Tag Archives: FBB

M2M and mad cows – through the mobility looking glass

Can satellite ever really go mainstream? It’s a nice idea, but one that has already claimed some scalps among those who have modelled the concept only to find the reality rather different. Two of those (fully resuscitated) examples were present on the MSS CEO panel at Satellite 2014 along with Inmarsat and Thuraya. Iridium and Globalstar are these days talking a strong book with launches tabled and new services in the pipeline.

Even if the low cost satphone in your pocket remains something of a chimera, the session provided a useful glimpse of what the roadmap looks like for the mobility majors.

So much so in fact that Iridium CEO Matt Desch offered to double his bet with Globalstar’s Jay Monroe that his new network would be up and running before Globalstar’s – a wager he offered to settle in Iridium stock. He subsequently agreed that the NEXT schedule had slipped somewhat but insisted he was not in hurry, despite wanting to bring new services on. Such is the mirror world of mobility satellite.

Though rumours persist that Globalstar is waiting to be acquired by an internet company keen to use its spectrum rights for the delivery of more day to day goods and services, Monroe insisted that the potential to address a market unserved by cellular with a $100 product was still realistic.

Desch and Samer Halawi disagreed – the former probably through bitter experience – the latter because Thuraya’s BYOD play the SatSleeve has attracted so much attention by extending two already successful brands.

Halawi thought that lack of standardisation made it hard to achieve a consumer market opportunity Monroe thought was ‘worth millions’, though he again asserted that SatSleeve’s mission was to liven up a “somewhat dull MSS market”.

Desch agreed that low initial costs would always tend to rise and “making a commodity product that Best Buy would want to list for $30 would be hard to make a success for partners and channels too”.

Inmarsat’s Rupert Pearce has the new iSat 2 handheld in the game but said their model was enterprise users with heavier usage and better average revenue per user. “We are business to business and business to government. Consumer is a bridge too far.”

Away from the user the threat to all their businesses is the apparent desire of mobile phone operators to grab back spectrum it thinks mobile satellite is not using to its fullest extent, including the L-Band the industry ‘doesn’t need’ as it moves increasingly to Ku and Ka.

GVF has already done a lot of work on the political lobbying and Pearce was unequivocal. This was a bubble that needed to be burst “it will be hyper-politicised [at the ITU’s World Radio Council 15 meeting] and we need a coalition of the willing to lobby on the need for critical satellite services”. He didn’t add ‘rather than more leisure users’ but one sensed that’s what he meant.

Moderator Tim Farrar pondered by how much GX was delayed or on track – rather a moot point for maritime users – but important for the company’s reporting and financials. Despite suggestions of delays to the iDirect hub component, Pearce said the core equipment and satellites were aligned and said that “more than 30% of GX revenues were already committed, including the 1,000 XpressLink installs which are ready to move to GX”.

The surprise purchase of Globe Wireless is among a series of ‘quick buys’ Inmarsat has made to help its channel cover Ku to Ka conversions over first 18-24 months. He mentioned the Globe iFusion box as being a component of the value that Globe brings to Inmarsat, though  how that dovetails with the CISCO Router that lies at the heart of GX connectivity was not made clear.

For Desch, Iridium’s strategy remains little changed – evolutionary compatible products in which broadband remains an upside to the ‘low-end’ segment it serves, one he feels can grow further. Iridium he said would be providing new capability before its NEXT network is finished and speeds would increase too but “it’s not worth chasing commodity broadband because that market is going to look different in three to five years from how it looks now – we are going to take a bigger chunk of what we do with more capability”.

For Halawi, the future means considerations on how to design and build next generation satellites, though the Thuraya CEO insisted time was on his side. Thuraya has said for some time that its next generation concept is under development but it won’t be a ‘me-too’ system. “We are looking at future applications, how people will use technology 10 or 15 years from now and how technology can support that. There will be more clarity by next year but it won’t be a system similar to the ones being planned for today,” he said.

Pearce has new launches in mind too, but in this case he meant the Inmarsat I-6, the next generation of L-Band satellites to complement the GX service. He said its potential users understood that a dollar spent on better communications could deliver $10 into the enterprise and he also pointed out that most of Inmarsat customers won’t be moving to GX and will need to be supported by the i6 constellation.

Pearce was lightly pressed on Inmarsat’s E&E and FBB price rises over the past two years but insisted that prices had fallen by more than they had risen when compared to the newer FBB bundles. Calling the price rises ‘a win-win’ and a ‘virtuous cycle’ was probably pushing it for users and SPs who had been squeezed as a result, but the continued evidence of users ‘marching up the packages as they understand the value’ was as close as we would get to an explanation.

