Inmarsat Eyes Top Position in U.S. Government Market

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PARIS — Mobile satellite services provider Inmarsat, fresh from a surprise win of a U.S. Navy contract for a broad mix of satellite bandwidth, on Oct. 8 said it expects to surpass competitors SES and Intelsat in business volume with the U.S. government.

London-based Inmarsat said the U.S. military has been particularly hungry to use the company’s new Global Xpress Ka-band service, whose third satellite is expected to enter service in December over the Pacific Ocean region, giving Global Xpress a global reach.

Like other commercial satellite fleet owners, Inmarsat has seen its U.S. government revenue, mainly from the Department of Defense, decline with the troop withdrawals from Iraq and Afghanistan.

Up to now, Inmarsat has sold mainly L-band, low-speed connectivity that has been enough to make Inmarsat the third-largest seller of commercial satellite capacity to U.S. government users, with a 16 percent market share. That puts it behind Luxembourg- and McLean, Virginia-based Intelsat, with 33 percent, and Luxembourg-based SES, with 20 percent.

Global Xpress and its Ka-band payload, interoperable with the Wideband Global System satellites owned by the U.S. Air Force, put Inmarsat in a position to challenge its competitors. Unlike those competitors, who view the WGS fleet as a threat, “WGS has been a friend for Inmarsat,” said Peter Hadinger, president of the company’s U.S. government business unit.

Inmarsat_Market_10.12.15

The most recent concrete evidence that the company was determined to challenge the Intelsat-SES position with the U.S. government came with Inmarsat’s win of the Commercial Broadband Satellite Program Satellite Service (CSSC) contract with the Navy, valued at up to $450 million over five years.

Intelsat, the incumbent supplier, has protested the award, and because of that, Inmarsat Chief Executive Rupert Pearce declined to discuss the contract during an Oct. 8 Inmarsat investor day in London.

Hadinger said Inmarsat has quadrupled the number of U.S. employees with high-level security clearances in the past year to prepare for what he said would be a gradual offloading of some satellite services to the private sector.

Without mentioning the CSSC contract, Hadinger said Inmarsat has been “eating the lunch” of its competitors in getting new U.S. government business. “The U.S. government loves GX,” Hadinger said, referring to Global Xpress. He said the Global Xpress user terminals are one-fourth the weight of comparable Ku-band terminals sold by Inmarsat competitors.

The United States is the biggest government market in the world for satellite services, but Inmarsat told investors to expect growth among other governments too, whether it be for Global Xpress or for Inmarsat’s historic L-band service.

Andy Start, president of the company’s Global Government business unit, said his business — governments outside the United States — has grown by 30 percent in the past 3.5 years despite withdrawals of U.S.-allied troops from Afghanistan and Iraq as Inmarsat has entered new markets. It is likely to be down slightly for 2015, he said.

Outside the United States, Inmarsat’s government customer base was mainly Canada, Western Europe, Japan, Australia and New Zealand — eight nations in total. The company is now doing business in 28 nations with a priority focus on China, Russia, India, Brazil, Turkey, South Africa, Mexico, Turkey and the Nordic countries, he said.

Twenty percent of the division’s revenue is now coming from these new geographic markets, Start said. Global Xpress, now in just five nations outside the United States, should propel further growth as it is adopted in other nations, he said.

Inmarsat CEO Rupert Pearce
Inmarsat Chief Executive Rupert Pearce. Credit: SpaceNews/Tom Kimmell

Pearce and Inmarsat Chief Financial Officer Tony Bates reiterated Inmarsat’s forecast that Global Xpress would generate $500 million in new annual revenue for the company at the end of its fifth year of global service — the end of 2020.

Some of that revenue is coming from Inmarsat suppliers and customers who have entered into take-or-pay contracts. Boeing Space and Intelligence Systems of El Segundo, California, which is prime contractor for the Global Xpress satellites — three are in orbit and a fourth is standing ready, when Inmarsat elects to use it — has agreed to pay about $125 million over five years in return for rights to sell to the U.S. government.

About $100 million in annual Inmarsat revenue will come from migrating maritime Ku-band broadband customers to Global Xpress. Through acquisitions made in recent years, Inmarsat has some 2,500 maritime vessels whose owners now use competing Ku-band satellites but have agreed to migrate to Global Xpress over three years.

These 2,500 ships generate about $100 million in annual revenue but cost $35 million per year in satellite bandwidth leases Inmarsat pays to other fleet operators. That cost will disappear once the migration to Global Xpress is complete.

Ronald Spithout, president of Inmarsat Maritime, said it will cost the company $55 million to change out these vessels’ satellite equipment to adapt to Global Xpress.