KVH VSAT Business Grows as Its Inmarsat Revenue Slows

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PARIS — Maritime satellite broadband hardware and service provider KVH Industries on Feb. 13 said hardware and airtime sales for its mini-VSAT equipment grew by 60 percent in 2011 even as its traditional business selling Inmarsat L-band satellite services plummeted.

The company is positioning itself to offer a combination of lower-cost airtime and higher throughput speeds to differentiate its mini-VSAT product line from the services offered by mobile satellite services providers Inmarsat of London and Bethesda, Md.-based Iridium Communications, among others.

Inmarsat is moving to offer a higher-performance broadband system by building Ka-band satellites to operate alongside its heritage L-band satellite business to fend off the competitive threat from companies like KVH, which are making inroads by offering leased Ku-band capacity.

KVH has responded with the mini-VSAT product. Its TracPhone V3, a 1-meter-diameter antenna, offers no substantial hardware cost savings over Inmarsat’s Fleet Broadband service.

But KVH Chief Executive Martin Kits van Heyningen said the mini-VSAT offer of 99 U.S. cents per megabyte of download is one-tenth the cost of a comparable Inmarsat service, with throughput speeds of five to 10 times what is available on L-band systems.

In a Feb. 13 conference call with investors, Kits van Heyningen said Middletown, R.I.-based KVH will be increasing the coverage of its mini-VSAT service later this year with a C-band overlay. This will allow ships to use the service over 95 percent of the Earth’s surface, meaning between 75 degrees north latitude and 70 degrees south.

The new hardware product, called TracPhone V11, features a dual-mode antenna for both Ku- and C-band. KVH will lease three wide C-band satellite beams for the service later this year, and is building three hubs for the network.

Kits van Heyningen said the C-band service is likely to cost two-thirds of what the company pays each year to lease Ku-band satellite capacity, a cost he said averaged $1.5 million per year.

“This is totally unique in the maritime industry,” Kits van Heyningen said of the C-band overlay. Contrasting the KVH strategy with other satellite operators’ plans for new satellite constellations, he said KVH has settled on a strategy of leasing “readily available and affordable commercial satellite capacity.”

So confident is KVH about its new TracPhone V11 service that the company told investors it would cover the incremental costs of adding the C-band overlay with the gross profit from its V11 hardware starting in late 2012.

The advent of Ka-band capacity likely will put downward pressure on C- and Ku-band satellite bandwidth, Kits van Heyningen said. At that point, he said, the company will either migrate to Ka-band or take advantage of lower C- and Ku-band prices.

For now, Inmarsat appears to be the only company building a global Ka-band satellite network with maritime users as a key focus. Other companies are moving to Ka-band for regional coverage of maritime markets.

Satellite fleet operator Intelsat of Washington and Luxembourg has repointed beams on several of its satellites to appeal to maritime customers. Intelsat’s satellites are mainly C- and Ku-band. KVH did not say where it was purchasing its C-band overlay or its global Ku-band coverage.

KVH Chief Financial Officer Patrick J. Spratt said during the call that the company’s “metered” VSAT service — meaning where customers pay per megabyte — is generating between $500 and $700 per month in revenue per ship. The fixed-rate service generates between $1,800 and $1,900 per month in revenue, he said.

Initial orders totaling 2,000 mini-VSAT units continue to be shipped at a rate of about 250 per quarter, Kits van Heyningen said.

In addition to selling its own Ku-band products and services, KVH distributes Inmarsat L-band capacity. Kits van Heyningen said KVH’s Inmarsat business has dropped by more than 50 percent in the past year. He said the decline was expected as customers seek higher-speed, lower-cost broadband access.

Inmarsat has begun offering its customers service packages that provide higher-speed connections through Ku-band satellites today and lock in these customers to Inmarsat’s Ka-band Global Xpress service when it comes available starting in 2013.