05.18.09
Posted in Inmarsat, Maritime, VSAT at 7:22 pm by timfarrar
In January 2009, we questioned whether KVH and Viasat could afford the investment needed to complete their 2009 coverage expansion plans, as shown below.
Now the planned coverage expansion shown on KVH’s website has changed, with the South Pacific coverage expected in Q4 2009 dropped (at least for now), and the East Asian expansion delayed. Is the current economic slowdown beginning to impact miniVSAT demand, or is it just that with other parts of KVH’s business suffering, the company is now trying to be more cautious with its investment?
Although Inmarsat has not yet seen any impact from the downturn, we should find out in the next few months how widely the current economic pain is going to be felt in the maritime satcom market. Given the high capital cost of maritime VSAT equipment, it wouldn’t be surprising if VSAT suffered more than Inmarsat from any slowdown in maritime communications spending.
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03.04.09
Posted in Globalstar, Handheld, Inmarsat, Iridium, LightSquared, TerreStar at 11:52 am by timfarrar
Its been revealed today that EMS has taken a $3.4M charge to terminate its work on the Inmarsat next generation satellite phone, and that Inmarsat will be assuming “more control over production phases of the product development”. This is the latest in a long line of setbacks for the ISatPhone, with the first generation phone failing to achieve any meaningful traction and repeated delays in completion of the next generation phone since Inmarsat acquired the ACeS customer base two and a half years ago.
In our view, a key reason for the failure of the original phone was its poor performance on the Inmarsat I4 satellite, with users advised to use a hands-free kit and keep the phone antenna pointed at the satellite! It remains unclear if EMS had solved these technical challenges with the new phone (which are caused by the smaller 9m antenna on the I4 satellites, compared to the 12m antennas used by Thuraya and AceS), and therefore it is quite possible that serious constraints may still apply to the usability of Inmarsat’s new handheld, a concept model of which is shown below. Certainly we expect that it will be difficult if not impossible for Inmarsat to ensure satisfactory handheld performance in Alaska and much of Canada.
The launch of the new phone had already been pushed back from early 2009 to the end of the year, with features such as packet data dropped to save time and money. Now it looks like Inmarsat will experience a further delay until well into 2010, and yet another increase in costs, adding to a development program which already totals around $100M. We will be looking with interest at whether Inmarsat maintains its stated intention to sell the phone for around $500 retail, thereby making it even harder to recover its investment in handset development. Notably, this price point has already met with pushback from potential distributors, who would be unable to realize the margins they make today on the sale of other satellite phones.
The clear winner is Iridium, who will have even more time than they had expected to capitalize on the lack of handheld competition from Inmarsat, and who managed to complete the development of their new 9555 phone on time and at a cost of less than $10M. Other current and potential satellite handheld providers, such as Globalstar, Skyterra and TerreStar, who have faced a barrage of criticism from Inmarsat in recent months, will also be rubbing their hands with glee at Inmarsat’s embarrassment.
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01.28.09
Posted in Inmarsat, Maritime at 2:45 pm by timfarrar
On Monday, Thrane & Thrane announced an agreement with KVH Industries to distribute KVH’s TracPhone V7 mini-VSAT product. At first sight, this seems to be an expression of confidence in the potential of maritime VSATs, with Thrane noting that “the market for Ku-band equipment for maritime satellite communication is expanding strongly” by about 1500 terminals per year. However, Thrane’s original plan was to pursue development of its own maritime Ku-band VSAT product and service, the SAILOR 900, announced last June, which has now been cancelled.
The Ku-band maritime VSAT market has grown dramatically in recent years, taking market share amongst high end users, who can afford the expensive terminals (typically $50,000+) and need the flat-rate, always-on connectivity that Inmarsat cannot provide with its L-band satellites. However, the Achilles heel of Ku-band systems has always been coverage: as Connexion-by-Boeing found out in 2006, the cost of leasing a global Ku-band network far outweighs the near term revenue that can be gained in what is a very fragmented business, with the largest players (Vizada/Marlink, SeaMobile/MTN, Caprock and ShipEquip) each having a market share of less than 20%. As a result, providers have to date offered C-band systems to customers requiring global coverage, and focused Ku-band solutions on intra-regional users.
KVH and Viasat have promised to change this model with their mini-VSAT network, building out global Ku-band coverage for both aeronautical and maritime applications, along similar lines to the concept envisaged by Connexion (though with smaller, cheaper terminals costing around $30,000). Thrane’s decision to join with KVH is an acknowledgement that even a company such as Thrane, with it’s very strong maritime brand, is unable to justify the costs of establishing global Ku-band coverage on its own. The question now is whether KVH and Viasat can afford the investment needed to complete their 2009 coverage expansion plans.
