Inmarsat’s Butler Says Rumours Of Sale Are ‘Blown Out Of Proportion’
London-based mobile satellite service provider Inmarsat is set for a critical period in its history. It is about to launch its regional broadband global area network (BGAN) service, a high-speed mobile data service and a vital part of its plans to generate revenues going forward. The operator is also assessing whether to move ahead with an initial public offering or seek a strategic sale to private investors. In an exclusive interview with Interspace Senior Editor Mark Holmes, Inmarsat Managing Director Michael Butler talks about Inmarsat’s broadband plans as well as its future and the future of the satellite communications market.
Interspace: A number of initial public offerings by satellite companies have been delayed this year due to adverse market conditions. When do you expect to hold your IPO?
Butler: Changing the ownership structure of the company remains an important part of our plans. One of the key drivers for carrying out the IPO wasn’t funds; it was to allow us full domestic market access to the U.S. An IPO would give us what the FCC [Federal Communications Commission] terms “a substantial dilution” of our traditional shareholding base. As a former intergovernmental organisation, [the FCC was concerned that] we would have some kind of unfair advantage in competing with other operators. The one thing the FCC could hold back is full market access. While I believe the opportunity for Inmarsat’s traditional portfolio is limited in the U.S. market, we see strong new opportunities there through services like BGAN, because there will not be the kind of seamless, high-speed capability across the whole of the U.S. in the timescale we can deliver it. So we are still committed to moving towards that. The IPO has been extended several times but, as it stands today, we have until the end of this year, with a possible extension till June 2003. But, who can call the markets? We have been in preparation for an IPO for three years now. If it comes to the mid-part of next year and market conditions still aren’t right, we would be foolish to go for an IPO that would realise less for our shareholders, just to meet that particular requirement.
Interspace: When do you see the market conditions being better for Inmarsat to hold an IPO?
Butler: Our underlying traffic is increasing 20 per cent year-on-year. I think the overall market sentiment has definitely been overplayed. There are actually some really innovative services being developed, some real customer needs to be met. Even if Regional BGAN and BGAN are runaway successes, I don’t necessarily think even that is going to be enough to shift market sentiment. While companies have been going into Chapter 11 [bankruptcy protection], Inmarsat has continued to generate lots of cash, good EBITDA [earnings before interest, taxes, depreciation and amortisation] and good profit figures. We still had $63 million in post-tax profit in 2001. This was less profitable than the previous year, but this was due to one-off items. When we publish our figures this year, I think people will be genuinely surprised Inmarsat was not able to get an IPO away this year.
Interspace: Is there the possibility that Inmarsat may not have an IPO and sell out to a private investor instead, as has been recently reported?
Butler: We are owned by a group of 87 shareholders, some of which are organisations with large debt loads. Therefore it is our duty to consider all alternatives. We remain committed to the IPO but I think it is true to say that we will actively review all options. There has been a lot of speculation and it is amazing how things can be blown out of proportion. I would say our board of directors and shareholders wouldn’t rule anything out.
Interspace: If we were having this conversation in June 2003, would you expect to be talking about an IPO that is about to happen or about your new shareholders? In addition, why do you think certain analysts portray the company negatively?
Butler: Both options remain viable. The perception is that Inmarsat has tried unsuccessfully to have an IPO several times, and is now putting efforts into some other alternative. That is inaccurate. We have a very open mind on what is best for the company and its shareholders. Inmarsat is a profitable company, and has been a profitable company for a long time. We don’t need the IPO to go to next-generation [systems]. We are embarking on a very aggressive growth programme at a time when most other organisations are sitting back, taking stock of the future. A lot of peer organisations are either in, about to enter, or about to come out of Chapter 11. We stand as a beacon in the MSS [mobile satellite service] industry. When we launch our new Inmarsat-4 satellites in 2004, they will be the biggest, most capable commercial satellites ever launched. The satellite communications business is risky, and, of course, there is an element of risk in whether there is a market for these data services. But people will have a much better idea of how successful our BGAN programme is going to be in mid-2003 when we see the early take up for Regional BGAN.
Interspace: On a different subject, could you tell us about the launch of the Regional BGAN service? What are your initial expectations in terms of customers for the 144 Kbps service?
Butler: Regional BGAN is a mobile satellite communications service that will offer users access to data transmissions twice as fast as GPRS, making it the fastest [mobile] service of its type. We are launching it [this month], and it will be available in up to 99 countries. We set a date back in September 2001 when we wanted to have the service ready for launch, and we are on track for that. We now have around 100 terminals out in the field, and all the ingredients are there for one of the most important service launches that Inmarsat has ever had. As well as acting as a forerunner for our BGAN service, regional BGAN will give us deeper penetration in our existing vertical market segments – media, government, oil & gas, construction – and open up a whole load of new vertical target markets, where there are data intensive users who have previously not been attracted by the price proposition of mobile satcoms.
Interspace: Inmarsat derived over 40 per cent of its revenues from data traffic in 2001. How far can data go in terms generating revenues?
Butler: More than half of our revenues this year will have been generated from data services. We like to think of ourselves as a total communications network – we are offering voice, data, video, etc. Voice will remain an integral part of that, but we have made an unequivocal commitment to evolving our portfolio in the direction of mobile broadband data. We are configuring the BGAN service to offer data rates up to 432 Kbps, and we believe the land market will be served more and more by BGAN services.
Over time, we expect to see a much larger proportion of our revenues coming from data services. In terms of how much data could ultimately contribute to our revenues, I think 70 per cent would be realistic going forward. I believe that, because of the services we are launching with BGAN, Inmarsat solutions will be an integral part of every enterprise’s communications mix in the next five years.
Interspace: What impact will the delay in third-generation wireless rollout in Europe have on Inmarsat?
Butler: The underlying need is definitely there – most enterprises have an infrastructure in place, and are relying more and more on data. For Inmarsat, the delay means that instead of being a follower of 3G rollout, we are actually going to be in the vanguard. It means that we will be launching BGAN, full UMTS [Universal Mobile Telecommunications System] covering 86 per cent of the world’s landmasses, at a time when most of the 3G operators are opening up metropolitan areas. Maybe the market won’t be as primed, but given that we have an enterprise focus, I believe it represents a significant incremental opportunity for us. We will be able to offer seamless coverage for those organisations that have a high-speed data requirement. The underlying technology is IP, so it is going to be a seamless extension of most corporate networks.