Inmarsat IPO Aims To Foster Growth of Partners, Services

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Mobile satellite-services provider Inmarsat plc is actively looking for investment partners as it seeks to roll out mobile broadband services in the United States using a hybrid satellite-terrestrial broadcast network, Inmarsat Chief Executive Officer Andrew Sukawaty said.

London-based Inmarsat, which plans a $690 million initial stock offering (IPO) on the London Stock Exchange starting June 17, also is positioning itself to take advantage of initial gaps in terrestrial-wireless companies’ coverage by offering the new Inmarsat satellites for third-generation (3G) mobile telephone users, he said.

“Our Inmarsat-4 system was designed to be 3G compatible,” Sukawaty said in a June 1 interview following Inmarsat’s IPO notification. “But not only 3G — we can offer dual-use to mobile subscribers for voice as well.”

Inmarsat’s IPO will give the company’s two principal shareholders — leveraged buyout companies Apax Partners and Permira — a quick return on their late-2003 purchase of Inmarsat, providing them and other Inmarsat shareholders with liquidity.

Sukawaty said the company’s other major shareholders — Telesat of Norway, Lockheed Martin Corp. of the United States and KDDI Corp. of Japan, which together own 36.46 percent of Inmarsat — do not currently intend to sell their stakes as part of the initial stock offering.

Once it has a stock being traded, Inmarsat will be in a better position to negotiate strategic partnerships or even its own sale to a strategic investor as it prepares what is likely to be a multibillion-dollar investment in the ground equipment — known as ancillary terrestrial components (ATCs) — needed to enhance its satellite signals. The ATC network will permit Inmarsat to offer service in the United States, even in areas where satellite signals cannot reach.

Inmarsat is one of several companies looking at the mobile satellite-services market with new enthusiasm ever since the U.S. Federal Communications Commission granted mobile satellite systems the right to operate a network of ATCs in 2004.

The regulations effectively gave mobile satellite operators a nationwide authorization for the use of radio spectrum without the need to purchase the bandwidth at auction.

Sukawaty, whose professional background is in mobile-telephone networks, said none of the mobile satellite-service operators will be able to deploy ATC networks without the aid of strategic partners.

“Most statements I have heard of what ATC networks will cost to deploy on a nationwide basis grossly underestimate the costs,” Sukawaty said. “It’s going to be a huge expense and some of the [mobile satellite operators] now trying to enter the business simply will not get funded.”

Inmarsat is waiting for the Federal Communications Commission to confirm that the company, a former intergovernmental organization, has met U.S. regulators’ test for private-company status. Sukawaty said the ruling should come before the June 30 deadline.

Inmarsat has spent $1.5 billion on its Inmarsat-4 satellites, designed to deliver data transmissions at speeds of up to 492 kilobits per second to mobile terminals. The first satellite, now in orbit over the Indian Ocean, was launched in March and is expected to be operational late this year.

The second of three Inmarsat-4 satellites, which is intended to provide service to the U.S. market, is scheduled for launch aboard a Sea Launch LLC rocket in October. Inmarsat’s IPO statement said the launch could slip to early 2006 “depending on launch providers’ schedules,” but Sukawaty said in an interview that the October date remains credible.

The third Inmarsat-4 is nearing completion, but plans for its launch have not been confirmed.

Inmarsat said its shares will be priced between 215 and 245 British pence ($3.90-$4.44 ). Assuming an introductory price of 230 pence, the initial stock offering would value Inmarsat’s equity at 1.089 billion British pounds ($1.98 billion).

Inmarsat reported an operating profit of $159.1 million on revenues of $480.7 million in 2004 from its Inmarsat-2 and Inmarsat-3 satellites. The company will be offering a 6 percent annual dividend yield on its stock, a policy Sukawaty said is sustainable even as Inmarsat builds out the Inmarsat-4 network.

Inmarsat operates a global fleet of 10 satellites offering mobile voice and data communications to maritime, aeronautical and land-based users. The U.S. Defense Department is a major customer, as are military authorities in Europe and elsewhere.

Inmarsat plans to upgrade its current communications product for commercial airlines with its SwiftBroadband product starting in 2006. It too will provide up to 492 kilobits per second to airline crew and passengers.

Inmarsat will be entering the broadband-to-aircraft market two years after the Connexion by Boeing service, which uses leased capacity on Ku-band telecommunications satellites to deliver broadband links to aircraft.