11.29.11
Posted in Aeronautical, Broadband, Globalstar, Handheld, Inmarsat, Iridium, LDR, Maritime, Operators, Orbcomm, Services, TerreStar, VSAT at 12:20 pm by timfarrar
As I remarked in an interview for the Satellite 2012 downlink newsletter yesterday, 2011 has seen a dramatic deceleration in MSS revenue growth, with wholesale service revenues now expected to grow by less than 3% in 2011, compared to the 7%-8% growth seen in each of 2008, 2009 and 2010. Yesterday we also released our latest industry report which gives ten year forecasts for MSS industry growth. In the L-band market (including Inmarsat L-band, LightSquared, Thuraya, Iridium, Globalstar and Orbcomm) we project cumulative revenue growth from 2010 to 2020 of only 4% p.a. and even when Global Xpress is added to Inmarsat’s revenues in the latter part of the decade, the overall cumulative growth rate is only increased to around 6% p.a.
This represents a striking contrast with widely quoted forecasts from Euroconsult and NSR, that the MSS market (excluding GX) will grow at 7% p.a. over the decade (Euroconsult) or 10% p.a. from 2010-15 (NSR). These optimistic forecasts seem to have achieved wide currency with analysts and bankers, who have argued (for example at the Satcon conference in October) that the MSS industry is more attractive than the FSS industry because of its much faster growth profile. One example that stands out is a JP Morgan analyst report on Inmarsat, published last Thursday, which gives an upbeat assessment of Inmarsat’s prospects and projects a target price of 800p per share (roughly double the current level). Not only does JPM expect LightSquared’s spectrum lease payments to be continued indefinitely after they file for bankruptcy (which is ludicrously unrealistic once you understand that LightSquared’s political backing has evaporated and even the FCC has basically given up on them, but may reflect the fact that JPM co-led (with UBS) the sale of LightSquared’s first lien debt earlier this year), but they expect Inmarsat’s core L-band business to resume growth at 2.5% p.a. from 2012 and Global Xpress to achieve Inmarsat’s target of $500M in annual revenues after 5 years.
Where do we differ with Euroconsult and NSR? It appears the primary source of the discrepancy is in our expectations for the maritime and aeronautical L-band markets. According to the JPM report, NSR is projecting 11% p.a. and 13% p.a. growth respectively for the maritime and aeronautical segments between 2010 and 2015. We are told that Euroconsult also takes a relatively optimistic view of the outlook for the maritime and aeronautical L-band markets. However, our expectations are that wholesale maritime and aeronautical L-band service revenues will actually decline between 2010 and 2020, as customers move to Global Xpress and other VSAT solutions. As a result, future L-band growth will have to come from land-based services, particularly low speed data and (to a much lesser extent) handheld satellite phones. That’s relatively good news for Iridium and Globalstar (as well as Orbcomm, if they can continue to gain momentum), but its still unclear whether ~8% p.a. growth in land MSS revenues will be sufficient for all of these companies to thrive in the face of what will inevitably be an ever-increasing focus by Inmarsat on this part of the MSS market.
If you are interested in our latest report, which also includes a detailed analysis of Inmarsat’s maritime market outlook and forecasts for in-flight passenger communications services, as well as discussion of the current prospects for terrestrial use of MSS spectrum, please contact us for more details about our MSS information service.
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10.04.11
Posted in Financials, Globalstar, Operators at 12:03 pm by timfarrar
Yesterday, Globalstar announced that it had “placed an order with Thales Alenia Space for an additional six satellites…in addition to the 25 satellites already ordered under the 2006 second-generation constellation contract”. The press release states that:
According to the terms of the contract these satellites will cost approximately EUR 55 million and should be delivered by mid-2013. The fast track delivery, agreed upon when the contract was signed in 2006, is due to the fact that Globalstar has previously purchased EUR 12 million in long lead items that facilitate the prompt manufacture of these six spacecraft. Additionally, the incremental purchase amount is particularly price competitive due to the fact that Globalstar has already prepaid over EUR 53 million as part of its 2009 COFACE financing. Thus, combined with the EUR 12 million long lead items, Thales has already received approximately EUR 65 million for these satellites. Further payments will not be made until Thales Alenia Space initiates the manufacturing process.