He must have known the channel question would be next and he suggested that indirect sales remained the priority, with direct sales reduced by 2% per over five years and a stronger focus on controlling where the company goes direct, primarily maritime GX where the learning curve is steep.  “We are trying to work out where network ends where channel adds value,” he said.

Desch countered that price rises had enabled Iridium to work with SPs and their end-users frustrated by lack of price control. Iridium has no desire to go direct he said, but the potential lack of trust in Inmarsat created a continuing opportunity.

Where the satellite industry certainly sees value is the M2M market, with acquisition and expansion on the slate for the MSS operators. Monroe memorably described this as ‘data heroin’ – with tracking as a gateway drug that led on to heavier and heavier usage.

Desch agreed on the growth potential but said ARPU was ‘more interesting than it is attractive’ and no-one would be making millions from M2M anytime soon. “We have natural advantages and we will see it grow but we need our standards to be compatible with what is being written in the terrestrial world.

Farrar quipped about projections for huge growth, everything from cargo monitoring to tracking cows in Brazil or sheep in Scandinavia. Monroe replied that this was far from a pipe dream.

“The projections are for tens of millions of units but there is a real example. Brazil spends millions every year trying to combat mad cow disease. Now, could you track the herds, segregate the infected stock and treat them? They are looking at it seriously.”

The internet of animals – it might have smelled like bullshit, but it was a suitably enigmatic note on which to ponder what the future would really look like for mobility and whether it would really that dull after all.

‘Following a ship around with a satellite beam is not a business’

In part two of my conversation with consultant, analyst and blogger Tim Farrar, we dive a little deeper into the undergrowth: what the HTS upgrade path looks like and how to tell perception from reality, how the recent competition stacks up to the incumbent and what new opportunities may be out there for those prepared to seek new markets.

MI: I’ve had conversations recently with end users who have said, ‘I’m really interested in HTS but I sure as hell don’t want to be first through the gate, I want to see it up and running, I want other people to be signed up and using it before I consider moving. Again I’m speculating but I’m assuming that Inmarsat will make it attractive financially for users to upgrade to GX but are there other drivers too?

TF: “For new customers, every VSAT terminal they install from now is upgradeable, straightforwardly. When you go back to the investor day last October they said, ‘We’ve got 20% of our business plan committed and they included all 1100 ShipEquip VSAT terminals in that. Despite the fact that only 300 of those have actually gone to XpressLink.

“Probably only 100-200 of them actually have a compatible terminal, maybe even less than that last October because the compatible terminals have only been available for a short period of time. So quite how you square that circle and you say to those people, they [Inmarsat] will turn off Ku-Band by whatever date is an interesting question.

“But certainly, from a financial point of view, Inmarsat’s sending the message to its investors that it intends to cut back its Ku-Band leases as rapidly as possible so it can shift people over to its own system and obviously have a dramatically higher gross margin.”

Do you find it as hard as I do to make like for like comparisons? Inmarsat talks about 32,000 active FB terminals, KVH talks about terminals shipped. So it’s actually quite difficult to really get hard usage analysis of who’s really using what beyond what the airtime vendors are telling us or am I being too naïve about that?

“The VSAT industry has always been one where people tend to exaggerate a little bit and they like to tell you shipped or committed or whatever rather than actively revenue-generating terminals.

“People have their own definitions and it’s one of those things that’s self-reinforcing. If you think you’ve got a bigger market share than your competitor and your competitor is saying a number that is stretching it slightly then you’re going to have to stretch your number a little bit too.

“So people will quote numbers that are what they hope for when they’ve got through their backlog rather than what they actually have that are revenue generating right now.”

Certainly the view from Inmarsat seems to be that they are keeping their heads down and to some extent downplaying the penetration of XpressLink and the impact they expect Global Xpress to have.

“That’s because the 40-50% [market share] figure can’t be reconciled with reality (laughs). I don’t know how they came out with that. [At last year’s investor day, Inmarsat claimed to have won 50% of all high-end VSAT contracts] it’s a number that appears to relate to a selected period of time excluding KVH and a bunch of other things.

“I think they tried to downplay that number just because it’s hard to reconcile with reality over a more extended period of time. And is excluding KVH from your numbers the right way to go? Especially given the issue of where GX is going to be pitched in terms of the low end versus the high end and all those sort of things.”

“There hasn’t been necessarily huge amounts of growth in the VSAT business, it’s been a little bit slow. It’s not easy at that high end of the business either, at least in merchant shipping due to the economic climate.”

And as people like Roger Adamson have said recently there’s either two ways, either to fulfill crew calling demand or get in at the boardroom level and sell to a much higher level.

“Yes that’s right and at the board level, it’s a very difficult. They have many, many preoccupations right now other than just details of how you implement your communications.”

