The end of history redux

I have kept being drawn back to a post on analyst Tim Farrar’s blog, entitled ‘MSS – the end of history?’ but I wasn’t sure why. It couldn’t just be because it tipped its hat to Francis Fukuyama’s famously wayward assertion about the triumph of western liberal democracy signalling an evolutionary and societal end point could it?

Having settled down with pipe and slippers to read the post once again, I decided it was because Farrar was being controversial in a very Fukuyamian way.

Like the philosopher, Farrar is going against the tide and encouraging Inmarsat to raise prices on its L-Band services by 5-10% per annum in order to stimulate earnings  both for itself and its partners.

Such rises should be focussed on low and mid-range maritime customers who are the least likely to move to alternative solutions, he says.

Has anyone told AMMITEC I wondered? Surely a complaint to some higher power is in order or even a spurious threat of legal action? Well, I haven’t heard a pin drop let alone any pennies. Why hasn’t any one of Inmarsat’s usually reliable detractors seized on this as evidence of a massive plot hatched by a monopoly/behemoth to subvert the maritime satellite market?

Perhaps because Farrar’s suggestion – while also pawing lazily at Global Xpress – is rooted in the belief that with Inmarsat’s move to VSAT, L-Band is reaching the end of its functional usefulness and that the time is right to crystalise more value from it. As Farrar sees it, L-band has ‘reached the limit of economically justifiable technological advances and that the future for the traditional MSS market could be one of slower development cycles, simpler systems and more expensive services’.

Analysis by the likes of NSR and Euroconsult say that L-Band will continue to provide the core of revenues for Inmarsat for some years to come but Farrar says growth will be slow as more high end users embrace the economics of VSAT.

It’s good, devil’s advocate stuff and as such deeply speculative. Farrar thinks other MSS operators would also gain from obtaining more market share, pricing freedom and revenue growth in this sector would relieve some of the pressure on hard-pressed distributors.

To make it happen, Inmarsat would need to ‘repair its relationship’ with independent distributors and that only by working with these partners could it provide a ‘united front’ to customers and push through further price rises.

It’s thought-provoking alright, but I think overlooks a number of factors. Even if one agrees that Inmarsat should raise L-band prices properly, then it would certainly need partner help to do it but if the potential is so small, why should they?

Just as Inmarsat has made clear that it will look to new partners for Global Xpress, as well as aggressively distributing direct, the partners can hardly be expected to put much time and effort into a service that provides such limited revenue growth potential. Many might feel less than obliged to stand behind the price rises when competition from Iridium continues to offer them a viable alternative.

This sounds to me like trying to suck and blow at the same time and since Inmarsat is already opting to work with new distributors on Global Xpress, it’s hard to see how many of its traditional L-Band maritime partners will want to stick around for such apparently meagre crumbs.

Though M2M revenues might be a small part of L-Band revenues, in maritime at least, they will grow further as a combination of regulatory compliance, vessel management, route optimisation, cargo monitoring and a host of other applications become mandatory requirements or business essentials.

Hardly a pot of gold perhaps, but raise L-Band prices again and Inmarsat might well find itself on the end of serious and concerted complaints to numerous regulators or supra-national institutions – in addition to shooting itself in the foot commercially.

Still, it takes guts to quote Fukuyama, whose thesis has been largely discredited since the events of September 2001, by the wars in Iraq and Afghanistan, Israel’s appetite for intervention in Iran, to the aftermath of the Arab Spring and the continued assertion of democratic control by leaders keen to carve up natural resources.

Farrar notes that Fukuyama’s expanded book title describes ‘the last man’ as someone ‘tired of life, takes no risks and seeks only comfort and security’. For Inmarsat – about to step away from its commercial and operational comfort zone – or Iridium, still apparently working on plans to enable commercial aircraft to fly closer together – it seems an inappropriate comparison.