This wording is somewhat strange, because Globalstar is indicating that the low cost and fast track delivery are “according to the terms of the contract”, but there is no indication that TAS has agreed to this price and timescale (or even a quote from TAS welcoming this new order). Indeed the order was placed “nowithstanding the previously announced arbitration proceedings” which according to Space News concern “pricing terms for a second batch of 24 second-generation Globalstar satellites that Cannes, France-based Thales Alenia Space had agreed to build under a contract that has since been amended”. This arbitration panel will convene in January 2012 and Globalstar “wants the arbitration panel to oblige Thales Alenia Space to pursue work on the 24-satellite batch under [the] terms of the amended contract”.
Presumably, in the absence of a negotiated resolution of the dispute, the actual manufacturing cost and timeline for these satellites will therefore remain subject to the outcome of the arbitration proceeding. It is possible that because the order is for six more satellites to be “fast tracked”, some people might now speculate that the problem with the momentum wheels on the first 6 second generation satellites, launched last October, is more serious than previously disclosed. However, I suspect that the order timing (at the end of September) is more likely attributable to an existing contract deadline, together with Globalstar’s long planned requirement to supplement their constellation once the eight first generation spares, launched in 2007, reach the end of their life, and in that case Globalstar’s need for additional satellites would not be as urgent.
UPDATE (10/5): An 8-K filing by Globalstar confirms that TAS has rejected the order “because Thales believes that Globalstar has no right to place the order”. The 8-K also describes various amendments to the terms of the credit facility and seems to indicate (by its reference to final in-orbit acceptance of 18 satellites) that (at least for the time being) Globalstar does not intend to accept the first 6 second generation satellites, presumably because the momentum wheel problem is one of the issues under dispute that will be addressed in the arbitration.
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09.07.11
Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 8:40 am by timfarrar
So Iridium has announced its “vision for the future of personal mobile satellite communications”, Iridium Force, including a range of new products and services. These new products and services are not exactly what was rumored last week (no commercial Netted Iridium service or standalone Bluetooth device). Instead they include the new Iridium Extreme (9575) phone, which includes integrated tracking capability and an SOS button, a new smaller 9523 voice and data module (which could potentially form the core of a standalone voice-capable device) and the AxcessPoint WiFi hotspot which provides data capability through a 9575/Extreme or 9555 phone.
It seems the aim of the AxcessPoint hotspot will be to increase usage of existing phones, via a low incremental cost (~$200) accessory, which is likely to provide a better financial return for existing service providers than a more disruptive low cost standalone device. Indeed Iridium expects to achieve a premium price for the new Extreme phone and does not see a need to lower the price of the 9555 for now (given its strong sales so far this year despite competition from the ISatPhone Pro).
If the two phones are sold (at retail) for say ~$1200 and ~$1000 then it wouldn’t surprise me if up to 80% of Iridium’s handset sales for the rest of this year are of the new Extreme phone (assuming adequate stocks are available). That would certainly be positive for Iridium’s 2011 equipment revenues, which to date have not declined compared to 2010 as the company originally expected. However, Iridium intends to keep the 9555 in production, providing it with optionality on pricing next year, once Globalstar comes back into the handheld market.
What will be really interesting is how Globalstar pitches itself, given that Inmarsat has not achieved much revenue success with the ISatPhone Pro at the low end of the market. It seems Globalstar will need to challenge Iridium and focus on the medium and high end of the handheld market in order to achieve reasonable ARPU levels. In that case, how important will a low price handset be to Globalstar (given this strategy hasn’t yet enabled the ISatPhone Pro to penetrate the high end of the market)? Will unlimited usage packages be a better strategy to pursue, or will Globalstar’s other attributes (consumer distribution channels, better data speeds, low latency and good voice quality) be sufficient to achieve a different result to Inmarsat? Whatever course Globalstar takes, Iridium’s success in the handheld market over the last 12 months means I’m not convinced that lower handset prices are as important to future revenue growth as some people previously expected.
