Inmarsat gets it in the neck (and elsewhere) over price rises

Maritime communications giant Inmarsat is the target for a stinging letter of rebuke from the Association of Maritime Managers in Information Technology and Communications (Ammitec), which lists a series of ‘serious objections’ to Inmarsat’s intention to raise its prices from May 1, 2012.

The letter, published during the recent DigitalShip Cyprus conference leaves no room for doubt as to the group’s gripes about Inmarsat’s plans and its feeling that the London-listed company is ‘abusing its position’ as a ‘monopoly’ operator of safety services.

This first refers to Inmarsat’s intention to lift the price of telex communications via Inmarsat-C by 15%, though it neglects to differentiate between the telex service and free GMDSS distress transmissions. Ammitec promises to take the matter to Inmarsat’s regulator IMSO and says the issue should be referred to the IMO Comsar sub-committee.

The group’s real beef however is the planned price increase on Existing and Evolved (E&E) services, notably Inmarsat Fleet, launched in 2002. By raising prices, Inmarsat, it says, is effectively putting this service beyond economic use and forcing users to migrate to the newer FleetBroadband service.

Just as invidious, it says are the planned price rises to the much newer FleetBroadband pay as you go service, which it calls ‘unsupportable’ in a broadly similar argument to that around E&E – that Inmarsat is forcing the pace of change rather than letting the industry evolve at its own speed. Many shipping companies, it says bought FBB on release (when the price was low) and they are clearly disgruntled that Inmarsat is raising prices when costs are high elsewhere and earnings low.

What the letter doesn’t mention is that the prices for FBB plans and packages are not rising – only the pay as you go option, which many people thought was under-priced on release – so owners paying for a managed plan won’t feel any pain.

The letter’s wrath seems to have run its course by the end of page 2 and Ammitec, while noting Inmarsat’s ‘blatant disregard for long-term loyalty’ says it would welcome the chance to discuss the issues with Inmarsat as well as with ‘the wider maritime community’.

All gripping stuff but it does beg a few questions not mentioned by the competitors that have seized on it as proof that Inmarsat is punch-drunk and reeling.

First, according to the programme, Inmarsat Maritime President Frank Coles was present at Cyprus so why no debate there and then?

Second, surely IT buyers don’t imagine that prices only go up when times are good? If so they should check with their colleagues in the chartering department on the price of bunkers lately.

And at the risk of brickbats and worse I have to say, that given my 16 years of reporting on shipping, I have found the concept of ‘long-term loyalty’ to be a rare commodity in maritime communications. Price is king and churn is a fact of life that keeps the sell-side on its toes. As the letter itself notes, if customers were to stay with the E&E services then Inmarsat would get a huge payday, so they will probably move to FleetBroadband – a service which is comparatively cheaper than either Inmarsat-B or Fleet.

Finally it is simply inaccurate to call Inmarsat a monopoly. With the exception of the IMO-mandated GMDSS service, Inmarsat has more viable competition now than at any time in its history.

In a highly commercial market like shipping, Inmarsat must understand the risk it is taking by raising prices now. For the most part, owners, managers and their IT departments are able to vote with their feet. Whether they choose to do that over the next 12 months or so will demonstrate how serious they are about taking the fight from Cyprus to 99 City Road.