Inmarsat: ViaSat’s ‘mythical beast’ poses no threat to aero broadband business
MUNICH—Mobile satellite services provider Inmarsat on March 3 sought to reassure investors that it had not become a capex junkie despite adding some $800 million in new spending over six years for two L- and Ka-band satellites and the likely need to spend more to secure its new commercial aviation-connectivity business in Europe.
In a conference call with investors, London-based Inmarsat said its positioning in the aviation market – with an air-to-ground network of terrestrial repeaters plus an S-band satellite over Europe and a global Ka-band constellation – will not be threatened by competitors including ViaSat Inc. and Eutelsat.
Inmarsat Chief Executive Rupert Pearce also said competitor EchoStar Corp. of Englewood, Colorado, which is moving its own S-band satellite over Europe for a business the company has not fully disclosed, will have no easy time in monetizing its spectrum for a future terrestrial-mobile network.
Inmarsat and EchoStar both have S-band licenses granted from the 28-nation European Commission and designed to provide hybrid satellite-terrestrial mobile broadband in all 28 nations.
Inmarsat is using its license to provide S-band satellite capacity coupled with a network of ground repeaters to serve airline customers in Europe’s highly concentrated air network.
EchoStar has said it believes its European spectrum’s value ultimately may lay in terrestrial-mobile applications with only cursory relation to a satellite system. Pearce said that would not fly with European Union regulators.
Carlsbad, California-based ViaSat and Paris-based Eutelsat have announced a joint venture under which ViaSat’s ViaSat-2 satellite, Eutelsat’s Ka-Sat and a future ViaSat-3 would develop the market for consumer satellite broadband and aeronautical broadband in the European region.
Pearce referred to ViaSat-3, which ViaSat has said would have 1 terabit per second of throughput capacity, as “a mythical beast” that would not be in service for many years, by which time Inmarsat will have secured a firm market position among European airlines.
Pearce said Inmarsat has already bested Eutelsat’s Ka-Sat satellite in the competition to line up Deutsche Telekom and Lufthansa as early partners for Inmarsat’s European Aviation Network, using the S-band satellite and the ground network, coupled with Inmarsat’s Global Xpress Ka-band network, which is now operational worldwide.
Since its third Global Xpress satellite entered service in 2015, Inmarsat has positioned itself as the only company providing global, seamless Ka-band connectivity.
As Pearce sees it, long-haul airlines would navigate the intercontinental routes using Global Xpress, and then switch to Inmarsat’s S-band satellite and the associated terrestrial network when operating in European skies.
The one-stop-shop appeal, he said, contrasts with competitors such as ViaSat, Eutelsat, Panasonic, Intelsat, Gogo, Global Eagle Entertainment and others that are stitching together global broadband coverage but are not yet there.
Inmarsat and its competitors share the certitude that aeronautical connectivity will be a large market. But they also share the uncertainty about how the business model will play out – who will “own” the customers, who pays for the equipment installation and how the revenue share will play out.
Inmarsat has decided to re-label capital spending of this kind as “success-based capex,” which Inmarsat Chief Financial Officer Tony Bates said would be committed only when there is a promise of near-term revenue as a result.
“This number potentially can get quite high,” Bates said of spending on equipment related to the airline connectivity business. “It’s really hard for us to work out where that business model is going. But it’s perfectly possible that we end up incurring the capex in a number of aviation deals, and that we recover it in revenues.”
The big new add to Inmarsat’s capex plans is the two-satellite Inmarsat-6 L- and Ka-band system contracted in late 2015 to Airbus Defence and Space. It is budgeted at around $600 million just for the satellites – launch, insurance and ground infrastructure spending has not been publicly estimated.
The two Inmarsat-6 satellites, plus likely new spending to win airline business, will push up capex to between $500 million and $600 million per year for the next three years.
For Global Xpress, Inmarsat did not announce any new airline commitments. Pierce said several big-name airlines are on the verge of signing with Inmarsat and that they would be brought on board in 2016.
He said neither of the two airlines Inmarsat has signed on as Global Xpress partners – Lufthansa and Singapore Airlines – have insisted on contract-termination clauses in the event a new technology arrives that is more capable than Global Xpress.
Such a clause is embedded in a contract Chicago-based Gogo has with its second-largest customer, American Airlines. Gogo is now scrambling to prove to American Airlines that ViaSat’s coming Ka-band service in North America is no better than Gogo’s new 2Ku.
The Global Xpress satellites, built by Boeing Space and Intelligence Systems of El Segundo, California, include both civil/commercial and military Ka-band capacity, with the U.S. and other militaries a prime market.
The recent news that the U.S. Air Force might maintain its own Ka-band Wideband Global Satcom (WGS) satellite fleet and not move toward greater use of commercially provided military Ka-band might be seen as bad news for Global Xpress.
Pearce disagreed, saying that Global Xpress has always been viewed as a complement to WGS, a gap-filler, and a source of capacity for government agencies that do not have guaranteed access to WGS.
But providers of global Ku-band capacity that had been counting on new Defense Department business should be worried if the Air Force maintains WGS, he said.
“WGS expansion is going to be a helluva threat to people who are locked into a Ku-band strategy,” Pearce said. “It’s clear DoD is going down a military Ka-band path from which they are never going to return.”