Inmarsat Comes Out Ahead in Revamped Distributor Deal

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  Space News Business

Inmarsat Comes Out Ahead in Revamped Distributor Deal

By PETER B. de SELDING
Space News Staff Writer
posted: 27 April 2009
12:25 pm ET






PARIS

Mobile
satellite services operator Inmarsat concluded negotiations with all of its service distribution partners April 15, emerging with a five-year agreement that resets the balance of power toward wholesaler Inmarsat and away from its distributors, London-based Inmarsat said.

In an April 17 interview, Inmarsat Chief Executive Andrew Sukawaty said the months-long negotiations ended with Inmarsat winning concessions on all 12 areas in which the company had been restricted under the previous agreement.

Chief among these is the volume-discount formula under which London-based Inmarsat had been chafing for years. The old formula gave price reductions to a given distributor once that distributor reached a set annual sales level.

As a result of mergers that had left Inmarsat with just two major distributors accounting for more than 80 percent of its revenue, Inmarsat by 2008 was losing some $65 million – nearly 10 percent of its revenue – in volume discounts, mainly to Vizada of Paris and Stratos Global of Bethesda, Md.

With the last of the holdouts having signed on to the new Inmarsat distribution scheme by the April 15 deadline, Inmarsat will now be able to fine-tune the incentives it gives its distributors as it sees fit.

The proposal that Inmarsat made to distributors, and which as of April 15 is now Inmarsat practice, will result in that $65 million in annual volume discounts being divided into three parts of approximately equal size.

A third of the money will return to Inmarsat’s treasury over a period of about two years, Sukawaty said. Another third will be used to reduce the price of Inmarsat services across the company’s maritime, aeronautical and land-mobile businesses. The final third will be paid to distribution partners under a formula that better spreads the rewards throughout the distribution chain.

“When a company hits a certain volume of business, we will deal with that directly instead of through a set formula,” Sukawaty said.

Inmarsat
has some 28 distribution partners, many of which also sell L-band mobile satellite services from Globalstar, Iridium or Thuraya, as well as mobile platforms connecting to satellites operating in C- and Ku-bands.

A second major change in its relations with distributors is that Inmarsat will now be free to license new distributors. Under the former contract, Inmarsat was restricted in naming new distributors, and could not have direct contact with its end-user customers.

The effective date of the new distribution agreement coincided with the date that Inmarsat assumed full control of Stratos Global, which Inmarsat had purchased in December 2007 – through a Canadian company established for that purpose – for $636 million including Stratos‘ debt.

According to Inmarsat’s figures, Stratos in 2008 accounted for 46 percent of Inmarsat’s revenue, and Vizada accounted for a little more than 35 percent.

In an April 15 statement, Vizada said its Inmarsat sales “outperformed the market and represent now close to 40 percent of Inmarsat’s wholesale revenues.”

Purchasing Stratos reduced the possibility that Inmarsat would face a distributor rebellion in forcing through the new contract terms. Sukawaty had said changing distributors is a fairly simple operation, and in the weeks leading up to the deadline he made clear that Inmarsat was ready to encourage such defections from distributors unwilling to agree to the new terms.

Sukawaty
stressed in an April 15 statement that Inmarsat will give equal treatment to all of its distributors and will not favor its new Stratos subsidiary.

Vizada
had held out until the last minute before coming to terms with Inmarsat.

Robert Baker, president of Vizada Americas, said in an April 17 interview that, despite having waited until April 14 to sign the new Inmarsat agreement, Vizada had long known what the arrangement would look like.

Baker said Vizada posted revenue of more than $700 million in 2008. Mobile satellite services from Inmarsat, Thuraya and Iridium account for two-thirds of Vizada’s business, while sales of satellite capacity using terminals linked to fixed satellite services operators’ C- and Ku-band satellites accounted for the remaining third.

Inmarsat
represents the majority of Vizada’s mobile satellite services business, Baker said.

Vizada
expects to leverage its global presence and its status as a distributor of all Inmarsat services – existing and evolved Inmarsat heritage business, Inmarsat’s leasing business and its BGAN broadband data services – to continue to grow under the new distribution agreement, Baker said. Vizada is an indirect sales agent, using a network of service providers.