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08.18.11
Posted in Financials, Globalstar, Inmarsat, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 8:49 pm by timfarrar
In my last post I estimated that to in order to relocate and preserve precision GPS service for farmers and surveyors there might need to be a “delay of several years” before LightSquared was able to bring its lower 2x10MHz of spectrum into use in a terrestrial network. Indeed, according to one GPS industry commentator, a transition period of 12 years might be more appropriate to “allow a smooth transition with a manageable financial impact to the high-precision GPS user community.”
However, because of LightSquared’s prior assurances that it wanted to cooperate with the GPS industry to preserve existing services, no-one seems to have noticed that in fact the company does have a potential “nuclear option”, namely that because these services are provided on a commercial basis to Starfire and OmniSTAR, LightSquared and Inmarsat could simply decide to cease supporting these services in accordance with their capacity lease contracts. Given that LightSquared is now blaming the GPS industry for the interference problems and accusing GPS manufacturers of being unwilling to cooperate with its attempts to find a solution, it seems increasingly plausible that LightSquared could now say that it simply can’t continue to support these services unless the FCC mandates a rapid transition of precision GPS users to new equipment equipped with filters.
LightSquared (which provides capacity to OmniSTAR, now owned by Trimble) has previously indicated that it only plans to support its legacy services in “emulation mode” for a limited period of time, and it appears likely that the contract with OmniSTAR could therefore potentially be terminated at relatively short notice. While Inmarsat’s contract with Starfire may not operate under quite such a short time horizons, many of Inmarsat’s leases are renewable on an annual basis and so could possibly be terminated if desired. In reaching such a decision, Inmarsat would have to decide whether it prefers the ~$1M or so it receives each year from Starfire to the $115M it is being paid each year by LightSquared (indeed it is conceivable that this issue may have been addressed in the deal under which Inmarsat was paid an additional $40M by LightSquared earlier this year).
Some might argue that the FCC would surely step in to prevent such damage to precision GPS services. However, in March 2010 when it granted LightSquared the requested modifications to its ATC license, the FCC explicitly stated that it would refrain “from interfering unnecessarily with licensees’ business negotiations” even though “this may present challenges to earth station operators using the satellites involved, and may require modification of operations, deployment of new equipment, or other adjustments” because “it would not serve the public interest for the Commission to assume the role of an arbiter of disputes between a satellite operator and its customers.” Nevertheless, the FCC did leave itself one potential escape route, stating that it would not step into such disputes “in the absence of a prior determination that the satellite operator provides essential service and is unconstrained by actual or potential competition from providers of substitutable services.”
Of course, if the FCC did step in and force LightSquared to continue providing precision GPS services, then that might provide grounds for LightSquared to sue for compensation, especially if that was determined to be the main roadblock to offering commercial service in its lower L-band spectrum. As I’ve noted before, ending up in court certainly seems to be an increasingly plausible outcome to what the Economist describes as this “sorry tale of greed, haste and incompetence.”
As an aside, LightSquared does not seem to be the only MSS operator whose ATC services face interference challenges. A recent comment on one of my older blog posts highlighted that Open Range has been getting into difficulties with its use of Globalstar’s S-band spectrum in Indiana. Additionally, if LightSquared’s use of ATC handsets at 1627-1637MHz is a major concern for GPS users in the 1559-1610MHz band, then one would have to expect even greater concern about any future ATC deployment within Globalstar’s L-band spectrum at 1610-1617.775MHz (note that Open Range only uses Globalstar’s S-band spectrum in a TDD architecture). Similarly, there are now a number of comments in the 2GHz proceeding about the potential interference challenges at the bottom end of the TerreStar uplink spectrum (2000MHz).
