09.09.09
Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services, TerreStar, Thuraya at 12:43 pm by timfarrar
Unfortunately its not new services, but the prices of current and future satellite phones and airtime that seem to be headed upwards. The last year has seen Iridium introduce its new, improved 9555 handset at a higher price than the 9505A that it replaced, with phones now selling for about $1500, while Thuraya has “simplified” (i.e. increased) its airtime pricing and introduced the more expensive ruggedized XT phone. Inmarsat admitted in June that its new GSPS handset may sell for up to $750 at launch in 2010, compared to the $500 retail price point it suggested previously. Even TerreStar has now indicated that its new handset may cost up to $800, with airtime pricing at “less than $1 per minute”.
We’ve commented before on how satellite phone revenues have been falling since 2005, and competition has certainly diminished as Globalstar has experienced problems with its two-way services over the last couple of years. However, it seems the consensus amongst current participants in the handheld MSS market is that there is little if any growth potential still left in satellite phones, and the actions of Iridium and Thuraya appear to indicate that their remaining customers are relatively price insensitive.
Even more surprising is that so far, at least, the new entrants do not seem to be particularly keen on shaking up the existing “premium price” paradigm for satellite phones. In the case of TerreStar this is rather worrying, given that their objective is to greatly expand the satellite phone market, and bring satellite-cellular roaming to a mass market, which seems very unlikely to happen with an $800 phone. Is TerreStar simply trying not to give too much away about its future pricing plans, while it focuses on developing all the other elements needed for a commercial service, such as distribution channels, billing systems, etc.? Will TerreStar actually be able to convince a cellular operator to subsidize its phone (which would require a significantly greater commitment from a partner than its current roaming agreement with AT&T)? We should find out soon, as TerreStar intends to launch commercial services at the end of 2009.
Permalink
07.20.09
Posted in Financials, ICO/DBSD, Operators, Spectrum, TerreStar at 3:20 pm by timfarrar
On July 9, DISH Network filed a letter in the ICO North America (DBSD) bankruptcy case, indicating that it had purchased all of the $43.7M of first lien secured debt from the pre-petition lenders.
The first lien lenders had been objecting to ICO’s proposed restructuring which their financial advisers (Chanin Capital Partners) characterized as “a ‘plan’ that is doomed to fail, due to lack of financing, overwhelming debt and inability to move the company from the developmental (non-revenue producing) stage into an operating, revenue producing one”, while DISH Network stated in its letter that it “adopts those objections in their entirety and is prepared to prosecute the objections…”
According to Chanin, ICO/DBSD’s plan “seeks to put the Debtors in a holding pattern in the hope that the capital markets will become more accessible in the future. During this time the Debtors have no intention of furthering their business”.
However, with Echostar already holding a significant stake in TerreStar, ICO’s 2GHz rival, which just launched its own satellite earlier this month, could this development provide renewed impetus to the long rumored merger of the two companies and provide an alternative way forward for the development of MSS and ATC services in the 2GHz band?
Permalink
07.03.09
Posted in Inmarsat, LDR, LightSquared, Operators, Regulatory, Services at 9:12 am by timfarrar
In April 2009, Inmarsat announced that it would be taking a 19% stake in SkyWave, facilitating SkyWave’s acquisition of Transcore’s satellite communications assets. However, SkyBitz, Wireless Matrix, XATA and Comtech Mobile Datacom [the Commenters] jointly objected to SkyWave’s FCC application for the transfer of these assets, citing “numerous and substantial negative impacts on MSS Providers and other end-users using L-band capacity”. Although the submission is heavily redacted, it appears that one of their primary concerns relates to the “restrictive trade covenants included by Inmarsat” in the Transaction and they demand an explanation of how Inmarsat “will ensure non-discriminatory treatment of all MSS Providers and other end-users with respect to capacity, availability and contractual terms and conditions”. The Commenters “believe in fact that the Transaction will (i) actually eliminate competition for end-users (as a result of the Covenant), (ii) delay deployment of advanced satellite services to end-users other than SkyWave’s customers, (iii) result in higher pricing to end-users at the expense of higher margins for SkyWave and Inmarsat, and (iv) ultimately reduce the affordability of MSS services for end-users.”
