PARIS — Mobile satellite services provider Inmarsat on March 7 said revenue from its core maritime business in 2010 was much lower than expected as competitors, and Inmarsat’s own new lower-cost products, gained market traction.
London-based Inmarsat said it is taking steps to fend off the offensive by very small aperture terminal, or VSAT, service providers, who are making inroads among commercial shipping companies by offering all-you-can-consume package deals, lower per-megabit prices and higher speeds than Inmarsat can provide now.
These VSAT companies are particularly aiming at seagoing vessels operating near enough to land masses to be covered by existing geostationary telecommunications satellites offering services in Ku- or C-band.
In a conference call with investors, Inmarsat Chief Executive Andrew Sukawaty said the company is “moving to replicate some of the features” of the VSAT competitors. It will also offer packages that give customers an incentive to wait for Inmarsat’s high-speed service, called Global Xpress, which is scheduled to enter service in 2014.
Inmarsat’s total revenue, including its Stratos Global and Segovia divisions, was $1.17 billion in 2010, up 12.9 percent from 2009. Part of the increase was due to the Segovia acquisition, made in early 2010. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 59 percent of revenue.
The company’s heritage mobile satellite services business reported revenue of $727 million in 2010, up 6.5 percent from 2009.
The maritime sector accounts for half of Inmarsat’s mobile satellite services business. In 2010, maritime revenue was $360.6 million, up only 1 percent from 2009. “It’s not what we expected,” Sukawaty said.
He said Inmarsat combed through the figures and found that the poor performance was due primarily to a faster-than-expected market adoption of Inmarsat’s new Fleet Broadband terminals. More than 10,000 were sold in 2010, giving existing Inmarsat customers a device that costs them less to use, on a per-megabit basis, than the Inmarsat-B and Mini-M terminals.
Inmarsat Chief Operating Officer Perry Melton said the company’s past experience with hardware change-outs suggests it takes between 18 and 24 months for subscribers with the new terminals to increase their use to revenue levels of the previous generation of hardware.
Sukawaty said 70 to 80 percent of the maritime slowdown is due to the introduction of Fleet Broadband. The remaining 20 to 30 percent is due to competitive pressure from VSAT operators and others.
“They know they need to step up their offering while they can” before Inmarsat’s higher-speed Global Xpress service arrives in 2014, he said. Inmarsat will craft “special offers” to maritime customers to encourage them to maintain their current Inmarsat service until Global Xpress, which uses Ka-band and will require new equipment, arrives on the market, he added.
Inmarsat’s land-mobile division reported a 4.9 percent increase in revenue. Its land-mobile data service, which accounts for 95 percent of the division’s revenue, grew 6 percent, but that was partially offset by the continued decline in land-mobile voice revenue. Inmarsat in June introduced its first hand-held telephone to stop the slide in its land-based voice business, but sales of the handset were “not material” to 2010 results and were not disclosed.
Inmarsat said it saw a decline in use from military and other subscribers in Afghanistan. Inmarsat’s BGAN broadband portable terminal business continues to add subscribers — 15,000 in 2010, bringing the total to 49,000 as of Dec. 31. To stimulate acceptance by second-tier news organizations and others, Inmarsat will consider geographic pricing packages in one or more regions, Sukawaty said. BGAN users spend an average of $200 per month using the gear.
Inmarsat’s aeronautical division has been its fastest-growing, in percentage terms, for several years and that continued in 2010. Revenue jumped 33 percent, to $101 million.
Given the surprises of 2010, Inmarsat said it expects its mobile satellite services business to grow by no more than 2 to 4 percent in 2011. The company said it will spend between $450 million and $550 million in 2011 on its Global Xpress and AlphaSat satellites.
The company will recognize around $200 million in revenue in 2011 from LightSquared of Reston, Va., which is paying Inmarsat to rearrange the way it uses L-band spectrum in North America. The change will permit LightSquared to roll out a planned terrestrial-satellite mobile broadband service, which also uses L-band.
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