Inmarsat battles to maintain leadership in connecting the high seas
Inmarsat claims a special middle ground in the satellite industry. While other satellite operators struggle with an overabundance of capacity, Inmarsat sees no such supply glut in its frequencies. And as fixed satellite service operators battle Netflix for television customers, Inmarsat gets by scot-free, having no exposure to a TV market that often counts for half or more of other operators’ revenue.
But Inmarsat’s largest market, connecting ships at sea, is becoming increasingly competitive.
About 40 percent of Inmarsat’s revenue comes from maritime customers depending on the company’s products for voice and data services. Originally dominated by robust but low data rate L-band services (where Inmarsat competes with Iridium and to a lesser extent Thuraya), more satellite operators are wading into the maritime market with high-throughput satellites that offer higher speed services in other frequencies.
Inmarsat connects 34,500 vessels with FleetBroadband, its venerable L-band communications terminals. That number decreased by about 3,000 vessels from June 2017 to June 2018. Part of that decrease is from an intentional migration of customers from FleetBroadband, an L-band service typically providing kilobits of throughput, to Fleet Xpress, Inmarsat’s Very Small Aperture Terminal (VSAT) products that leverage itsKa-band Global Xpress satellites for megabit speeds.
But more than half the vessels that quit FleetBroadband “were lost as a result of scrappage and increased competition,” Inmarsat said during the company’s most recent earnings report.
Rupert Pearce, Inmarsat’s CEO, said the increased competition is coming “predominantly from KVH,” a Rhode Island company that launched a maritime-focused high-throughput satellite network late last year. KVH’s network is based largely on the Intelsat Epic constellation, plus some capacity from Japanese operator Sky Perfect JSAT.
“In other words, it is L-band versus Ku-band,” Pearce said. “It’s a low-end, highly stressed Ku-band VSAT proposition that we compete against. [It’s] not particularly novel — KVH has been doing it for a long time — but it is intensifying, possibly because of the trade-up opportunity from FleetBroadband to VSAT.”
Inmarsat has slowed, but not stopped, the loss of customers to KVH Industries. Whereas around 520 vessels stopped using FleetBroadband during the fourth quarter of 2017, the company reported a loss of 350 ships from April to June. Pearce said most of the lost customers were low revenue generators, but that Inmarsat made a mistake in overlooking the rise of KVH and will redouble efforts to win maritime customers in both L-band and Ka-band.
“I’m not happy about the speed of our response to that,” Pearce said.
KVH’s banner year
KVH is a reseller L-band products from Inmarsat and Iridium, but markets its own Ku- and C-band VSAT products for vessel operators wanting higher speed connectivity. The company launched its HTS network last fall, incorporating IntelsatOne Flex, a service Mark Rasmussen, Intelsat’s vice president and general manager for mobility, describes as a “purpose-built global network designed from the ground up for maritime.”
IntelsatOne Flex connects all six Intelsat Epic HTS satellites as well as several wide-beam satellites to bring global C- and Ku-band coverage for capacity resellers like KVH, he said, The platform has more than 1,000 of the 7,500-plus vessels using Intelsat satellites, Rasmussen said.
KVH CEO Martin Kits van Heyningen said the company is hitting new milestones in VSAT shipments, customer bookings and service activations.
“We successfully shipped almost as many VSAT systems in the first six months of 2018 as we shipped in all of 2017,” Kits van Heyningen said during an August earnings call. “VSAT unit shipments were up 100 percent compared to last year’s second quarter, and were at an all time record by far compared to any quarter in our 10-year history in the maritime VSAT business.”
KVH, having overcome production issues, shipped its 8,000th VSAT in July. Kits van Heyningen said the company’s Agile subscription plans —which offer unlimited data at 10 megabits per second (Mbps) up and 3 Mbps down, and free or subsidized VSAT installation — have surpassed the company’s projections.
“We expected AgilePlans to be successful, but the market response to demand has been even stronger than we anticipated,” he said.
“When you look at the results that KVH has achieved with our Flex network, they tell a very different story [than Pearce],” Rasmussen said.
Keeping the sails up
One of the main reasons vessel operators are migrating from low-data L-band products to high-throughput VSAT is a drop in price for both equipment and capacity, according to Susan Bull, a senior consultant at Comsys.
