that a consortium is being put together by Harbinger (and a team of executives recruited) to build a new entrant LTE-based mobile broadband network, using a mixture of spectrum in the L-band, 2GHz band, 1.4GHz band and 1670-75MHz band, along with substantial vendor financing. The Broadband Plan indicates that the FCC is likely to be supportive of moves to accelerate the deployment of an ambitious ATC network, though Harbinger’s network would probably not require any substantive changes to current FCC regulations. It has been suggested to us that the network would ultimately require $4B of capex and another $4B in funding for subscriber acquisition and other costs, indicating a similar scale of ambitions to Clearwire, which is targeting a subscriber base of 30M users over a 10 year period. Such a plan would certainly be a transformative move for the entire MSS industry (even if its focus is almost entirely on terrestrial services), and so all of us will be waiting with bated breath to see whether Harbinger realizes its plans, something that now seems more likely than not to become clear in the very near future.
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02.18.10
Posted in Financials, Handheld, Inmarsat, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:05 pm by timfarrar
The FT’s Alphaville blog has highlighted various documents filed by SkyTerra with the SEC as part of its going private transaction with Harbinger, and suggested that Harbinger is still focused on the acquisition of Inmarsat that it originally proposed back in July 2008.
However, in our view these documents actually indicate the opposite, that although Harbinger is actively attempting to put together a consortium to fund an ATC network deployment, this is unlikely to include a bid for Inmarsat. The UBS analysis for Harbinger in July 2009, suggests three possible strategic options after the privatization of SkyTerra (Sol), namely:
(a) Acquire Inmarsat (Ignis)
(b) Pursue the Inmarsat (Ignis) Coordination Agreement
(c) Lease TerreStar (Taurus) Spectrum.
Over the last several months, it is clear that Harbinger has in fact pursued options (b) and (c) rather than option (a) (although admittedly it would not be able to launch a bid for Inmarsat prior to the SkyTerra takeover):
- SkyTerra declared the Inmarsat Coordination Agreement effective in December 2009 (prior to the two year deadline for this action); and
- TerreStar announced in January 2010 that it had entered a 90 day exclusive negotiation period to lease its satellite spectrum to Harbinger in exchange for an advance of $30M against its prior terrestrial (1.4GHz) spectrum lease to Harbinger.
While the Inmarsat coordination agreement (including its payment of $250M to Inmarsat to fit filters to existing Inmarsat terminals) is a necessity to make use of SkyTerra’s spectrum in any ATC network, in our view the potential Harbinger-TerreStar satellite spectrum lease is a direct alternative to pursuing a takeover of Inmarsat (albeit one which may not give access to European S-band spectrum, unless TerreStar is successful in its challenge to the European S-band process, or either Inmarsat or Solaris give up their licenses for this spectrum).
Similarly, while we understand that Harbinger is attempting to raise money from a consortium of investors over the next month or two, using this new funding to acquire Inmarsat would mean that it could not be used to fund a near term buildout of an ATC network. In fact, given the rise in Inmarsat’s stock price over the last year, it appears plausible that Harbinger might even decide to sell off some of its Inmarsat shares in order to provide funding for an ATC deployment, especially if Inmarsat decides to go down the route of spending its cashflows on a new I5 constellation with Ka-band capabilities.
There would be two ways in which an ATC network deployment could happen: if the buildout was funded by an existing wireless operator as a way to add capacity to its existing network, or as a (self-funded) standalone 4G new entrant to the US wireless market. We believe that Harbinger is pursuing the second of these alternatives at present, because the (less expensive and risky) first option is simply not open to it for the foreseeable future. As SkyTerra notes in its preliminary proxy statement:
“The Company had been actively pursuing a major strategic partner for a considerable period of time. In addition, during early to mid 2009 the Company had pursued and encouraged such parties to submit indications of interest to make an investment in and/or acquire the Company. No such partnering efforts were successful and no bona fide offers were received. In the judgment of Morgan Stanley, it was unclear that there was a short-or-medium term need for additional spectrum by ATC companies who were potential strategic partners. In addition, potential strategic partners had sources of spectrum other than through a partnership with SkyTerra, including via spectrum auctions by the FCC, and sales from SpectrumCo, Clearwire or from other entities in the satellite sector.”