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03.11.11
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 11:48 am by timfarrar
He came from a hardscrabble background, rising to prominence along with his flamboyant wife, who became a favorite of the tabloids. After raising hundreds of millions of dollars, his unstinting efforts to bring essential resources to millions of people in remote areas attracted the interest and favor of political leaders and government agencies alike.
No, its not the story of Phil Falcone, but the autobiography of Bob Geldof. After today’s announcement of a deal with Open Range, something that other MSS-ATC proponents openly scoffed at when Open Range signed its original deal with Globalstar, I’m also left asking “Is that it?”.
Its worth recalling that the prior spectrum lease contract between Open Range and Globalstar called for annual spectrum lease payments which in the first six years were projected to range from $0.6M to $10.3M, something that is little more than a Band Aid in the context of Harbinger’s $2.9B investment in LightSquared. I’m therefore left with the distinct impression that LightSquared intended to announce a much bigger deal with MetroPCS, as I suggested yesterday, but it has not yet been possible to reach agreement over a joint bid on the 2GHz MSS spectrum.
Given the pressure to reach a deal on any bid for the DBSD spectrum before the next hearing on Tuesday March 15, and DBSD’s intention to announce its preferred bidder the day before, we will have to wait and see if a MetroPCS deal can be struck over the next three days, or if Mr. Falcone will be the one left singing “I Don’t Like Mondays“.
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10.08.10
Posted in Financials, Globalstar, LightSquared, Operators, Regulatory, Spectrum at 11:30 am by timfarrar
Although we remain intrigued by the timing of yesterday’s announcement of LightSquared’s chipset and device partners, what is now clear is that next year should finally result in the actual commercial deployment of an ATC network, offering both satellite and terrestrial mobile services for the first time. (Although Open Range had deployed a couple of thousand terminals under its agreement with Globalstar prior to the FCC suspending Globalstar’s ATC license, these did not include two-way functionality, and to date no handheld terminals had been produced).
LightSquared now claims to have raised over $2B, which the company expects will see it through to “operational launch and beyond” in the second half of next year. Although it is not clear where the $2B is coming from, and whether (as yet unannounced) vendor financing will form part of that $2B or could be incremental to it, it is certainly the case that with Harbinger apparently injecting funds from a $400M UBS loan in July, converting its reported $430M of debt into equity (as part of this week’s $850M debt refinancing) and presumably investing the proceeds from the sale of half of its Inmarsat stake (for $650M) in LightSquared, the company should have enough money both to pay Inmarsat for the ongoing rebanding of the L-band, and to fund the buildout of its first markets in 2011, an outcome that looked like a distant dream less than a year ago.
Given that there are no significant remaining technical barriers to overcome in deploying their satellite network, and LightSquared has commitments to produce both chipsets and ATC devices from leading manufacturers, it will be interesting to see next year both how the LightSquared network is positioned and what the public reaction is to the service. In particular, will LightSquared’s retail partners attempt to use satellite as a key differentiator, or will they rely just on the LTE offering to compete with Verizon, Clearwire, MetroPCS and others?
In the nearer term, we will also look forward to finding out exactly who these retail partners will be, and whether any of them will make a financial investment in LightSquared itself. In that regard, it appears that T-Mobile is certainly keeping its options open with regard to LightSquared, having filed at the FCC in support of relaxing the ATC gating criteria, which currently require all devices to offer integrated satellite and terrestrial services. Leap Wireless also appears to be looking closely at the ATC opportunity, having initially proposed this relaxation of the gating criteria. Whether T-Mobile’s actions are part of its negotiating strategy with Clearwire, or whether T-Mobile and Leap really are taking a potential investment in LightSquared seriously, remains to be seen.
