Inmarsat Sticks to Global Xpress Projections Despite Military Sales Downturn

by

PARIS — Mobile satellite services provider Inmarsat on March 5 said it expects its third Global Xpress high-throughput Ka-band satellite to be launched by June, with global commercial service to begin later this year, a timeline the company said gives it first-to-market advantage over its competitors.

London-based Inmarsat said that even if the third Global Xpress launch, aboard a Russian Proton rocket provided by International Launch Services, is a success, the fourth Global Xpress satellite, built as a spare, likely will be launched in 2016.

In a conference call with investors, Inmarsat Chief Executive Rupert Pearce said that despite the downturn in U.S. military spending on commercial satellite capacity — a decline that has hit Inmarsat’s existing L-band business — the company still expects Global Xpress to generate $500 million in new revenue within five years of commercial service.

In addition to commercial Ka-band capacity, Global Xpress will be providing military-Ka-band spectrum. This will enable Inmarsat to offer packages to military services that allow them to purchase a set amount of capacity and then to use it wherever they want.

Inmarsat Chief Financial Officer Tony Bates said the $500 million in annual Global Xpress-generated revenue by late 2020 would be net of any cannibalization by Global Xpress of Inmarsat’s existing L-band service.

Two Global Xpress satellites are in orbit, and Pearce said the global ground network for the entire system has been completed in advance of the launch of the third spacecraft, which has been delayed because of bottlenecks in the Proton launch manifest.

Inmarsat’s government business in 2014 dropped 21.7 percent, to $320 million, with the falloff in U.S. military demand due to a combination of budget pressures in Washington and the American withdrawal from Afghanistan.

The company has reduced spending on its government business in the United States and redeployed resources to other governments in the world to diversify the division away from its U.S. dependence. In 2014, government business with non-U.S. customers rose by 1 percent.

China is a big new market for Inmarsat Government, as are other emerging nations. Since 2012, Inmarsat has set up shop in 24 nations that up to then did no government business with Inmarsat, including eight added in 2014.

WGS satellite
The Global Xpress satellites’ compatibility with the U.S. Air Force’s WGS satellites ( fourth WGS satellite, above) means U.S. military units will be able to switch between WGS and Global Xpress with the same terminals. Credit: U.S. Air Force

The Global Xpress system is compatible with the U.S. Air Force’s Wideband Global System of military Ka-band satellites, meaning U.S. military units will be able to move between WGS and Global Xpress with the same terminals.

Ten WGS satellites are planned; six are in orbit. Pearce declined to speculate on whether U.S. military planners would order more in the event of rising demand or lean more heavily on commercial suppliers like Inmarsat.

In addition to Global Xpress, Inmarsat is investing around $450 million in an S-band satellite program that will deliver high-speed connectivity to short-haul aircraft in Europe. The service is a hybrid, with much of the overall throughput coming from a network of terrestrial repeaters that Inmarsat has estimated could cost $200 million of the $450 million program total.

Inmarsat and Arabsat of Riyadh, Saudi Arabia, have agreed to join forces to build a satellite that has two separate payloads — a telecommunications package for Arabsat and the S-band portion for Inmarsat.

Inmarsat did not announce any airline partners for its S-band program. The satellite is scheduled for launch by SpaceX of Hawthorne, California, in late 2016.

Inmarsat and EchoStar Corp. of Englewood, Colorado, both have European Union licenses to offer hybrid satellite-terrestrial S-band services in the 28-nation EU. But the companies still need to obtain individual licenses from each nation. Pearce said Inmarsat has obtained spectrum-use licenses in 25 of the 28 EU nations, and ground licenses in 11 nations.

For Inmarsat, the S-band project is aimed at commercial airline passenger connectivity. Pearce said the short-haul European airline market is growing twice as fast as the North American market and will surpass North America by 2020 with some 6,000 planes flying daily.

Using the terrestrial ground relay network, Pearce said, will enable the Inmarsat S-band service to provide 60 to 80 times the throughput speed of a high-throughput satellite.

Meanwhile, Inmarsat’s high-end Fleet Broadband maritime service reported a 24 percent increase in revenue in 2014 as customers with older versions of the L-band system moved up to Fleet Broadband. As of Dec. 31, Fleet Broadband had been installed on 40,469 ships, up nearly 13 percent from a year earlier.

Responding to a salvo from competitor Iridium Communications saying Inmarsat had not paid attention to the maritime sector in 2014, Pearce said: “I’d love to take my eye off the ball more often if it’s going to drive a 25 percent increase in revenue.”

A separate Inmarsat maritime service called XpressLink, which uses Ku-band capacity from competing satellite operators to provide broadband connectivity to ship owners under contracts that move them automatically to Global Xpress, grew 26 percent in 2014.

Inmarsat reported 2014 revenue of $1.29 billion, up 1.9 percent from 2013. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 54.5 percent of revenue, up from 51.4 percent a year earlier.

The company’s core business of wholesale mobile satellite service sales was $791.4 million, up 6 percent from the previous year after accounting for one-time items. The company is forecasting 8-12 percent average annual growth in this part of its business between 2014 and 2016.