A carrot-shaped stick
Last week’s publication by investment bank Morgan Stanley of a report which polled three industry professionals on their views on FSS market prospects has caused a flutter or two, given its conclusion that the sector has entered a ‘no-growth’ cycle, with returns likely to decline over the next few years.
Fortunately at least for Inmarsat, Intelsat, O3B et al, Morgan’s fairly damning conclusions don’t seem to extend to the MSS sector nor to maritime, which together with aero and oil & gas is singled out as the source of strong growth in coming years.
The three FSS experts polled by the bank are bullish on Latin America and ‘large parts’ of Asia, but less promisingly think that High Throughput Satellites (HTS) will “struggle to open up new markets,” leading to an overall negative outlook, their creators having failed to book enough backlog pre-launch.
Handy then that shipping is a source of untrammelled revenue growth (insert smiley here). Across the MSS sector, this year has been something of a stinker and the latest developments hardly seem to encourage a significant change.
The war being fought over maritime HTS territory has moved from a land grab towards a series of skirmishes in which competitors compete to estimate how delayed the other’s service will be.
It’s ‘situation normal’ over at City Road too, where no sooner had Inmarsat announced that there would be no price rises on FleetBroadband for 2014, it announced a soaking of E&E customers for the revenue shortfall.
Inmarsat Maritime president Frank Coles told Digital Ship Singapore that there would be ‘categorically’ no changes in FleetBroadband pricing for 2014. This looked like good news – the increases in FB pay as you go pricing in 2012 and 2013 were a source of easy ammunition for Inmarsat’s many L-band and Ku-band competitors – despite making bulk plans cheaper.
As a result, maritime revenues have seen consistent growth, suggesting that either users love FB so much that they are prepared to swallow hard and pay or, more likely that the 38,000 active terminals represent a point of no return for users.
The point of no return is being experienced for users of Inmarsat’s existing and evolved (E&E) services – mostly Inmarsat Fleet and some Inmarsat-B – who will see prices increase by almost half in the new year.
DigitalShip reported that E&E services would increase by 48 per cent on services for 2.4 kbps fax and data; 9.6 kbps fax and data; ISDN/HSD (64 kbps); MPDS; and F77 128 kbps ISDN.
The really puzzling thing here is that given that there are 60,000 E&E terminals in service, Inmarsat blamed the change in pricing on ‘a result of a reducing number of users on its older satellite networks’. For sure the costs of maintaining those services are increasing but since 60,000 is a figure somewhat greater than 38,000, that claim doesn’t really stack up, does it?
Inmarsat told DigitalShip it had “advised partners that, owing to the rate of customer migration from legacy E&E services to FleetBroadband and XpressLink [Inmarsat] had carefully considered the financial impact of maintaining legacy E&E services for a declining customer base. As a result, it was planning “to align the value of the data services on its Fleet77 services with that of the increasingly popular FleetBroadband and XpressLink”.
In other words, the need to book revenue growth meant the increase had to come from somewhere. And that means laggard owners who have not yet seen the light will now pay even more for the privilege of using a legacy service.
Researching an article on maritime satcoms earlier this year it became apparent just how much owners resented the increases on pay as you go FB and on E&E services. While the trend seemed to be towards changing out Fleet77 there was a double-bind; pay an increasing amount for E&E or upgrade to a service that might be faster and cheaper initially, but tht comes with no guarantee of a price cap.
Owners have that certainty for a year at least, but previously contented E&E users might think very hard before they opt for FB over the proliferating Ku-band competition – after all, they will be locking in one way or the other.
It’s another big bet by Inmarsat that customers will favour a global service over regional VSAT services with back-up that puts them back in the discomfort zone and presumably the work to communicate the news to the channel partners is being done with the customary tact and diplomacy. Even so, it’s one hell of a carrot-shaped stick.