Not the End of History: Some Ruminations on Maritime Communications, Part 1

inmarsat
INMARSAT-4 In Orbit

Tim Farrar is an analyst and blogger who has been covering the satellite industry since the mid-1990s. We had crossed paths before, notably discussing his End of History blog and when he posted again about Inmarsat‘s moves in maritime, the time seemed right to have a proper chat with the man for his views on the evolving maritime satcomms space and how the main players were shaping up.

Some time passed (my fault) but what follows is our conversation around those topics and Tim’s views on the major contenders’ plans in maritime. Not a shipping person himself, he is still objective on the offers, how they are priced and how they differentiate in a market that is lining up on different sides of the beam for a struggle for market share and territory in L, Ku and Ka-bands.

NS: I was interested to read one of your recent blog posts which seemed to be coming back to a familiar theme over the last couple of years of castigating Inmarsat somewhat for throwing its weight around. I was writing about LESO-hopping and the lack of transparency and price sensitivity maybe 10 years ago. How’s the current situation different and why is it more important now?

TF: Well I wasn’t necessarily being critical, I was just noting a shift from what I perceive to be Inmarsat’s reluctance in the past to be as aggressive. Obviously when Inmarsat was not in the retail business it left all of that fighting to the LESOs. And Inmarsat didn’t need to dirty its hands with that competitive stuff.

So really I think the issue in my mind is not that this should be a surprise, it’s just that it is a difference, Inmarsat is being more aggressive itself. And it has been somewhat reluctant to do that in the past because of it being such a big player. It was all very well for Iridium or other smaller players to come along and offer prices 20% lower than Inmarsat’s and take some of the business.

Inmarsat is fighting back and saying, ‘I’m going to go very directly after other people’s pricing and offer big incentives’.That’s the difference and when you’re by far the biggest player in the market you wonder whether that will come back to bite them later if for example Inmarsat wants to acquire anyone in this business.

Let’s think about what happens with LightSquared over the next year. If they want to get out of the business, Inmarsat wants to buy their assets, you could see that aggressive competitive behaviour could be something that would be cited to raise concerns about that.

As you said they’re not the only people doing it but they are doing it to a greater degree than previously. So does it suggest that this is more of a game for keeps with HTS coming?

I think you’ve remarked on it in some of your blog posts about how Inmarsat is being more active in that regard from a competitive standpoint. Taking a step back from MSS specifically but just generally, a small player can be aggressive from a competitive situation, and that may not be terribly disruptive to the market.

If the big player ends up being very aggressive from a competitive front, that’s more likely to end up in a price war type situation. We just we don’t know whether that will happen.

Clearly Inmarsat have got the resources to outlast some of their competitors if we do get in to a price war. Other people obviously have more financial challenges. If they drive a competitor out of business, that might help Inmarsat in the short term. But as I say it may end up raising issues downstream, especially if Inmarsat ends up picking up the pieces.”

If I can ask you to speculate for a minute do you feel it’s likely that Inmarsat will try to drive some more consolidation in the airtime segment?

“Well I think being over in this part of the world [the US] you naturally have to ask what happens with LightSquared downstream? If it ends up in the hands of its debt holders, they’re hedge funds and they don’t want to be running a satellite business.

“Further downstream you could say maybe Thuraya has to make decisions about what they do with future systems, again they are L-Band and potentially compatible with Inmarsat. It might be quite hard to strike a deal because Thuraya probably want to stay in the satellite business. But there’s possibilities there.

“We can probably rule out Inmarsat and Iridium but on the L-Band front it’s just a situation where many other players are having a relatively tough time and if they ultimately do exit, then is Inmarsat going to want to pick up the pieces?

And do you think it is all about price or is there a degree to which the users signing these contracts are also going with Inmarsat on a bit of a comfort factor – because of who it is, because of its heritage potentially rather than they’ve maybe read about existing reliability and throughput of VSAT?

On the VSAT side I think there is clearly a pricing issue and there’s a terms issue as well. Inmarsat started off with XpressLink saying it was five year contracts and you’re committing to upgrade to GlobalXpress. It’s far from clear that all of those conditions are being held to, so price is one part of it, flexibility’s another. And yes, adding an L-Band back-up is another differentiator.

It’s a mixture of all of those, and I think if Inmarsat is stuck with trying to get people to agree to sign up for five years and commit to moving to GlobalXpress whenever they [Inmarsat] want so they can turn off their Ku-Band leases, then those sorts of things, regardless of the price, may have made it a lot more difficult to get people to commit.

I may have this wrong but I had understood until last year that signing up for XpressLink didn’t just mean a complimentary upgrade to GX, it was a mandatory upgrade. I understand that from a marketing point of view but as you say, it gives little room for manoeuvre.

And it’s not clear that that happened because the way at least the press releases read, it said Inmarsat would offer you double bandwidth when you moved to Global Xpress so it’s not like saying you’re moving regardless. It’s saying, you will have a better service if you upgrade. It’s not clear if they’re going to go back to clients who already have non-GX compatible terminals and proactively replace those so that they’re ready to turn on to GX or whether they wait for a decision point downstream.

Obviously they’ve been somewhat constrained in terms of installers, and they’re hiring more and they’ll have more ability to do stuff there, but it’s a question of whether it is worth it to proactively change those old terminals now as opposed to waiting until later.