Inmarsat says business largely immune to current capacity oversupply

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WASHINGTON — British satellite operator Inmarsat says the mobility markets where it does the most business are largely unaffected by today’s oversupply of capacity, and in some cases might need even more.

London-based Inmarsat placed one of the only three geostationary satellite orders awarded industry-wide this year as other operators continue to hold on new investments.

Rupert Pearce, Inmarsat’s CEO, told investors Aug. 3 that it’s arguably not a surprise that operators who do worry about oversupply “are beginning to sit on their hands and let the supply play out” rather than worsen their predicament, but that burden is not Inmarsat’s.

“Mobility satellite operations will remain relatively well insulated from this threat,” he said. “In fact we are finding that in several of our key areas of activity, there is likely to be a requirement for more, not less, space segment capacity focused on areas of ultra-high demand.”

Not afraid to invest

Inmarsat ordered a fifth Global Xpress satellite, dubbed GX-5, from European manufacturer Thales Alenia Space, two months ago for $130 million. Satellite operators have only ordered two other geostationary satellites this year — Palapa-N1 from Palapa Satelit Nusantara Sejahtera in Indonesia, and Kacific-1/JCSAT-18, a “condosat” for Singapore-startup Kacific and Japanese fleet operator Sky Perfect Jsat — leading manufacturers to expect around half as many orders as usual this year.

In an Aug. 3 financial statement, Inmarsat pegged the total cost of GX-5 at around $200 million for construction, launch and insurance. Pearce said the satellite will be “more than 36 times more powerful and capable than an Inmarsat-5 at half the price.”

“This is a satellite with beyond-ViaSat-3-like economics,” he said. “In other words, this is the latest, latest thing you can get your hands on.”

Inmarsat paid $1.6 billion for the four, 6,100-kilogram GX satellites purchased from Boeing, each of which has 89 fixed Ka-band spot beams and six steerable beams. International Launch Services Proton rockets launched the first three, and SpaceX launched the fourth on a Falcon 9.

“The risk of over capacity remains highly specific to certain geographies, and certain markets, and overall we believe that our core global maritime, aviation and government mobility markets will be less negatively affected than other satellite segments in which we are not present,” he said.

In a June email to SpaceNews, Inmarsat spokesperson Jonathan Sinnatt said GX-5 will be fitted with 72 Ka-band beams, have a mass under 4,000 kilograms, and a design life of 16 years. Compared to the initial constellation, which operates with three satellite for global coverage and one for backup, Pearce said GX-5 will concentrate capacity in very specific areas, and as a result should have a robust fill rate.

“We are going to enhance and complement that first generation network with additional capacity to add highly targeted densities as opposed to duplicative wide area coverage,” he said.

Adding the two Inmarsat-6 L- and Ka-band satellites purchased from Airbus Defence and Space in December 2015 for $600 million, each of which will have 12 times the capacity of the original Boeing Inmarsat-5s, Inmarsat expects to have three new satellites in orbit by 2021. None have yet been assigned to launchers.

Following the planes

Inmarsat executives have said that Qatar Airways’ commitment to equip 130 aircraft with GX inflight connectivity hardware was a strong motive for the operator to invest in GX-5. Pearce said Inmarsat-5 F4 will support inflight connectivity demand over Europe until GX-5 arrives in 2019. After that, Inmarsat-5 F4 will probably shift to Asia, he said.

“It’s no secret that we are also looking to do more in China and more in the One Belt, One Road region, and that is a place where we continue to have ambitions,” he said.

Pearce said China is building 10 new airports a year, growing the country to an even larger market, although regulatory barriers limit market access for non-Chinese companies.

“The various ministries involved in setting policy are figuring out how they want this to play out and who the incumbents are going to be,” he said. “It’s a balance between foreign networks and domestic networks.”

Inmarsat had 17,000 L-band terminals installed for low-bandwidth aviation services as of June 30. For inflight connectivity, which the company counts separately, Inmarsat counted 101 aircraft in the Deutsche Lufthansa Group with GX installations, and more than 1,200 aircraft under contract. Pearce said Inmarsat wants a double-digit chunk of the global inflight connectivity market, which he estimated could mean 5,000 to 6,000 GX-connected aircraft by the mid-2020s.

Pearce said Eutelsat and ViaSat’s lawsuit over Inmarsat’s use of a European Commission-granted S-band spectrum license for its hybrid satellite and terrestrial European Aviation Network amounts to little more than publicity and an effort to delay the system. All 28 EU member states plus Norway and Switzerland have given mobile satellite services authorizations for the satellite half, and 27 countries have granted the air-to-ground network that Deutsche Telekom is building. Commercial activation remains on track for later this year, Inmarsat said.

Troubled waters clearing up

Pearce said maritime services, a segment challenged by steep downturns in shipping and oil and gas, is starting to stabilise.

Inmarsat’s core “mid-market” of maritime customers, which includes boats and ships for merchant shipping, offshore energy, and high-end fishing and leisure, will likely shrink from 60,000 vessels today to 50,000 by 2020, Pearce said. Vessels in that market upgrading from Inmarsat’s L-band Fleetbroadband service to the higher-throughput GX VSAT service Fleet Xpress should more than offset that decline, Pearce said. He estimated the market for high-bandwidth maritime VSAT services will double to 40,000 vessels at the start of the decade, worth around $1 billion. By comparison, mid-market vessels have a total market value of around $540 million, he said.

Tony Bates, Inmarsat’s chief financial officer, said Inmarsat’s Fleetbroadband service lost around 1,450 ships over the last 12 months, of which 580 moved up to VSAT. Bates said most of the subscriber loss occurred last year and as of this quarter, no additional subscribers were lost.

Smaller vessels, such as work boats, fishing and leisure craft, comprise a market of around  $750 million today from 690,000 vessels, Pearce said. Inmarsat launched Fleet One, a satellite voice-and-data service targeting this market, last year that is just starting to gain traction in what the company considers a “large, greenfield market,” he said.