While it remains unclear exactly what is contained in the “Covenant” referred to in these comments, Inmarsat noted at its recent investor conference that one of its motivations for investing in SkyWave was to promote consolidation in the Low Data Rate (LDR) industry, and that more than half of the investment comes in the form of future airtime credits. The Transaction also “provides for a fully funded development programme for new products and services” and will drive “traffic growth on Inmarsat satellite network”, we assume at least partly as a result of SkyWave and Transcore committing to use Inmarsat’s capacity exclusively (Transcore currently uses SkyTerra’s L-band capacity in North America). The airtime credits and development program certainly give SkyWave an advantage over other providers using leased L-band capacity, and this financial and commercial advantage is presumably what would induce the “consolidation” that Inmarsat seeks.
What is particularly interesting is that on June 29, SkyWave withdrew its FCC application to undertake the Transaction and on June 23, Inmarsat (in conjunction with other MSS operators) sought an extension of time until July 14 to respond to the FCC’s consultation proceeding for its Third Annual Report to Congress on Status of Competition in the Provision of Satellite Services in which the only meaningful concern was also expressed by SkyBitz.
With SkyBitz (which currently uses leased SkyTerra capacity) cited by Inmarsat as one of the “key competitors” in the LDR market (and the only plausible one that could switch to Inmarsat capacity, since the other key competitors listed, namely Iridium, Qualcomm and Orbcomm, all use incompatible technologies), it will be very interesting to see what happens over the next few weeks: will Inmarsat restructure (or even abandon) the SkyWave Transaction to eliminate the “restrictive trade covenants” that SkyBitz is concerned about (presumably making it more difficult to promote the consolidation Inmarsat seeks), or will Inmarsat actually facilitate a deal between SkyBitz and SkyWave to fulfill its market consolidation objective and eliminate the most prominent source of objections?
Permalink
07.01.09
Posted in Financials, Globalstar, Handheld, ICO/DBSD, Inmarsat, Iridium, LightSquared, Operators, Services, Spectrum, TerreStar at 10:25 am by timfarrar
With apologies to the Eagles…its a lovely place, for MSS consumers at least. However, for MSS operators it seems to be somewhere you can check out [or go bankrupt] anytime you like, but you can never leave.
Today we’ve seen confirmation that Globalstar is now fully funded to complete the construction and launch of its first 24 second generation satellites by the end of 2010, while TerreStar has launched its new S-band satellite from Kourou, French Guiana and intends to initiate commercial services at the end of this year. Iridium also looks increasingly likely to complete its deal with GHL, since GHL’s shares and warrants are now trading well above the $10 value that would be refunded to investors if they voted down the deal. While there has been much speculation about potential mergers in the last two years, these now look less, rather than more, likely to occur in the near future (with the sole exception of SkyTerra’s Harbinger-backed bid for Inmarsat, which should be decided one way or another later this year).
Thus by early 2011, it looks like we will have at least four and more likely six voice and data MSS systems providing service in North America (Inmarsat, Iridium, Globalstar and TerreStar plus ICO and SkyTerra) and four systems (Inmarsat, Iridium, Globalstar and Thuraya) providing service in most of the rest of the world. With new advanced satellites, consumers will benefit from improved data capabilities and smaller, cheaper handheld satellite phones.