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09.20.10
Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 8:46 am by timfarrar
One of the most interesting questions about Inmarsat’s new ISatPhone Pro is how well it will work at low elevation angles, including for example whether the phone antenna needs to be pointed towards the satellite. This is going to be particularly relevant in Alaska, much of which lies very close to the nominal edge of coverage, and well outside the 20 degree elevation angle contour (where Inmarsat suggests that “more user cooperation is required”), as shown below.
However, I’ve been told by Inmarsat that the phone is performing better than expected, even at relatively low elevation angles, so it will be interesting to see what this means in practice. Given that the beams used for registering the phone on the Inmarsat satellite are lower power than the beams used for a call, it appears probable that either the phone will register successfully and then calls can be made OK, or the phone won’t register and then no calls can be made at all.
Its surprising that we haven’t yet seen any published real world tests of the Inmarsat phone in comparison to Iridium, similar to the Frost & Sullivan reports which compared Iridium and Globalstar in 2008 and 2002. However, I’m sure similar analyses will be undertaken by both Iridium and Inmarsat at least for their own internal purposes, and possibly even for external publication if they believe the results are favorable. If you’ve tried out the phone in “fringe” coverage areas then feel free to let us know about your experience in the comments section below.
UPDATE: So now Frost & Sullivan has released its comparison of the Iridium and Inmarsat phones, which was commissioned by Iridium. It is notable that in Anchorage, Alaska, Frost & Sullivan “was unable to make or receive a call despite dozens of attempts and was only able to briefly find a satellite”. This points to difficulties with registration, as we suspected. However, Inmarsat sources tell us that it is perfectly possible to register on the satellite in Alaska, and make calls there. We haven’t yet got an independent view, but it would seem likely that the actual answer may lie somewhere between these two opposing views. We would speculate that you will probably have to have a pretty good idea where the Inmarsat satellite is so you can point the phone antenna at it during registration (maybe using a compass would be helpful?).
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09.14.10
Posted in Financials, Globalstar, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 9:54 pm by timfarrar
The FCC today released its ruling denying Globalstar’s request for a postponement of the deadlines in its ATC license, which required launch of its second generation satellites by July 1, 2010 and provision of two-way service to its ATC terminals by July 1, 2011. The FCC has granted Open Range a temporary waiver, which basically gives it 60 days to make other spectrum arrangements or its network will be shut down.
This ruling comes as quite a shock to most observers, because it was assumed that the FCC was contemplating providing more flexibility to MSS-ATC licensees after release of its recent NPRM/NOI. However, as we argued at the time, the contents of the NPRM/NOI were actually something of a disappointment to those expecting such liberalization, because the emphasis was on reallocation of the 2GHz spectrum for terrestrial use, with incentive auctions or other mechanisms used to ensure that the government receives “appropriate compensation for the step up in value” that would occur if the existing ATC restrictions were removed in that band. In that context, as we suggested, it would be hard for the FCC to provide further flexibility to ATC licensees in other bands (i.e. LightSquared and Globalstar) with no offsetting “compensation”. Nevertheless, we had still expected that Globalstar might be granted its requested waivers, because LightSquared had achieved the ATC license modifications it desired back in March.
However, now that the FCC has taken a hard line with Globalstar, it raises the question not only of what Open Range will do next for spectrum, but whether any future inability to meet license conditions will place other ATC licenses (and the associated spectrum assets) at risk. Notably, observers will presumably begin to wonder what will result from the proceeding relating to the reimbursement claimed by Sprint from DBSD and TerreStar for clearing the 2GHz spectrum band (estimated by Sprint at $100M+ per operator), compliance with the outcome of which was a condition of TerreStar’s ATC license grant back in January. Though DBSD has sought to avoid these costs through its bankruptcy filing, it is less certain that TerreStar would be able to do likewise. TerreStar has also recently requested certain waivers of the ATC base station and terminal requirements from the FCC. In addition, it is quite possible that there may be requests by Harbinger to extend the very aggressive terrestrial deployment deadlines associated with the LightSquared network at some point in the future, and in the near term, LightSquared recently delayed the launch of its first next generation satellite to December 2010, which will also require a waiver from the FCC, and questions are sure to be raised about whether this delay was solely attributable to technical problems.
