Rupert Pearce, CEO, Inmarsat
Rupert Pearce took over as CEO of Inmarsat at the start of 2012 in the middle of a key transitional point for the company. The company is investing around $1.2 billion in three Ka-band satellites as part of its Global Xpress system. In 2013, the first of these satellites will launch. Inmarsat, which is targeting the aero, oil and gas, U.S. government and maritime markets among others, will try and make good on this most ambitious of strategies. Here, Pearce talks about where the operator goes next.
VIA SATELLITE: A lot of talk in 2012 has been about industry verticals, (oil and gas, aero, maritime). Out of these three verticals, which one excites you the most and why?
Pearce: Clearly maritime. By looking at verticals, that synchronizes well with the way we look at things. At the end of last year, we re-organized the front end of Inmarsat’s business to focus on market verticals and at the same time, we drew together both our direct and indirect business, so that we could start to manage the two relationships much more pro-actively and so they could start to complement each other. So, we do look at verticals much more than what we used to. The four verticals we operate to are U.S. government, maritime, global government and enterprise. Apart from commercial maritime, which is clearly maritime only, we don’t distinguish in each of the other market verticals between maritime, aero and land. But, of those three areas, they are all intrinsically interesting. For us, maritime is more than half of our revenue base. Conversations start and finish talking about maritime.
In a nutshell, we see plenty of growth to come in our maritime business. One of the things I think we have demonstrated very successfully over the last 18 months is our ability to upgrade our existing customer base with new services. We have the lion’s share of the mid-market of some 70,000 commercial maritime vessels and in recent quarters we have shown an ability to migrate them from older technology into the new FleetBroadband (FB) world. As they do this, they become more valuable customers to us and our channel, and the customers also get tremendous additional value. For example, if a ship moves into our baseline pay-as-you-go service, their data services will cost a third less per MB compared to our older maritime services. When you get into the FB packages, which now more than half of our FB subscribers are doing, you get even better value per MB. At the same time, our maritime franchise is growing into other directions. With smaller and smaller variants of FleetBroadband (FleetBroadband 150 for example), we are actually pushing into un-connected markets like the leisure market, the fishing market, and the coastal merchant market. This is exciting for us as this is the first time we have moved into a new commercial maritime market.
VIA SATELLITE: Will that rate of growth continue into 2013?
Pearce: At the moment, we see that all the core metrics in our FB business are looking strong. The rate of subscriber growth is as strong as ever. ARPU is consistent and rising. The metric I like the most is that average daily use is also growing. Average daily use matters because it shows that customers are really enjoying the FleetBroadband experience.
VIA SATELLITE: We have also heard about a blurring of FSS and MSS worlds. Do you see this? Are FSS players more of a competitive threat?
Pearce: It is something we are hearing too. Certainly, the FSS community has looked at the mobile satellite market and has seen attractive growth characteristics that they would like to have a piece of. This as yet has not translated into material incursions into our business. Right now, Intelsat’s largest maritime VSAT customer is an Inmarsat subsidiary, New Wave Broadband, which is the bandwidth acquisition vehicle for Ship Equip. We are expecting a ratcheting up of competition from the FSS players. It is not a surprise. They have lots of Ku-band capacity on a multi-regional basis. They will opt for regional mobility solutions. I am sure they will be credible players there because they are serious grown-up companies.
By the same token, at the top end of some of our areas of business, our services have started to compete with VSAT services – BGAN has started to compete with mobile VSAT solutions, and of course as I mentioned earlier FleetBroadband packages now compete with maritime VSAT at the top end of the market. Looking ahead, some of the returns from Global Xpress are expected to come from Inmarsat moving into new markets, which have previously only been open to C- and Ku-band services, for example the government comsatcoms and milsatcoms markets, the energy VSAT market, and to some extent the aviation connectivity market. As such, there is a little bit of increased competition at the edges of each other’s business but it is not a wholesale merging of the two business models of FSS and MSS. The bulk of our business and the bulk of the FSS market are completely distinct. For example, we are not going after consumer broadband or video transmission at all with GX. Likewise, there are parts of our business that rely on very small, nimble terminals and no-one is pretending that Ku or C band will ever deliver services to meet those requirements. We won’t be seeing a handheld VSAT terminal in the near future.
VIA SATELLITE: What are your expectations in 2013 for selling capacity on Global Xpress?
Pearce: As an MSS operator, we don’t build backlog. Our focus is on seamless global coverage delivering bits and bytes to the customer’s door. So we build for globality and mobility – we call it ‘globility’ because we believe that when you are global, you can be local; when you are mobile you can be fixed – giving us the ability to bridge from our core strength of ‘globility’ into adjacent regional and/or fixed service offerings. As such, we focus on a very agile and efficient relationship with our customers, who can buy capacity from us and move it around their own community, whether ships, aircraft or troops, anytime and anywhere in the world. However, in terms of the near-term GX opportunity, we have said three things. We have said that Global Xpress is a key driver for our wholesale revenue growth, and we expect to grow wholesale revenues at a CAGR of between 8 and 12 percent over 2014-16. Given that we are a $1.2 billion revenue company today, those are quite significant growth numbers. Secondly, we have said that by the fifth year of GX being a global service, we aim to be delivering more than $500 million of annual revenues from Global Xpress, which sets the bar quite high for a fast start in 2014. And thirdly we have said that we currently have more than 20 percent of the aggregate planned GX revenues for the first five years, ramping up to that $500 million number, already committed in the form of customers we will migrate to Global Xpress, bridging products such as XpressLink, and channeling commitments from the likes of Boeing and Honeywell. From this you can see we feel increasingly confident that we will have a fast start out of the gate for GX and grow things from there.