“Go back 10 years and the cost of a 1- or 1.2-meter stabilized antenna was in the region of $60,000,” Bull told SpaceNews. “Now it’s closer to $20,000.”
Satellite capacity prices have followed a similar trend. Bull said maritime capacity leases five to 10 years ago ranged between $5,000 and $8,000 a month, but as the number of VSATs grew and capacity increased, those prices fell to $3,000 to $4,000 a month.
Maritime connectivity providers often sell Inmarsat solutions as well as VSAT products that leverage capacity from other satellite operators. Intelsat is selling capacity to several maritime connectivity providers, including Marlink, Speedcast and Navarino, promoting the size of its satellite fleet — around 50 compared to Inmarsat’s 13 — as a competitive advantage.
“Any region of the world is often served by more than just one satellite,” said Rasmussen. “It’s served by two, three and sometimes four different satellites, so any vessel anywhere has multiple places in the sky to look to get throughput on Intelsat One Flex maritime. This is key because if you only have one satellite to look at, and your mast or something else happens to be in the way, now your connectivity is gone and you have to go to your backup.”
Bull said the drop in capacity pricing around the world has sent satellite operators on a mad dash to find customers anywhere they can, and maritime is no exception.
“Inmarsat is having to rethink the ways that they are going, but it is a tough position to be in and try to find your way forward,” Bull said.
Pearce said Inmarsat will be “paranoid” going forward about “competition from below,” meaning companies like such as KVH. He estimated that Inmarsat’s FleetBroadband is an effective product for around 60,000 vessels — a mix of merchant shipping, offshore fishing and leisure vessels. The less lucrative customers from those categories are defecting to competitors, he said.
In a statement to SpaceNews, Inmarsat said it still remains the leader of maritime connectivity globally.
“According to Euroconsult, we have around 85 percent market share of maritime L-band revenue and a 21 percent share of maritime VSAT revenue. We are also the fastest growing provider of maritime VSAT services with 57 percent of all new maritime VSAT deployments in [the first half of 2018] being Fleet Xpress, which has also been verified by Euroconsult.”
KVH, also citing Euroconsult, said that the Paris-based firm’s research found KVH had “nearly double” the number of fielded maritime VSATs as its next closest competitor at the end of 2017.
To reestablish itself against KVH and other competitors, Inmarsat is doubling FleetBroadband data rates via a firmware upgrade, Pearce said. And as the two next- generation Inmarsat-6 satellites near deployment — launch dates are 2020 and 2021 — Inmarsat will have the ability to drop FleetBroadband prices and further increase capabilities, he said. Under construction by Airbus Defence and Space, the satellites have both L- and high-throughput Ka-band payloads.
“That’s really about a battle for the hearts and minds of the midmarket, in terms of do they stay in FleetBroadband, do they migrate to VSAT, and if they migrate to VSAT, what VSAT do they migrate to?” Pearce said.
Pearce said Inmarsat also has to “leapfrog” its primary L-band competitor, Iridium, which is launching a new service called Certus based on the nearly finished Iridium Next constellation.
“In the original days, Inmarsat pretty much owned the L-band spectrum,” Bull said. “If you were a vessel, your only option was L-band, so Inmarsat was essentially the monopoly operator, and even when Iridium came in, they didn’t have a major impact on Inmarsat, but they’ve been refining their service. So has Thuraya. [Inmarsat’s] got more competition in the L-band arena today, especially with the latest Iridium series of satellites. The competition is rising.”
Kits van Heyningen said KVH anticipates using Iridium Certus as a backup to VSAT. Iridium OpenPort, the L-band product KVH uses today, is “long in the tooth and not very capable compared to what Inmarsat has,” he said. “This new Certus product should be better.”
As for VSAT demand, Kits van Heyningen projected more growth for KVH on the horizon.
“Despite increasing the pace of installations 40 percent compared to the first quarter, we still grew the backlog that we carried into Q3, which bodes well for future revenue growth,” he said.
The next move is Inmarsat’s to make.
This article originally appeared in the Aug. 27, 2018 issue of SpaceNews magazine.