Inmarsat Begins BGAN Service with 5,547 Subscribers

PARIS — Inmarsat officials disclosed early market reaction to the company’s BGAN mobile-broadband service for the first time Nov. 15, saying that 5,547 subscribers had signed up as of Sept. 30, generating $3.2 million in revenue for the period ending that same day.

These modest figures for a service that is only now being made widely available are in line with London-based Inmarsat’s business plan, Inmarsat officials said.

Managers of Inmarsat, whose stock is traded on the London Stock Exchange, have sought to keep expectations modest for BGAN, or broadband global area network. But they admit that a laptop-size terminal providing throughput speeds of up to half a megabit per second virtually anywhere on Earth — except the poles — has the potential to transform Inmarsat’s business into one that appeals to a far wider audience.

Inmarsat’s subscriber base of maritime, land-mobile and aeronautical customers totaled 226,800 as of Sept. 30, an 11.5 percent increase from the same period a year ago. About 60 percent of them were for maritime use.

When the 10,300 subscribers from the ACeS satellite-telephone business Inmarsat purchased in September are removed, the year-on-year increase to Inmarsat’s pre-existing business is 6.4 percent. Inmarsat purchased Jakarta, Indonesia-based ACeS in September for $15 million.

Inmarsat Chief Executive Andrew Sukawaty, in a Nov. 15 conference call and a Nov. 16 interview, said Inmarsat will be investing around $45 million in the next two years to upgrade its network and improve the current ACeS satellite telephone to make it compatible with Inmarsat spacecraft.

Once that is done, the Inmarsat-managed ACeS phone will be usable worldwide, filling what Sukawaty conceded has been “our Achilles’ heel” as competing satellite-telephone suppliers Iridium, Globalstar and Thuraya have taken market share from Inmarsat’s land-mobile and, increasingly, its maritime business.

“We just didn’t have a small voice product,” Sukawaty said. “Now we are getting into the market for an investment of just $45 million, with a phone that retails for less than $500. We will be the low-cost provider in this market.”

Inmarsat’s mini-M land-mobile terminal generates just $5 million in quarterly revenues. Inmarsat has watched while its competitors’ hand-held satellite telephones have captured a growing market that Inmarsat estimates at $75 million to $90 million per quarter. Sukawaty said Inmarsat is targeting 10 percent of the satellite-telephone market by 2010. A full integration of the ACeS product into Inmarsat’s global coverage is expected within two years.

In the interview, Sukawaty said Inmarsat assumes that both Iridium and Globalstar will continue to compete in the market, but that Inmarsat will be able to beat them on price.

Inmarsat has 12 BGAN distributors worldwide, including ACeS. Inmarsat Chief Operating Officer Michael Butler said early BGAN users for the most part have been new customers for Inmarsat and not subscribers that are dropping older Inmarsat products for BGAN.

New BGAN terminals are being activated at a rate of about 350 per month, Butler said, adding that the use of BGAN by military services is expected to be a substantial market but has not yet manifested itself.

Similarly, BGAN services will be added to Inmarsat’s maritime and aeronautical sectors in 2007. For the moment, he said, “BGAN is meeting our early expectations…. We expect to further penetrate [the government] customer bases in the coming quarters.”

To offer worldwide BGAN or ACeS service, Inmarsat will need to launch its third and last Inmarsat-4 satellite, which is already built.

Sukawaty said Inmarsat is confident that it can launch the third and last of its Inmarsat-4 satellites, which enable BGAN, by late 2007 or early 2008. The company has reservations aboard Sea Launch and Boeing Atlas 5 rockets, both of which have full manifests for the next two years.

Inmarsat is counting on being able to guarantee delivery of its satellite at one of the two prospective launch sites and slip into the Sea Launch or Atlas launch schedules when, as often happens, another satellite is late on arrival.

Inmarsat reported Nov. 15 that Inmarsat’s revenue for the three months ending Sept. 30 was $129.2 million, up 8 percent compared to the same period a year ago. The ACeS purchase did not add significant revenues for the quarter. ACeS currently functions through its Garuda-1 satellite in geostationary orbit.

Inmarsat Chief Financial Officer Rick Medlock said Inmarsat will lose between $6 million and $7 million per year as a result of Bethesda, Md.-based Stratos Global Corp.’s purchase of competitor Xantic because Stratos will reach Inmarsat’s annual volume-discount targets earlier in the year now that it has the Xantic Inmarsat business.

Inmarsat will likely lose a similar amount of annual revenues once the merger of France Telecom’s mobile communications business with Norway’s Telenor Satellite Services is completed. Both companies have been purchased by Apax Partners, an investment company.

Sukawaty said these developments will oblige Inmarsat to reevaluate its volume-discount formula when the company’s contract with its distributors comes up for renewal in 2009.