You touched previously on Inmarsat’s other competitors, Iridium and Thuraya. I don’t hear so much from Iridium these days but from what I do hear is that people like using Iridium OpenPort because it’s cheap and simple and the crew can install it but reliability is an issue. For Thuraya, they have a strong play albeit regionally, so I guess my question is, how far from death is the legacy L-Band market. In fact does it actually get a bit of a new lease of life if the others can carve themselves out a nice niche there?

“Well the question is how far down the spend level is VSAT going to go? I guess you could say, a KVH solution at $600 has some place in the mix. But the reality is I think that I see sub-thousand dollar a month customers being dominated by L-Band for the foreseeable future.

“But yes, OpenPort is a good cheap and cheerful solution, it has had some challenges, Thuraya has tried to become more of a FleetBroadband competitor. It has tried before and it didn’t quite work out but I’m sure that they’ll try again with another maritime broadband-type product on a regional basis.

“And obviously IridiumNext could give Iridium something more directly comparable to FleetBroadband so I think there’s potential for competition to FBB in future. Inmarsat is sort of opening itself up to that by leaving a gap between the pay as you go and the entry level type bundle.

“The people who only want to spend three, four, five hundred dollars a month, they don’t have the greatest set of options for the data at this point in time. Because how much can 10 or 20MB a month really give you? I’ve heard people say, should I bother upgrading my old Mini-M terminals, do we really want to upgrade them to FB150, because I’m not really sure what we do with 10 or 20MB a month – would that get us any further forward?

“I think Inmarsat’s pricing bracket strategy is good because it gives them lots of differentiation and once people are in those buckets you can push the bucket a little bit in terms of pricing and you won’t have people jump out of it.”

“One of their key issues is going to be now they’ve got a 2GB package how do they shift those people up from spending $1,600 to $2,000 so that they’re going to then feel that they don’t have to spend any more for VSAT. It does leave them open to a bit more competition once better alternatives are in the market.”

“You put all that together and it seems obvious there will be more competition at that lower end of the market from other L-Band solutions in the future.”

I’m interested in the comparison between Intelsat Epic and GX – what’s your take on whether you feel EPIC is going to get much traction beyond the energy, offshore and cruise markets.

“I think it definitely is directed at that higher end of the market. The challenge for GX is just the limits on what you can do in any one beam. If you have 50Mbps, you could put two carriers in one beam and get 100Mbps when it’s not raining.

“But it’s pretty much constrained to that and you think about it from the point of view of a cruiseship, you can’t really dedicate 20Mbps because if you do that to more than a couple of users and all those cruise ships end up in the same part of the Caribbean, then you run out of capacity. And when do cruise passengers want to use the internet? Normally when it starts raining outside and they can’t sit out in the sun so that’s not helping you a whole lot.

“So there’s obviously a desire to stick with Ku-Band to work around rain fade. It’s one of the limitations of GX that it’s designed for coverage, it’s not designed for lots of capacity in a given area.

“So what Intelsat is doing with Ku-band, as I understand it is working the flexibility to add capacity in particular spots, and it’s really designing it around these big pre-committed buyers [MTN and Harris CapRock] who have come along said they want X amount of capacity in the Caribbean. Or Panasonic would say they want X amount across the North Atlantic and that’s what they can put there.

“So it’s been very closely designed in conjunction with those really big players. Whether it will exactly match what a mid-tier maritime player wants, hard to know. For Inmarsat the limitation is how much capacity it can provide in any one area. It also has to manage the capacity itself to some degree. It doesn’t want to be dedicating capacity to a service provider, unless it’s for the government and you want your dedicated beam.”

In terms of other newcomers, O3B is a bit of a mystery to me.

“Yes there must be business there but I’m not sure how it will work out for them. If your market is cruiseships with more than six thousand passengers then there’s a dozen of them then it’s just bizarre. Following cruiseships around with a single beam is not a business. I don’t know how much the cruise ships are actually paying but if you track back to O3B’s numbers their original business plan said they were trying to get something like $4M per beam in revenue and I’m sure that a single cruise ship’s not paying four million dollars per year for capacity.

“I suspect that if they’re paying $1m per year that would be the high end of what I would expect. So you look at it like that it’s not exactly a wonderful business, it’s come back a long way from what they’d hoped.”

Not the end of history: some ruminations on maritime communications

Tim Farrar is an analyst and blogger who has been covering the satellite industry since the mid-1990s. We had crossed paths before, notably discussing his End of History blog and when he posted again about Inmarsat‘s moves in maritime, the time seemed right to have a proper chat with the man for his views on the evolving maritime satcomms space and how the main players were shaping up.

Some time passed (my fault) but what follows is our conversation around those topics and Tim’s views on the major contenders’ plans in maritime. Not a shipping person himself, he is still objective on the offers, how they are priced and how they differentiate in a market that is lining up on different sides of the beam for a struggle for market share and territory in L, Ku and Ka-bands.