Thus the pressing question is whether Harbinger will now be able to convince prospective partners/investors that a new entrant wireless business plan (presumably similar to that of Clearwire but based on LTE) would make sense. Though some funding might be available from (for example) an equipment vendor who would like to demonstrate its 4G technology (as has happened with Clearwire), it is less obvious who might be interested in providing distribution. Most importantly, with doubts persisting about whether Clearwire (with significant backing from wireless and cable operators) will be able to develop a sustainable 4G business, Harbinger will need to demonstrate a compelling reason why customers should choose its service over those of more established wireless providers. The only credible differentiator for such a wireless network lies in the satellite roaming capabilities that will be available (and mandated) in an ATC network deployment (and which Mr Falcone suggested to the Wall St Journal back in April 2009 would attract “vast global demand”). Thus potential partners’ attention will need to be focused on the TerreStar Genus phone (which now looks like it will come to market sometime in the second quarter of this year, after the deadline for Harbinger to complete its potential satellite spectrum lease with TerreStar), and whether they believe it can provide a compelling demonstration of competitive differentiation and market demand, based on this satellite roaming capability.
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01.05.10
Posted in Financials, Handheld, Operators, Regulatory, Spectrum, TerreStar at 4:39 pm by timfarrar
There’s a lot happening with TerreStar at the moment, as the company tries to complete the exchange offer to extend the maturity of its preferred shares. The deadline has now been pushed back until early February, while in a separate development, Echostar’s representatives have resigned from TerreStar’s board, effective December 31, 2009.
In the meantime, all eyes will be on the FCC, which needs to approve TerreStar’s ATC application (made back in the summer of 2007) before January 20, 2010 to prevent TerreStar defaulting on its loan agreement for the second satellite, which TerreStar’s deputy GC described in an October 2009 submission to the FCC as an event that “would likely be catastrophic to the company”. TerreStar will certainly be hoping that the FCC’s indications that it is taking another look at MSS allocations as one of the options to free up more spectrum for wireless broadband will not cause them to delay approval of TerreStar’s ATC application beyond this deadline.
Jan 13 update: TerreStar has just received its ATC license, and can look forward to launching commercial service in the “first or second quarter” of 2010 (per its recent statement to Satellite News) once the current testing phase is complete and the company has completed its Preferred Stock Exchange Offer and raised additional funding.
We’re planning to publish our new profile of TerreStar later this month, including forecasts of the market opportunity for both MSS and ATC services, and are also looking forward to trying out the TerreStar Genus phone when its demonstrated at the SATELLITE 2010 show in Washington DC in March. Its going to be fascinating to see whether TerreStar can succeed where others have failed in creating mass market demand for two-way MSS.
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12.14.09
Posted in Aeronautical, Broadband, Financials, Inmarsat, Operators, Services at 5:24 pm by timfarrar
Since we last wrote on the topic in September, skepticism about the future of in-flight Internet services has become even more widespread, and recently disclosed usage data from Aircell has not been particularly impressive – roughly 100K sessions per week (of which only a fraction are paid for), equating to about a 5% take rate on equipped aircraft.
The good news is that Aircell is now touting the “operational applications” of in-flight Internet: the obvious corollary being that it is going to try and extract some money from airlines to pay for these benefits, as we suggested it would have to back in September.