Orders have remained strong for maritime VSATs, even in recent weeks, but in the current financial climate, maritime VSAT looks far more vulnerable than Inmarsat to ship operators seeking to cut back their communications spending: it generally has a high fixed cost every month (compared to Inmarsat’s pay-by-the-use) and is usually sold on the basis of getting “ten times more data for double Inmarsat’s cost”, not on the basis of saving money over current expenditures. Most importantly, in many cases it is seen primarily as an investment in crew welfare: when there are few jobs going either at sea or on land, crew retention in 2009 will be much less of a problem than in 2008. As a result, Thrane looks amply justified in getting cold feet over pursuing its own VSAT product.
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01.15.09
Posted in Aeronautical, Financials at 10:03 am by timfarrar
United has now joined the North American airlines signing up to fit the Aircell service for in-flight Internet connectivity. Similar to American, it is initially just installing the service on its P.S. business-oriented cross country flights between JFK and LAX/SFO (though American also includes some 767 flights to MIA). Undoubtedly this is a great boon for business travelers, and our experience of the service was excellent. However, to date it looks like overall usage levels are very low, since few leisure travelers are willing to pay $12.95 even for a five hour flight.
On a American SFO-JFK afternoon flight last October, we decided to walk the plane and count the number of users: the result was 8 out of 34 business and first passengers were using it, but only 2 out of about 110 economy passengers. I’m sure American is pleased with this – since the high revenue customers at the front of the plane are happy, but the amount of money flowing to Aircell is far from enough to pay for the network. We understand that to date Aircell has installed the equipment for free, so the only cost to the airline is the fuel to fly it around.
Based on the usage levels we saw, gross Aircell revenue is probably only ~$60K-$80K per plane per year, less even than the $100K seen by Connexion-by-Boeing back in 2006. Connexion had many of the same characteristics – giving away equipment, a high fixed cost network (in that case global satellite capacity leases rather than a national tower network), a large staff, and was also a great service for passengers and airlines. There are a few differences, most notably that the Connexion equipment was much heavier and more expensive than the Aircell terminals, but also that Aircell can supplement its passenger revenues with installations in the business jet market. However, Boeing ultimately decided it couldn’t afford to continue to run the service, as did Claircom, Airfone and others with their earlier voice services. In the current financial climate, we wonder if Aircell’s network will be able to avoid the same fate? Certainly they seem a long way from the prediction of 2000 equipped aircraft by the end of 2009 made by Aircell’s CEO last summer.
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09.15.08
Posted in Globalstar, Services at 9:41 pm by timfarrar
I went camping with my seven year old twins in the Desolation Wilderness near Lake Tahoe over Labor Day weekend and took my SPOT satellite tracker with me as a test. It proved pretty useful for my wife to keep an eye on our progress and I certainly felt reassured to know that we could summon help in an emergency. While it might not attract millions of users, there certainly seems to be a good niche for the product both in the outdoor market and also for keeping track of (for example) your elderly parents when they go on a long drive. I even know a colleague who uses it to keep track of where her teenage son is going in the car – I wonder how long it will take him to realize how she knows he’s not where he said he was going to be.
I wonder when we’ll see the first two way version of this device – either from Globalstar or its competitors – since it would be great to have at least an acknowledgement that your message had been delivered.
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08.14.08
Posted in Aeronautical, Inmarsat at 11:28 am by timfarrar
According to a recent Economist article Air France has found that “On a typical flight about 100 text messages were sent or received and ten megabytes of data transferred by a dozen BlackBerry users”. This level of usage seems very high, given that Blackberries can usually synchronize with 100kbytes or less of data and the usage level given here is 800kbytes per Blackberry. We questioned OnAir’s PR representatives and they confirmed that the data (which comes from the first phase of the Air France trial, before introduction of voice) was quoted correctly.
Inmarsat also stated on its Aug 6 results call that initial Air France trials had seen usage levels of around 300 minutes per day, so combined this would produce total end user revenues of well over $1000 per plane per day, significantly in excess of our expectations (and the Qantas trial which had data only usage of $100-$150 per day). However, we have heard from another source that usage revenues (for voice and data combined) on the Air France aircraft in the second phase of the trial were at a rather lower level of around $400 per day, very close to (or even below) our expectations.
We’re waiting to see if any more data emerges to clarify likely usage. As we’ve noted before, this is critical to determining the rate of installation, particularly on short haul aircraft, since airlines need to see a minimum usage of about $800 per day to make a profit after paying for the equipment and cost of flying it around. Only then will financially strapped airlines be willing to push forward with fleetwide installations in the current economic climate.
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