However, the development of at least three new systems (ICO, TerreStar and SkyTerra) and to some extent Globalstar as well (based on financial analysts’ comments at the time of its IPO in November 2006) has been justified largely by the value of MSS spectrum, due to the FCC’s rules enabling deployment of Ancillary Terrestrial Components (ATC), rather than by the intrinsic potential of the market for mobile satellite services itself. Thus, unless and until demand for MSS spectrum and ATC materializes, we run the risk of overcapacity for land-based MSS services, particularly in North America. This will certainly benefit end users, and price reductions (especially in conjunction with cheaper, more attractive terminals) may help to stimulate significant market growth, but it remains to be seen whether this will enable all the MSS operators to deliver a return for their investors or whether we’ll see more of them “checking out” with a bankruptcy filing as ICO North America did in May this year.
Permalink
06.29.09
Posted in Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 9:23 am by timfarrar
In a recent Report and Order, released on June 12, 2009, the FCC addressed the issue of when ICO and TerreStar can offer commercial service in North America, which has been delayed by the need to clear their uplink band (2000-2020MHz) of existing Broadcast Auxiliary Service (BAS) users, who are being transitioned to frequencies above 2025MHz. In the Order, the FCC removed the requirement that ICO and TerreStar must wait until all of the top 30 broadcast markets have been transitioned before they can launch service. However, ICO and TerreStar will have to coordinate with BAS users if they are to operate in uncleared markets, and Sprint Nextel now has until February 8, 2010 to complete the transition. As a result, though TerreStar intends to begin offering service in late 2009, it looks likely that national service will not be available until several months later.
More importantly, as part of the order, the FCC initiated a Further Notice of Proposed Rule Making (FNPRM) related to the sharing of costs for the BAS transition (which Sprint Nextel has paid but is seeking to reclaim from other operators who will use the spectrum). The FCC “tentatively conclude[d] that MSS operators and future AWS licensees will have an obligation to share, on a pro rata basis, in the costs associated with the relocation of BAS incumbents if they “enter the band??? prior to the BAS sunset date of December 9, 2013″ and “tentatively conclude[d] that an MSS operator “enters the band??? and thus incurs an obligation to share in the costs associated with relocation of BAS incumbents when its satellite is found operational under its authorization milestone”. In April 2009, Sprint Nextel estimated these costs at $100M each for ICO and TerreStar. ICO and TerreStar have previously argued that they should not be liable for any of these transition costs, so if confirmed, the FCC’s tentative conclusions would be a significant additional cost for both companies. However, it is uncertain if the recent bankruptcy of ICO North America will affect Sprint Nextel’s claim, including whether the ICO Global parent company (which was not part of the bankruptcy filing) will avoid this liability.
Permalink
06.19.09
Posted in Broadband, Government, Inmarsat, Services, Spectrum at 11:27 am by timfarrar
We’re not referring to hybrid satellite-terrestrial (ATC/CGC) networks, but to the details of Inmarsat’s long term satellite development plans for its Inmarsat-5 constellation revealed at today’s investor meeting in London. Though its fifth generation satellites are not due to be launched for nearly ten years, Inmarsat is already actively developing plans for satellites which include both L-band and higher frequencies, not just a “cheap and cheerful” low cost evolution of its current satellites.
Inmarsat doesn’t plan to develop what it characterized as “high risk” L-band satellites with ground-based beamforming (which is being employed by ICO, TerreStar and SkyTerra, with no apparent problems that we can discern), but instead is looking at including other frequency bands in the I5 constellation. In addition to indicating that S-band is not needed for its core business (but would instead be used mainly for terrestrial applications), Inmarsat suggested that standard FSS frequencies (i.e. Ku-band) were not particularly interesting. Thus we conclude Inmarsat may have a preference for including military Ka and/or X-band capacity on the I5 satellites. With the US government deploying its own Wideband Global System (WGS), there will be many thousands of DoD terminals in the field capable of using these frequency bands by the time the I5 constellation is launched.
Potentially the I5 satellites could provide surge capacity for the DoD (and other defense agencies) to supplement the government-owned WGS satellites, and provide incremental revenue opportunities for Inmarsat. Alternatively, Inmarsat could carry a hosted WGS-derived payload, in the same way as Intelsat recently agreed to carry a hosted UHF payload for the Australian Defense Force. According to figures provided at the conference, Inmarsat already receives 37% of its revenues from government services, and either approach would cement or even increase the proportion of revenues from government in the future.
