What goes up… Inmarsat’s Frank Coles on why value matters more than price

Inmarsat looks set to endure another wave of customer criticism after confirming that its airtime rates will rise 10% from March 1, 2013 on its Pay As You Go (PAYG) Fleet and by 16% on its FleetBroadband PAYG data services.

But the dominant provider of airtime to merchant shipping is determined to demonstrate that the changes, while significant, have been made as part of a reorganisation of its airtime bundles which encourages users on to monthly plans with a lower per megabtye cost.

Inmarsat has other motives too, principally a desire to see that if rival providers offer FB airtime as a back up to VSAT systems then users are charged a higher rate. Last year, Inmarsat Maritime president Frank Coles indicated that Inmarsat was seeking greater customer loyalty despite being a wholesale provider and one seemingly prepared to put the margins of its distribution partners under pressure.

This year, the argument and language are once again about value and the ability to spend very little money (as a proportion of daily running costs) on communications and embrace more of the tools that enable cost savings on items that matter more, such as bunker fuel.

As to the details, on the Standard PAYG plan which gives users 10MB plan for an approximate monthly retail price of $150 is the same as 2012. What changes is the per megabyte cost over and above that 10MB allowance, from $12 to $14.

Neither of those prices can be said to be firm as Inmarsat’s channel marks up its wholesale rates based on commitment and customer – published rates, including those of Inmarsat’s own channel partner Stratos – are known to be heavily discounted.

The reorganisation has seen Inmarsat simplify its pricing plans, with the entry level plan providing 200MB for between $740 and $840 retail, the 2GB plan retailing for around $1,600, the 6GB plan for around $2,200 and an All You Can Eat plan for $2,700 per month.

Coles is keen to stress that the revisions, first announced to partners in September 2012 saw the allowance for the 2GB and 6GB plans double with no price increase with the AYCE plan priced at the 10GB plan level. On top of this, customers will need to add voice bundles at three levels, providing 1,200, 2,000 or 3,200 minutes.

Even so, the increases will bite at a time when nothing much is going right for owners. But Coles is unrepentant on the motivation behind the changes.

“My argument is why use the standard plan and pay more when you could be using the entry plan and have room to grow? You could be less worried about growing the volume of data without worrying about your costs rising and you get a lower per megabyte price,” he told MaritimeInsight.

He agrees that the PAYG plan was priced too aggressively on launch but says it should now be viewed as a luxury item. If VSAT vendors want to use it as backup for their less reliable services, they should pay for the privilege. Equally, he thinks owners should grasp the opportunities that the bigger packages offer to send and receive more data that could be enabling them to save money elsewhere.

“To the argument that shipping is in crisis, my reply is as a former ship’s master and shipmanager is that I am taking care of customers in the higher level plans. I have held prices from 2013 and doubled the throughputs for the same prices.”

“An owner can go from the entry plan to the 2GB and get 10 times the volume for double the cost. In a crisis, the only way to get a return on your business is to run it more effectively. Owners are never going to solve their problems by cutting their comms costs.”

The changes have sparked a predictable barrage of criticism from Coles’ competitors too, with the usual suspects suggesting that the changes are nothing more than an attempt to increase the company’s profits.

Coles agrees.

“I am trying to run a business. Safety services are free and are our public duty to the maritime industry. To maintain them, we invest heavily in them and I continue to support that. We are spending more this year than ever before on GMDSS. But the revenue generating part of our data services is a place where we are supposed to deliver value. I’m trying to deliver two things: revenue for us and value for the shipowner.”

But he says there are risks for Inmarsat too.

“Our revenue could actually go down a little bit if everybody went onto the right plan. We’re not trying to screw anyone we’re trying to encourage them to buy in bulk so they can run their business better and get certainty of cost.”

But since owners will have no better time in 2013 than they did in 2012 he must understand why people are complaining?  Shouldn’t he be cutting prices on the low end services to get more people using the network?

“No, because there’s no elasticity. If we cut prices on the standard plan not enough people would send more data to go for a cut price. These are the same people spend $100 a month on a cellphone and $5-600 roaming but worry about a few hundred dollars across a fleet of ships.”

His argument is that using a 1GB or 2GB plan an owner could track their assets, use voyage optimisation or weather monitoring and potentially end up saving the costs of a plan in less than a month.

There are a couple of myths to bust too. The first is that the small bundles – the 25MB and 50MB plans – are being withdrawn by Inmarsat. He points out that these packages were created by distribution partners out of the standard plan. Those partners include but are not limited to Stratos and Coles says if partners wanted to continue to package and sell the plans they could do so, though it would make less sense given the changes taking place.

The other is that for users any megabytes over the plan limit come at a punitive level. On PAYG, any MB above the 10MB allowance are charged at around $14.00 per MB. On all other plans, he says any MB usage over the allowance is charged at the same run rate as the plan, meaning there is no ‘out of bundle’ penalty.

He is also clearly exasperated by the claims that on the one hand suggest that small volume customers are being penalised but on the other urge the same customers to upgrade to multi-MB VSAT plans. Viewed this way, his competitors’ message is the same as his own – fix a price for the data you use and give yourself room to grow, rather than pay as you go and spend your time looking at the meter.

“What are we supposed to do, sit around and be attacked on the basis of misinformation? Shipowners are being bombarded by fanciful claims about what our services cost. They need facts. Another fact they should consider is that Inmarsat has 99.98% uptime and the competition simply cannot get anywhere close to that,” he says.

“I could give you the uptime for our competitors and talk about their network problems and how they are re-shuffling their plans to try and appear more attractive, but the problems of the competition are well known and well reported. I want to take care of our business, not get in the same ditch.”

Staying out of that ditch may prove hard if the criticism intensifies but for now at least, Inmarsat has dug in. Just as last year, we will have to wait and see if it can convince customers that enduring short term pain makes for genuine value in the long term.