The bad news is that the business case for Row44′s Ku-band service looks even more questionable than we had suspected, and it faces a near term deadline (we understand January 2010) from Southwest to secure $100M+ of funding for its planned fleetwide rollout. We have been told that the Southwest-Row44 agreement calls for Southwest to pay Row44 a fee of $0.25 per passenger flown on each equipped aircraft, whether or not they use the service, and Southwest will then mostly likely give the connectivity away for free. With Southwest carrying about 170K passengers per plane per year, that would mean Row44 receiving just over $40K per plane per year (about $22M per year in total once fleetwide installation is complete), which it hopes to supplement with advertising revenue. However, we are doubtful that a dramatic increase could be realized from advertising: for example according to a recent article, in-flight magazines generate an average of about $1M per airline per year in gross advertising revenue, and a large airline such as Southwest would presumably therefore generate in the high single digit millions of dollars from its magazine. Given the lack of technology (and power outlets) required to read the magazine, then even if Southwest gives away the Row44 service for free, usage would be far less than the 80% of passengers that read the in-flight magazine, and we would view it as unlikely that advertising revenue could add more than a few million dollars to Row44′s income.
More to the point, a free service will put an unsustainably costly load on the Row44 network: we believe this was originally designed with an expectation of loading 100 planes onto each transponder (which can provide 18Mbps of capacity), but if 25% of passengers used the network for streaming video, and other high bandwidth applications (remember that these were the primary selling point of Row44′s solution compared to Aircell), then it is quite possible that 1 transponder would be needed for every 20-30 planes. With each transponder costing about $1.25M, Row44 could find itself coming close to spending all of the revenue from Southwest on bandwidth and never making any margin to even begin to pay for the $100M+ of equipment that it would have installed.
In this context, it is far from clear that a sustainable business model is available for large scale Ku-band passenger communications deployments (although a limited Panasonic service on Lufthansa could be viable, assuming Panasonic has some form of revenue sharing agreement with Intelsat and initial installations rely on the old Connexion antennas). Certainly it appears that Viasat, which was the primary equipment supplier to Connexion-by-Boeing (and was rumored to be in pole position to secure a deal with Lufthansa, prior to its recent shift to Panasonic) is emphasizing the lower cost of Ka-band capacity over a Ku-band only model for mobility services. Intriguingly, even Inmarsat may agree that Ka-band is the future: we understand that it has recently issued an RFI for one or more Ka-band satellites, which are likely to be part of its planned roadmap for future government and/or aero services (e.g. UAVs).
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12.07.09
Posted in ICO/DBSD, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 10:41 am by timfarrar
On Friday Dec 4 we attended an FCC discussion of the National Broadband Plan here in Menlo Park, at which Carlos Kirjner and Blair Levin presented on various issues being addressed in development of the National Broadband Plan. The most interesting part of the presentation was the assertion that “at least 150MHz” of TV spectrum could be freed up by relocating over the air TV broadcasters to a smaller portion of the UHF band “while keeping all major channels on the air”.
Its been widely discussed how the broadcasters might be incentivized to move, perhaps by offering them a share of the future auction proceeds, so at the end of the presentation I asked if a similar arrangement would be available for other spectrum bands, such as MSS. Blair Levin confirmed that other bands, including MSS-ATC spectrum, were also under review and that historic band allocations may no longer be optimal to meet future wireless spectrum demand. As part of the FCC’s review of Harbinger’s proposed purchase of SkyTerra, the FCC has also asked some very detailed questions about SkyTerra’s progress towards an ATC deal, and the discussions that they have had with different parties.
Will the National Broadband Plan provide an alternative way for MSS operators such as SkyTerra, ICO/DBSD and TerreStar to monetize their spectrum, as it does not look like any of these operators are going to move forward with ATC deployment in the near future? Globalstar’s ATC lease agreement with Open Range is seeing more progress, but is limited to a few million rural consumers (and the Open Range terrestrial rollout is being supported by USDA loan guarantees).
Certainly in the 2GHz band (unlike the L-band) there are no existing satellite services which would prevent operators returning their spectrum to the FCC for re-auction. The National Broadband Plan is due to be published in February 2010, so we will soon see whether the FCC is going to come up with a plan to make sure that MSS spectrum is put to use in terrestrial networks in a more timely manner.
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