Permalink
06.15.09
Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 11:53 am by timfarrar
As Inmarsat moves towards commercial launch of its new Global Satellite Phone Service (GSPS) some time in 2010, expectations have been building in the analyst community about the potential of GSPS to gain 10%+ of the $500M satellite phone business. In reality, the $500M market estimate (given by Inmarsat in 2006 when it acquired ACeS) represents retail service revenues and is an overestimate given the significant revenue declines experienced by Globalstar and Thuraya, two of the three principal handheld satellite phone providers, in 2007 and 2008. By our estimate, Globalstar, Thuraya and Iridium generated only about $270M in wholesale service revenues from handheld satellite phones in 2008, including a significant amount from Iridium’s US government contract.
While Inmarsat will start to compete in this market during 2010, what appears to have been completely overlooked by analysts are the significant limitations of the GSPS handset. As with the current SPS phone (see p17 of the user guide), we believe that customers will be advised to use the handsfree earpierce and physically point the phone antenna at the Inmarsat satellite. Some level of user cooperation in using satellite phones is not unprecendented, since Thuraya advises customers to ensure the antenna is pointed at the satellite when operating at low elevation angles, such as in south east Australia. However, Thuraya has never achieved much success in areas where this level of user cooperation is required, and the feedback we’ve heard on the first generation SPS phone that’s in use today has been pretty negative.
Inmarsat will certainly be able to improve the performance of the GSPS service within the EMEA region, to a level comparable with Thuraya, once its more capable Alphasat satellite is launched in 2012. However, Inmarsat will be constrained in the size of the antenna that it can use on future satellites, due to the need to maintain its existing levels of maritime coverage, so Inmarsat is unlikely to be able to extend similar levels of handheld performance globally without very substantial incremental capital expense.
Thus it does not appear that GSPS will be a realistic challenger to Iridium as a global satellite phone, and it may not be easy for Inmarsat to reach its target of a 10% market share within two years of launching the product, especially if Globalstar completes its next generation system and re-enters the market as a low cost handheld provider by early 2011. More importantly, as Iridium seeks to fund its next generation system (a prospect of which Inmarsat has been openly scornful), it will be able to make a very strong argument to the US government that Iridium NEXT is a necessity to maintain support for global handheld satellite services, on which US soldiers are increasingly reliant.
Permalink
Posted in Aeronautical, Services, VSAT at 10:56 am by timfarrar
So how many passengers will be willing to pay for in-flight Wi-Fi service on domestic routes? We’ve always agreed that there is “‘there is zero proof’ that a significant number of passengers are willing to pay for in-flight Wi-Fi service on domestic routes”, as noted in a recent NY Times article?
Certainly airlines are “rushing to install Wi-Fi” but its far from clear that they are “banking on a viable market” since it is rumored that Aircell is funding most if not all of the cost of installations. Instead its clear that airlines see very positive passenger reactions to WiFi availability and want to gain a competitive advantage, especially amongst high revenue business travelers. It appears that airlines are receiving a share of revenues, but unless a substantial part of these payments are being held back until the equipment costs have been covered, then the number of planes needed for Aircell to reach break even may be even higher than the 2000 planes previously indicated.
Current usage largely reflects take-up confined to this business traveler segment, with Virgin America reporting that “20 to 25 percent of its passengers use it on the San Francisco-Boston route, heavily used by business travelers” with an across the board “average of 12 to 15 percent”. That’s slightly better than our experience of 15%-20% take rates (20-25 users) on cross country daytime flights between San Francisco and Washington DC with only a handful of users on short West Coast flights, and its not clear if Virgin America is including night flights in its overall estimate. Although WiFiNetNews suggests “that’s not a bad ROI”, even if 25% of the revenue goes to covering the installation costs it will still take at least a couple of years before these have been covered, and Virgin has by far the best selection of routes (about 50% of flying hours cross country) and airplanes (all with at-seat power) and this ignores the fuel cost of flying the equipment around.