With comments due in response to the July 2010 NPRM/NOI tomorrow, it is likely that a lot of last minute redrafting of submissions is going on tonight, so it will be interesting to see whether any of these issues are raised either by the satellite companies themselves, or by terrestrial wireless interests encouraging the FCC to continue to take a hard line on ATC.
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07.15.10
Posted in Globalstar, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 10:15 am by timfarrar
At today’s FCC Commission meeting, the Commission began its proceeding “to spur mobile broadband investment in MSS bands”, which will take the form of a Notice of Proposed Rulemaking (NPRM) and a companion Notice of Inquiry (NOI). The NPRM and NOI have now been published along with a press release and accompanying statements from all five of the Commissioners.
The NPRM is focused on two issues: First, it proposes to add co-primary fixed and mobile allocations to the 2 GHz band. Second, it proposes to expand existing secondary market policies and rules to address transactions involving the use of MSS bands for terrestrial services. However, given that the Commission notes that the Globalstar-Open Range lease was already evaluated under this standard, this second issue is more of a streamlining matter than a substantive change in policy.
The NOI “requests comment on further steps the Commission can take to increase the value, utilization, innovation, and investment in MSS spectrum. It builds upon the proposals in the NPRM and addresses, in part, the recommendations of the National Broadband Plan for increasing terrestrial deployment in the MSS bands. The NOI inquires about ways to create opportunities for more expansive and efficient use of the 2 GHz band for stand-alone terrestrial uses. It also asks, if the value of the spectrum increases, what actions the Commission should take to further the overall public interest.
The NOI further requests comment on other ways to promote innovation and investment throughout all three of the MSS bands while also ensuring market-wide mobile satellite capability to serve important needs like disaster response and recovery efforts, rural access for consumers and businesses across America, and various government uses.”
Most of the NOI is focused on the 2GHz band, as I suggested last month, and suggests that either incentive auctions or a voluntary relinquishment of part of the spectrum would be means of providing appropriate compensation for the step up in value for the remaining spectrum. Of course, if part of the spectrum was relinquished, and the license for the remaining spectrum was still based on the MSS rules, it would quite possibly be necessary to continue to operate an MSS satellite. Such an outcome would almost certainly require a merger of DBSD and TerreStar (and disposal of two of their three satellites – 2 in-orbit and 1 ground spare), in order to reduce their satellite operating costs.
What the NOI doesn’t do is make specific proposals about relaxing the ATC rules in the Big LEO and L-bands, although it asks whether there are “any other actions that the Commission could take that would increase terrestrial use of the MSS bands”. To me, the tenor of the NPRM and NOI suggests that the FCC feels it has given ground to Harbinger (in approving the SkyTerra transaction and ATC modifications) and Globalstar (with what will presumably be a near term approval of its ATC waiver requests, for which the deadline is now August 2). Now the FCC needs to sort out the 2GHz band and it appears to be adopting a somewhat harder line than some might have hoped.
In his statement, Commissioner Copps highlights his belief that “charging fees for the ancillary terrestrial use in the MSS bands could provide incentives to ensure that the spectrum resource is used more efficiently and intensively”. However, whether this position will be shared more widely by the other Commissioners is still to be seen.
This must be a disappointment to those who had hoped for a relaxation of the ATC gating requirements without any significant givebacks in exchange. In particular, it may be hard for the FCC to agree to such a relaxation if a hard line is taken over incentive auctions or other compensation for the “step-up in value” in the 2GHz band.
With this proceeding going forward at the same time as MSS-ATC proponents are trying to secure partners and further investment (and in some cases are in bankruptcy or on the verge of it), it is going to be very interesting to see how the regulatory and financing activities affect one another over the next few months.
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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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