Inmarsat Confirms $1.2B Bet on All-Ka-band Broadband System
PONTE VEDRA, Fla. — Mobile satellite services operatoron Aug. 6 confirmed its decision to spend $1.2 billion on three large Boeing-built all-Ka-band satellites to provide mobile broadband to military, civil government and corporate customers worldwide starting in 2014.
London-based Inmarsat said the system, to be called Global Xpress, should generate $500 million in annual revenue within five years of its launch. As part of the contract to build the satellites, Boeing has agreed to purchase at least 10 percent of the system’s total capacity for the first five years, with options to take more.
Boeing also will become a distributor of Inmarsat’s current L-band mobile satellite services.
The three satellites will be spaced along the geostationary arc at existing Inmarsat orbital slots to provide global coverage except for the poles. Their principal early markets will be energy companies, maritime customers including cruise ships, and aviation and military users.
Each satellite, based on Boeing’s 702 HP platform, will carry 89 fixed spot beams. In a briefing to investors, Inmarsat officials said the system will provide up to 50 megabits per second of throughput to users equipped with 60-centimeter-diameter dishes, and 10 megabits per second to customers with 20-centimeter dishes.
Inmarsat Chief Executive Andrew Sukawaty said the company wants to protect and expand its existing market by providing broadband access that today’s operators of C- and Ku-band satellite capacity cannot match because of radio spectrum limits in some regions.
Sukawaty said Inmarsat estimates today’s mobile broadband market is valued at about $1.4 billion. The energy and maritime markets total about $750 million per year, with growth rates of more than 10 percent annually. It is a market that Inmarsat cannot reach because of the limits of L-band spectrum.
Sukawaty said today’s providers of C- and Ku-band spectrum for very small aperture terminal, or VSAT, mobile broadband applications view the maritime market only as a niche business to fill satellites whose main coverage areas are over land for video and telecommunications service.
He said he doubted whether these providers of satellite capacity for mobile VSAT applications will want to develop their own global Ka-band systems. Even if they do, he said, Inmarsat will be in the market first.
Inmarsat Chief Financial Officer Rick Medlock said during the investor meeting that Inmarsat’s $500 million annual revenue figure by 2019 will represent “close to 20 percent” of the VSAT market in the energy and maritime sectors expected at that time.
Medlock said Inmarsat and Boeing have applied for loan guarantees from the U.S. Export-Import Bank that likely would give Inmarsat access to lower-interest financing for the project. He did not detail the size of the package being sought from the Export-Import Bank.
Even without export-credit agency assistance, Medlock said, financing the Global Xpress system will not be a stretch for Inmarsat.
Medlock said that before it agreed to invest in Global Xpress, Inmarsat had planned to replace its current Inmarsat 4 L-band satellites by 2018. With the Ka-band system operational by 2015, he said, the L-band replacement can be delayed to 2020. In addition, the replacement L-band satellites may now be ordered one at a time, with a single launch every three years, rather than in a batch of three or four.
By deferring this spending and smoothing out its future replacement-satellite requirements, Inmarsat is freeing up several hundred million dollars in cash over the next 10 years. Viewed from this angle, Medlock said, the Global Xpress system costs are adding only $600 million to $700 million to Inmarsat’s capital expenditures between 2010 and 2019.
Sukawaty said Inmarsat’s $1.2 billion Global Xpress cost estimate is “all in,” and includes the satellites’ construction and launch, insurance and Inmarsat’s investment in ground infrastructure.
Inmarsat outlined the Global Xpress investment after presenting financial results for the first six months of 2010 that Sukawaty said demonstrate the company’s ability to grow profitably its existing L-band business.
He said Inmarsat expects its global mobile satellite services wholesale business to grow by 5 percent to 7 percent annually between 2010 and 2014. The company is increasing its dividend by 10 percent per year for the next three years despite the Global Xpress spending, he said.
Inmarsat reported that its total revenue — its mobile satellite wholesale business plus its ownership of Stratos, a big mobile satellite services distributor, and Segovia, which specializes in government satellite services — grew by 12.2 percent, to $570.7 million, in the first half of 2010 compared with the same period a year ago.
EBITDA, or earnings before interest, taxes, depreciation and amortization, was 59 percent of revenue.
Maritime voice revenue declined during the period as commercial ships limited their use of Inmarsat telephones, probably replacing some of these calls with e-mail communications to shore, Sukawaty said. Total maritime revenue, including data and voice, was up 1 percent for the six-month period, to $177.7 million, compared with a year ago.
Land-based revenue was up to 14 percent for the first half of 2010, to $79.8 million. But this figure masks a decline in the three months ending June 30 as use of the service in Afghanistan dropped.
Aeronautical revenue, Inmarsat’s smallest but fastest-growing segment, was up 40 percent, to $49.6 million. Leasing revenue increased by 13 percent, to $55.8 million.