Market Impact of New Inmarsat Handset a Subject of Disagreement

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PARIS — Mobile satellite service providers Inmarsat and Iridium have opposing views on whether Inmarsat’s first-ever hand-held telephone has gained market traction.

In conference calls March 7, the two competitors made statements that are impossible to reconcile, and difficult to corroborate without a review of distributors’ sales records. The statements are in keeping with a war of market perception the two companies have been waging in recent months, with on-ground telephone tests from different consultancies reaching wildly different conclusions about the performance of the hardware, and Wall Street analysts arriving at diametrically opposed conclusions about early market-penetration rates.

London-based Inmarsat, the biggest and oldest mobile satellite services operator, introduced its ISatPhone Pro in June. From the start, the device was intended to slow or stop the erosion of Inmarsat’s existing land-mobile business by adding a hand-held device to the portfolio.

A second goal was to attack the markets of competitors Iridium, Globalstar and Thuraya at the low end by offering a telephone whose list price is less than half the cost of some of the competitors’ models.

In its March 7 conference call with investors, Inmarsat declined to provide figures for ISatPhone sales or revenue, saying it is too soon after the product’s launch. As of Dec. 31, the company said, the product’s contribution to Inmarsat’s overall revenue is “not yet material.”

Inmarsat Chief Executive Andrew Sukawaty nonetheless said early orders and activations for the phone “have been encouraging. … We still believe our market share projections are realistic.” Inmarsat had said its hand-held device, which retails for about $500, would carve out a 10 percent share of a market that Inmarsat believes is not growing very fast.

“We will be as disruptive as possible” in the global satellite-handset market, Sukawaty said.

McLean, Va.-based Iridium began operating in the late 1990s with its hand-held product at the core of its business. Since then, the company has broadened its business but its current handset remains key to its product line.

Iridium told investors during its conference call that in the last three months of 2010, meaning several months after Inmarsat’s device was introduced on the market, Iridium’s own handset sales increased by 51 percent compared with the same period a year earlier, when the company did not have to contend with Inmarsat.

“I’d say that’s a good sign that we’re not seeing any impact that everyone thinks we should be seeing at this point,” Iridium Chief Executive Matthew J. Desch said during the call. “If Inmarsat, which is the one we’re talking about here, is selling any — and even from them it doesn’t sound like a lot because they said it was still immaterial — they must be selling them at the real low end, where we weren’t competing to begin with. If so, then they’re expanding the market.”

Desch and Iridium habitually characterize Inmarsat’s product as the equivalent of fast-food takeout, while Iridium’s is a sit-down meal. Iridium has said repeatedly that the profit margin on its handsets is thick enough to permit price reductions if needed to respond to Inmarsat’s market entry. The company said it has reduced prices, but not to any substantial degree.

So far, Desch said, that has not been necessary, especially given the natural incentive of satellite handset distributors, who typically sell products from both Iridium and Inmarsat, to favor Iridium because they make more money from Iridium’s 9555 device than from the ISatPhone.

“Our partners are saying they are selling our product — and making a lot of money on our product, which they like,” Desch said.

Not counting costumers for its fast-growing machine-to-machine business, Iridium had nearly 309,000 subscribers as of Dec. 31, the company said in its March 7 financial statement. This figure includes 272,640 commercial subscribers and slightly more than 36,100 government subscribers.

Neither Iridium nor Inmarsat mentioned Globalstar Inc., which has been in the mobile satellite business for a decade but whose constellation of low-orbiting satellites suffered the progressive loss of its two-way-voice capability starting in 2007. That forced Covington, La.-based Globalstar to diversify its low-speed-data capability earlier than it might have otherwise.

Like Iridium, Globalstar’s second-generation constellation is financed and the first of four launches, each carrying six satellites, occurred in October. The remaining three launches are scheduled to occur in 2011. If the deployments go without a hitch, by the end of 2011 Globalstar should have in orbit a constellation of 32 fully functional satellites including eight first-generation satellites that were launched in 2007, much later than the other first-generation spacecraft.