Maritime Broadband Provider Grows Despite Shipping Slowdown

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PARIS Maritime satellite broadband hardware and service provider KVH Industries on Oct. 26 said sales of its mini-VSAT gear will continue to grow by 50 percent or more in the next year despite a slowdown in some parts of the commercial maritime shipping business.

Middletown, R.I.-based KVH is one of the more successful companies using Ku-band satellite bandwidth from conventional telecommunications satellites to compete directly with L-band mobile satellite services providers including Inmarsat of London and Iridium Communications of McLean, Va.

Inmarsat and Iridium are both taking steps to address the competition from KVH and other providers of VSAT, or very small aperture terminal, satellite hardware. The established mobile operators have been lowering their per-megabyte prices and increasing the speed of their data links to commercial maritime customers, including businesses and leisure boaters. All these companies hope to tap rising demand among leisure and commercial ships for services integrating telephony and Internet links for ship-based business communications and to provide leisure access to ship crews.

KVH has been filling orders for maritime installation of its mini-VSAT Broadband terminals averaging 250 every three months. KVH Chief Executive Martin A. Kits van Heyningen said the business has grown by an average of 50 percent per year over the last four years.

In an Oct. 26 conference call with investors, Kits van Heyningen said that despite a slowdown in orders as ship fleets cope with an excess in maritime freight capacity, KVH will surpass the 2,000-order point by the end of this year. Given the four- to six-month lag between a contract’s signing and the hardware’s installation onto a ship, he said the company expects to have 1,500 ships actively using the mini-VSAT Broadband service by early 2012.

KVH sells not only the VSAT hardware, which uses Carlsbad, Calif.-based ViaSat Inc.’s ArcLight technology, but also the airtime that goes with it. The company has introduced a leasing option in which customers pay $995 per month for the hardware plus one gigabyte of data transmissions.

The TracPhone V3, KVH’s latest version of the mini-VSAT Broadband hardware, costs about $17,000. Company officials say this price point is roughly comparable to L-band systems offered by Inmarsat and Iridium.

“But the airtime costs about one-tenth as much, and our data speeds are 10 times faster than the typical Inmarsat or Iridium solutions,” Kits van Heyningen said during the conference call.

The mini-VSAT service offers data downlinks at up to 2 megabits per second, and uplinks at up to 1 megabit per second.

During the call, KVH officials conceded that they had expected even higher sales of their mini-VSAT products. But with the global economy growing only slowly, they said, there is an excess of maritime freight capacity, which puts downward pressure on freight-transport rates and causes fleet operators to hesitate before making new investments.

But they insisted that product backlog and other signs from the market indicate that orders that were expected in the three months ending Sept. 30 but did not arrive will be forthcoming in the coming months.

KVH’s broadband service is a largely fixed-cost business, meaning its profitability moves up quickly as more subscribers are added. KVH Chief Financial Officer Patrick J. Spratt said the gross profit margin on the broadband services business, which was no more than 5 percent at the end of 2010 and early 2011, should expand to 15 to 20 percent in 2012, assuming installations match company forecasts.

KVH has received regulatory approval to operate its maritime satellite communications business in more than 125 countries. In September, it announced that it had filled the last gap in its business plan by offering service off the west coast of South America.

The addition will eliminate one advantage that Inmarsat and Iridium have had in being able to offer large shipping fleets uninterrupted coverage anywhere in the world with the exception, in the case of Inmarsat and KVH, of the polar regions. Iridium’s satellite constellation has coverage there, whereas systems such as KVH and Inmarsat, using geostationary-orbit satellites over the equator, do not reach the poles.

KVH in September also released its latest maritime product, called HD11, which the company said features a 1-meter antenna that is compatible with any Ku- or Ka-band satellite link in the world, relieving ship operators of the need to change out equipment as the move from, say, the Pacific Ocean to the North Atlantic.

The ability to receive Ka-band links, which are still in a small minority for television broadcasting, is important in some regions, including the United States, where the DirecTV satellite television service beams in both Ku- and Ka-band.

Kits van Heyningen said the current weakness in the maritime leisure market means KVH will be focusing sales of HD11 on commercial maritime fleets, whose crews are demanding Internet and television access.