PARIS — Inmarsat is opposing the merger of two of its service distributors, Telenor Satellite Services and France Telecom Mobile Satellite Communications — now renamed Inceptum 1 AS — saying the deal would reduce competition in the global satellite services market for users with mobile ground equipment.
Inmarsat’s attempt to get U.S. regulators to block the transaction represents a change in the London-based company’s position on such deals. Inmarsat officials say the change in its position followed an examination it made of the effects the merger would have on Inmarsat’s global distribution network, and its 500,000 subscribers.
Telenor and Inceptum say Inmarsat’s real motivation is to pressure the distributors to end their opposition to Inmarsat’s move to license new distributors for the company’s BGAN satellite broadband mobile communications service.
Once merged, Telenor and Inceptum would account for around 40 percent of the market for distributing Inmarsat services worldwide. The company would face off against Stratos Global Corp., which also has a market share of about 40 percent following Stratos’ purchase of Xantic NV in December 2005.
After the announcement of the Stratos-Xantic deal, Inmarsat officials said consolidation among distributors was a positive development because it would create stronger companies to sell Inmarsat’s maritime, aeronautical and land-mobile services around the world.
Inmarsat Chief Executive Andrew Sukawaty said at the time that the company supported consolidation despite the fact that bigger distributors pay less to Inmarsat than smaller ones because of Inmarsat’s annual volume-discount scheme. In the case of Stratos and Xantic, the annual revenue loss to Inmarsat has been estimated at $6 million or more. Inmarsat stands to lose a similar amount if the Telenor-Inceptum merger goes through .
In a Feb. 8 interview, Sukawaty said Inmarsat has taken a closer look at the effects of consolidation and concluded it is not good for the global competitiveness of Inmarsat services. He said he is uncertain whether Inmarsat today would still applaud the Stratos-Xantic merger.
“Our support for consolidation was based on our belief that it creates a more efficient distribution channel,” Sukawaty said. “But we wanted to see the flow-through effects. When we looked at this more deeply, we decided that in this case that would not happen.”
Inmarsat made these arguments to German and Norwegian regulators in an attempt to block the Telenor-Inceptum merger, without success. It is now trying to persuade the U.S. Federal Communications Commission (FCC) that the consolidation “threatens to harm both end users and resellers of Inmarsat services, as well as Inmarsat itself,” Inmarsat told the FCC in a Jan. 22 filing.
Telenor and Inceptum, which hope to conclude their merger in March, respond that the former France Telecom subsidiary has very little business in the United States, which is the jurisdiction of the FCC. The transaction, they say, will have almost no effect on U.S. customers. The U.S. Department of Defense is one of Inmarsat’s biggest customers.
In a Feb. 1 FCC filing, Telenor and Inceptum allege that Inmarsat’s objections “relate purely to private contractual matters” between Inmarsat and its distributors.
In a case now being reviewed by a London arbitration panel, Inmarsat distributors are trying to block the licensing of mobile satellite terminal manufacturer Thrane & Thrane of Denmark as a distributor of BGAN services.
The distributors argue that Thrane & Thrane will threaten their Inmarsat business by luring customers of existing Inmarsat services to the higher-speed BGAN products. That, they say, violates an agreement that Inmarsat signed with its distributors in 2004. The agreement expires in April 2009.
Sukawaty has made no secret of the fact that Inmarsat will seek to modify its distribution agreements when the current contract expires. He said in the Feb. 8 interview that the current contract was signed immediately prior to Inmarsat’s purchase by private-equity investors. He declined to discuss the details of the contract as it applies to BGAN, noting that the matter is being arbitrated.
Industry officials said Inmarsat’s existing contract with its distributors permits Inmarsat to license new distributors — but for new services only. The distributors sought to protect themselves against a proliferation of new distributors of current Inmarsat services, whose arrival would lead to a price war.
For Inmarsat, BGAN is a new service. For the distributors, BGAN is both a new service and a replacement for existing Inmarsat services, which continue to provide a steady revenue stream to these companies.
Sukawaty said the distributor opposition will not slow Inmarsat’s attempts to stimulate the market for BGAN services.
“We won’t be stopped in appointing new distributors,” Sukawaty said. “The fact is that we have 18 BGAN distributors now, and seven of them are new. Only one of these seven is being challenged.”