The more things change…

The future is already here, sci-fi sage William Gibson once mused, it just isn’t very well distributed yet. He might just have been talking about maritime satcoms if such a subject wasn’t a bit a mundane for the man who coined the term cyberspace. In one of Gibson’s later books, a character bemused by the speed of his evolving circumstances remarks ‘well, the more things change…’

As I noted in the last post, the future strategies of the major FSS and MSS satellite operators plan to change the landscape and seascape of the business – and perhaps the businesses they serve in the process.

But as NSR noted in its excellent recent webinar, this is not a case of ‘build it and they will come’. There is no guarantee that the maritime sector neophytes will succeed but their coming means several things for sure – more capacity, greater price pressure, more consolidation and bigger addressable market.

But first some bad news: the short term picture is not rosy. The slowdown in newbuilding orders occasioned by the financial crisis means a slowdown in demand, lay-ups and delays to upgrades and re-provisioning. Some segments are growing – cruise, offshore, gas carriers for example, but in general this is a revolution that has been delayed for a while.

Looking beyond the slump and to put the coming changes in supply into context, NSR’s Claude Rousseau pointed out that the contract announced by O3B Networks with Royal Caribbean Cruise Lines to provide a potential 350MB per second  to a single ship is not just a big step, it is 10 times more capacity than the last banner VSAT contract from MTN for the very same owner.

So what comes first, he asked – capacity or end user needs?

In some ways the answer is obvious – both. In service L-band units reliably remain narrowband for the foreseeable future, vastly outnumbering high bandwidth and broadband units, to some degree driven by more smaller vessels joining the satcoms community. Revenues from L-band will benefit from those additional data subscribers – perhaps growing fourfold before the end of 2021 as 10,000 units or more annually are added to the fleet.

The high end growth comes from a doubling of C Band and Ku band revenues and a tripling of the share from HTS maritime services in the same period, with familiar drivers – the ‘office at sea’, crew welfare, better service plans, smaller equipment and better coverage and after sales service.

That HTS capacity – NSR estimates the first HTS service start next year and a majority share of satellite capacity by 2021 – includes Inmarsat’s Global Xpress, Telenor’s Thor 7, O3B and Intelsat EPIC. But as Rousseau pointed out, much of this capacity is designed to address a wide array of end user markets – not all the new additions were originally intended for maritime customers.

So what will this new highly distributed world look like? Well it is clear that if Inmarsat thinks it has competition now, then it probably ain’t seen nothing yet. Rousseau reckons it should get ready for more aggressive incursions into the maritime market, with stronger head-on competition, using C/Ku-band as the lure and HTS Ku/Ka as the ultimate prize.

This price competition will have a twofold effect – operators will seek increased control of the sales supply chain as they seek to meet their financial commitments. The traditional wholesale-retail model will likely change as the operators reach down the value chain into nearby vertical and horizontal markets. In terms of Inmarsat GX, the suspicion is that the operator is trying to corner its own market – perhaps not the intention, but a possibility nonetheless.

NSR reckons the consolidation trend will continue and pick up speed, with the operators, service providers and equipment manufacturers all playing for share of products, services and bandwidth. Inmarsat’s acquisition of New Wave and ShipEquip giving it global Ku and C band coverage and Cobham’s purchase of Thrane & Thrane are examples of the maritime-specific manoeuvring.

In terms of recouping investments, this scenario seems to favour the maritime incumbent. If, as Rousseau alluded, O3B or Intelsat has to slash prices to gain market share, then the result could be quick wins and long term issues of financial sustainability. Of course Inmarsat risked the wrath of the industry by increasing prices itself earlier this year, so it clearly believes in a value story that the others might find themselves having to emulate when push comes to shove – quality is better value than a low sticker price.

The issue for Inmarsat and the others of operating in such a capital intensive business is that the maritime equivalent of Moore’s Law is being challenged. They must work out how to evolve and refine services mindful of the fact that there is less and less time between evolutions. A combination of a desire for cheaper services and equipment with higher bandwidth is putting pressure on everyone.

To be successful, HTS has to break the rules again – cheaper than traditional capacity but also faster at the same time. Rousseau noted the ‘competitive dynamic’ that HTS is a game changer only if the price is right.

And ultimately, he reminded attendees, maritime is a hard game to change. Reliability has to be written into contracts and education on what is possible is a must. It might sound expensive to be paying $3,000 a month for an Inmarsat package but there is little point paying a lower price for 2MB VSAT and not getting a reliable service. Price, coverage, reliability, customer service and a frequency portfolio are all part of the mix in this brave, but not entirely new world.