MI: I was interested to read one of your recent blog posts which seemed to be coming back to a familiar theme over the last couple of years of castigating Inmarsat somewhat for throwing its weight around. I was writing about LESO-hopping and the lack of transparency and price sensitivity maybe 10 years ago. How’s the current situation different and why is it more important now?

TF: “Well I wasn’t necessarily being critical, I was just noting a shift from what I perceive to be Inmarsat’s reluctance in the past to be as aggressive. Obviously when Inmarsat was not in the retail business it left all of that fighting to the LESOs. And Inmarsat didn’t need to dirty its hands with that competitive stuff.

“So really I think the issue in my mind is not that this should be a surprise, it’s just that it is a difference, Inmarsat is being more aggressive itself. And it has been somewhat reluctant to do that in the past because of it being such a big player. It was all very well for Iridium or other smaller players to come along and offer prices 20% lower than Inmarsat’s and take some of the business.

“Inmarsat is fighting back and saying, ‘I’m going to go very directly after other people’s pricing and offer big incentives’.That’s the difference and when you’re by far the biggest player in the market you wonder whether that will come back to bite them later if for example Inmarsat wants to acquire anyone in this business.

“Let’s think about what happens with LightSquared over the next year. If they want to get out of the business, Inmarsat wants to buy their assets, you could see that aggressive competitive behaviour could be something that would be cited to raise concerns about that.”

As you said they’re not the only people doing it but they are doing it to a greater degree than previously. So does it suggest that this is more of a game for keeps with HTS coming?

“I think you’ve remarked on it in some of your blog posts about how Inmarsat is being more active in that regard from a competitive standpoint. Taking a step back from MSS specifically but just generally, a small player can be aggressive from a competitive situation, and that may not be terribly disruptive to the market.

“If the big player ends up being very aggressive from a competitive front, that’s more likely to end up in a price war type situation. We just we don’t know whether that will happen.

“Clearly Inmarsat have got the resources to outlast some of their competitors if we do get in to a price war. Other people obviously have more financial challenges. If they drive a competitor out of business, that might help Inmarsat in the short term. But as I say it may end up raising issues downstream, especially if Inmarsat ends up picking up the pieces.”

If I can ask you to speculate for a minute do you feel it’s likely that Inmarsat will try to drive some more consolidation in the airtime segment?

“Well I think being over in this part of the world [the US] you naturally have to ask what happens with LightSquared downstream? If it ends up in the hands of its debt holders, they’re hedge funds and they don’t want to be running a satellite business.

“Further downstream you could say maybe Thuraya has to make decisions about what they do with future systems, again they are L-Band and potentially compatible with Inmarsat. It might be quite hard to strike a deal because Thuraya probably want to stay in the satellite business. But there’s possibilities there.

“We can probably rule out Inmarsat and Iridium but on the L-Band front it’s just a situation where many other players are having a relatively tough time and if they ultimately do exit, then is Inmarsat going to want to pick up the pieces?

And do you think it is all about price or is there a degree to which the users signing these contracts are also going with Inmarsat on a bit of a comfort factor – because of who it is, because of its heritage potentially rather than they’ve maybe read about existing reliability and throughput of VSAT?

“On the VSAT side I think there is clearly a pricing issue and there’s a terms issue as well. Inmarsat started off with XpressLink saying it was five year contracts and you’re committing to upgrade to GlobalXpress. It’s far from clear that all of those conditions are being held to, so price is one part of it, flexibility’s another. And yes, adding an L-Band back-up is another differentiator.

“It’s a mixture of all of those, and I think if Inmarsat is stuck with trying to get people to agree to sign up for five years and commit to moving to GlobalXpress whenever they [Inmarsat] want so they can turn off their Ku-Band leases, then those sorts of things, regardless of the price, may have made it a lot more difficult to get people to commit.”

I may have this wrong but I had understood until last year that signing up for XpressLink didn’t just mean a complimentary upgrade to GX, it was a mandatory upgrade. I understand that from a marketing point of view but as you say, it gives little room for manoeuvre.

“And it’s not clear that that happened because the way at least the press releases read, it said Inmarsat would offer you double bandwidth when you moved to Global Xpress so it’s not like saying you’re moving regardless. It’s saying, you will have a better service if you upgrade. It’s not clear if they’re going to go back to clients who already have non-GX compatible terminals and proactively replace those so that they’re ready to turn on to GX or whether they wait for a decision point downstream.

“Obviously they’ve been somewhat constrained in terms of installers, and they’re hiring more and they’ll have more ability to do stuff there, but it’s a question of whether it is worth it to proactively change those old terminals now as opposed to waiting until later.”

Part two follows – on HTS, comparing Inmarsat and VSAT and how to sell either or both…