VIA SATELLITE: What would represent a good year in 2013 for Global Xpress?
Pearce: This time next year, I expect that we will have launched Inmarsat 5F1, ushering in the Global Xpress era, our GX ground infrastructure will be up and running, and I5F1 will be going through in-orbit testing. The other satellites will go up at roughly six monthly intervals thereafter, so this time next year we’ll also be actively planning the launch of Inmarsat 5F2. The other thing I would like to see over the next 12 months is a real ramp up of our go to market strategy for GX, filling out the roster of our channel partners. There will be further news on this over the next six months.
VIA SATELLITE: What do you see as the growth prospects for the company in L-band? Which new markets are you targeting?
Pearce: We believe on focusing on our core and driving deeper. It is from your strengths that you can deliver new business growth. We think there is a lot more growth to come in our core markets. In maritime, as we discussed before we are driving into new markets below and above our core customer constituencies, as well as driving deeper into that core mid-market. In aero, we have spoken about our existing markets. What we have not spoken about is service variants like SwiftBroadband 200, which is opening up our aero services to smaller and smaller airframes, which is exciting as these are currently un-connected aircraft. BGAN is also getting smaller and more modular, to open up new markets and new collaboration opportunities. For example, we are investing in software designed radio forms of BGAN so that we can work easily on multi-protocol platforms. We are also taking BGAN up market, with BGAN Converge and new high data rate capabilities. And with new economic models like BGAN Link, we are increasing the relevance of BGAN in markets such as government, as well as energy, oil & gas and mining. We are expanding BGAN’s relevance to our important media market as well. So, we are doing a lot around our core product offerings to expand our horizons and drive growth.
There are two big new markets we have also jumped into. The first is the handheld market, where we recently launched the IsatPhone Pro. We are delighted that we have now sold more than 100,000 phones and have more than 71,000 active subscribers.
The second market is the M2M market, where we have been present historically with Inmarsat C, D and D+. But, with a new suite of products, ISAT M2M, IDP and BGAN M2M, we are becoming a major player in a very exciting growth market estimated to be worth around $200 million wholesale.
VIA SATELLITE: Is there a possibility about the FCC taking away spectrum from the MSS sector and giving it to the FSS sector?
Pearce: Spectrum risk for satellite companies is a risk all around the world. Our business model is at least a multi-regional one and in our case we make a virtue of meeting the global needs of our customers. Sometimes that can need careful explanation to national spectrum regulators who focus purely on national spectrum policy. It is an area of concern for many satellite operators, whether they operate in L-band, C-band or Ku-band. It is something we are getting better at working on as a global community, in terms of helping national regulators understand the crucial political, social and economic importance of satellite services around the world and the need for national spectrum policy to accommodate the global satellite industry’s legitimate needs which in turn will sustain a stable, growing and highly innovative industry that can contribute in so many ways to the global economy. There have been challenges to the security of L-band down the years. A good example of that is the FCC’s rule making for ATC, which created the opportunity now being pursued by LightSquared. That was an area that certainly threatened to interfere with our MSS networks at the turn of the millennium. However, with the support of the FCC and Ofcom, we were able to negotiate a very appropriate deal with LightSquared, which turned us from being an antagonist of ATC to someone that remains happy to supply key spectrum capacity into the LightSquared ATC business model and enabled us to feel confident about growing our North American MSS business alongside their ATC business. Obviously, since then LightSquared has encountered regulatory difficulties, which we hope they’ll work through successfully. I don’t think there is anything out there on the horizon today that is a material risk for us.
VIA SATELLITE: The U.S. government market still seems like a pretty tough place to do business. Do you think this might change over the next 12 months?
Pearce: It is going to be challenging because the U.S. government is looking to make budget savings. The defence budget is a very large target for savings and they will be looking to find savings any way they can. Accordingly, our U.S. government customers are looking to buy more efficiently than ever before. However, I would much rather be selling commercial satcoms to the U.S. government than the next large battle system. Large proprietary programs are being cancelled or slid to the right. By contrast, we are core infrastructure. Since the first Gulf War, the U.S. government has become much more reliant on commercial satcoms than its own programs. Before Gulf War 1, it was roughly 90 percent military satcoms and 10 percent commercial satcoms. It is now the other way around in some areas. So, I would say that the U.S. government has found an efficient way to buy much of its satcoms requirements through value-added commercial satcoms relationships.
VIA SATELLITE: Hosted payloads is a popular topic of conversation in the United States. What is Inmarsat’s perspective on hosted payloads considering that the company is moving toward an expanded partnership with government on Global Xpress?
Pearce: We are not pushing hosted payloads ourselves. I find it hard to see how hosted payload discussions with government customers can take place within the lifecycle of a commercial satellite procurement program. This is the key mis-match. I also think there are lots of complex issues concerning how a secure government hosted payload can get operated by government alongside a commercial payload – these need to get clarified before this idea can be productised. But I do want to point out that next year will see a dramatic event in terms of the hosted payload concept. Inmarsat will be flying Inmarsat 5F1, which offers both a commercial Ka-band and a military Ka-band capability. Those payloads are naturally paid for completely by Inmarsat and yet are fully fungible with the DoD’s own proprietary Ka-band programs and so, in a sense, offer the best type of hosting for our government customers.