As US Sales Soften, Inmarsat’s Growth Plan Hinges on Emerging Markets

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PARIS — Mobile satellite services provider Inmarsat on Sept. 25 told investors that while its U.S. government business is going through a difficult period, sales to other governments and militaries worldwide are likely to grow at double-digit rates for the next decade.

The company said its current revenue from military and government customers outside the United States is about $126 million a year from 100 nations. But 80 percent of it is from just six nations, mainly advanced economies whose defense and civil-security spending is not growing quickly.

Moving into emerging nations — Brazil, China and South Africa among them — is thus the priority if the company is to realize the potential of an overall market that industry consultants see growing by 10 percent annually in the coming years.

“The pipeline [of business] is in the hundreds of millions” of dollars, said Andy Start, president of Inmarsat’s Global Government division. “As day follows night, this will drive growth.”

Start’s comments came during a series of presentations to investors of the full range of Inmarsat’s current and prospective business in the maritime, aeronautical and land-mobile markets.

Inmarsat Chief Executive Rupert Pearce said the lone soft spot for now is the U.S. government, where budget freezes and a repositioning of U.S. military focus are forcing a rethink of the military’s demand for commercial satellite links.

London-based Inmarsat generates 17 percent of its revenue, or some $220 million a year, from U.S. government customers.

Peter Hadinger, president of the company’s U.S. Government division, said that despite the uncertainties about future spending, Inmarsat appears to be well-positioned in both its heritage L-band low-throughput communications and its higher-speed Ka-band service through the Global Xpress satellites now being fielded.

Hadinger said 60 percent of the U.S. government’s use of mobile satellite communications is done through Inmarsat, some of it through upgraded, higher-capacity radios. Average monthly subscriber revenue is several thousand dollars for these terminals.

“To them, it’s a screaming deal,” Hadinger said. “To us, it’s a great customer.”

The use of Inmarsat gear requires no up-front commitment from the U.S. government, and much of the spending can be covered by the military’s contingency budget, which has been a more reliable source of revenue at a time when new military programs are few.

“They don’t have the money for hosted payloads,” Hadinger said. “But they do have a budget for contingencies, and Inmarsat sells that. We are funded out of discretionary [spending lines] and we think this will continue for awhile.”

The U.S. military has been the first commercial user of any size of the Global Xpress service, mainly for special operations in the Africa-Middle East region now covered by the sole Global Xpress satellite in orbit. Two more satellites are scheduled for launch in 2015 to provide global coverage outside the polar regions.

Some users will wait to see the full constellation in orbit before signing on, but U.S. government customers are already testing the service on 17 types of terminals and aircraft, Hadinger said.

Start said other governments want to see the U.S. using Global Xpress before committing themselves.

Hadinger repeated Inmarsat’s belief that the U.S. Air Force’s Wideband Global Satcom fleet of Ka-band satellites will not threaten Global Xpress, which is able to move back and forth between military and civil Ka-band frequencies.

To the extent that the U.S. military moves to Ka-band and outfits its manned and unmanned aircraft with Ka-band terminals, Inmarsat’s Global Xpress, sold to the U.S. government through Boeing Space and Intelligence Systems of El Segundo, California, should profit.

Operators of Ku-band satellites, Hadinger said, are threatened by Ka-band’s increased deployment throughout the military’s service portfolio.

Pearce reiterated Inmarsat’s forecast that despite the several months’ delay in the launch of its second and third Global Xpress satellites, the service would generate $500 million in incremental revenue by 2020, including revenue from Boeing’s take-or-pay contract. Current Global Xpress orders are already promising revenue equivalent to 30 percent of that target he said.