For Delta, it remains far more doubtful whether a fleet-wide installation makes economic sense (although it appears the risk is likely to be borne by Aircell rather than Delta) given the prevalence of short flights in most network carriers’ schedules. Indeed, Aircell is now experimenting with lower prices on these short flights ($5.95 on one recent flight we took from San Diego to San Francisco) in an attempt to stimulate demand. As a result, as the NY Times highlights, incremental revenues from Internet-enabled smartphones may be important to closing the Aircell business plan. However, we remain skeptical as to whether it will be possible to attract substantial usage from the average consumer, unless through consumption of video entertainment, which would likely overload the Aircell network, and its far from clear what is the compelling reason to consume sports or movies, which are already available from the entertainment system built into Virgin America’s planes.
Even if it proves difficult to generate a return on its original investment, Aircell is likely to dominate in-flight communications in North America, simply because its capex is a sunk cost and it is going to be installed on 1000+ commercial aircraft in the next 18 months. We hold out far less hope for VSAT-based services such as Row44, which believe will struggle to gain critical mass and justify their rather more expensive terminal installations. The most interesting airline to focus on will be Southwest, which is currently trialling the Row44 solution. Will it decide to proceed with fleetwide installation of in-flight WiFi, and if so will it decide to switch to the much lower cost AirCell solution?
Permalink
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.
Permalink
05.15.09
Posted in Financials, ICO/DBSD, Spectrum at 2:49 pm by timfarrar
Is this deja vu all over again for the MSS industry? ICO North America has filed for bankruptcy, and plans to turn over almost all of its equity to the convertible debt holders who would have been due for repayment of $767.6M in August. ICO North America has an S-band GEO satellite in orbit, which it launched in April 2008, and had planned to develop a mobile video service for cars which it referred to as MIM. However, these plans were put on hold while the company renegotiated its debts.
There is a distinction between ICO North America, now referring to itself as DBSD, and its parent company, ICO Global, which is not filing for bankruptcy. ICO Global is responsible for a MEO satellite system, whose first satellite was launched back in 2001, although the system was never completed. Though ICO maintains it has a legacy claim to spectrum rights in the S-band on a global basis, the European Commission decided yesterday that it would instead award European spectrum licenses to the Inmarsat and Solaris Mobile. ICO Global’s main asset is the judgment of $631M that it was awarded against Boeing in January this year, after a trial in which ICO blamed Boeing for its inability to complete the MEO system. ICO has not yet collected this judgment, which Boeing has appealed, and ICO has estimated it could take two years for the matter to be resolved.
ICO Global was under no obligation to share any of the Boeing judgment with the ICO North America convertible debt holders, but could have presumably cut a different deal if had wanted to keep a bigger share in ICO North America’s assets and give up some of the potential future litigation proceeds. Clearly ICO Global has therefore decided that these potential future litigation proceeds are more valuable than the share of the GEO satellite and spectrum assets that it could have obtained in exchange for them. That may be good news for ICO Global’s shareholders, since there are about 200M shares outstanding, implying the potential future litigation proceeds are equivalent to $3 per share (compared to a current trading price of $0.60) if Boeing’s appeal is unsuccessful. However, it doesn’t help the prospects for ATC if Craig McCaw, one of the savviest spectrum investors around, believes that ICO North America’s satellite and spectrum assets aren’t worth more than the $767M owed to its convertible debt holders. Our view continues to be that the ATC spectrum will eventually be put to use in terrestrial networks, the problem is just that ‘eventually’ might be quite a long time.
Permalink
« Previous Page — « Previous entries « Previous Page · Next Page » Next entries » — Next Page »
