Inmarsat-Bashing Shows Growing Interest In MSS

By | April 12, 2004 | Feature

By Paul Dykewicz, PBI Media LLC

When industry attorneys are turned loose to verbally smack the rivals of their clients, the full reasoning behind the opposition sometimes is not fully explained in the related regulatory filings.

The latest round of cleverly phrased criticism filed at the Federal Communications Commission (FCC) last week shows that interest in mobile satellite services is on the rise. One reason appears to be Connexion by Boeing’s planned launch of commercial service this spring. While the prospects of the venture achieving commercial success remain unclear, the proposed real-time, high-speed provider of in-flight broadband services is becoming a client of various satellite service providers as it attempts to serve different regions around the world.

As a mobile service, Connexion by Boeing is venturing into an arena that has been a quagmire for almost all the other high-profile service providers except one. That lone standout survivor, Inmarsat, once held an effective monopoly on mobile satellite services. As the world’s first mobile satellite services operator, Inmarsat began its existence in the form of an intergovernmental satellite organization more than 20 years ago. It did not privatize until 1999.

Inmarsat Ventures Ltd., the parent company of Inmarsat Ltd., recently set in motion the regulatory filings that drew impassioned objections last week from Princeton, N.J.-based SES Americom and Reston, Va.-based Mobile Satellite Ventures. The formal sale of Inmarsat last December to Grapeclose Limited, a private investment fund backed by financial investors Apax Partners and Permira, technically does not fulfill a requirement under the ORBIT Act for the mobile satellite operator to diversify its ownership through an initial public stock offering (IPO). However, a key argument of the past that too much market power was held by the state-run, national telecommunications service providers that previously owned sizable stakes in Inmarsat seems moot. The more appropriate question to pose now might be whether the IPO is truly needed to protect competition. Inmarsat officials contend the answer is “no,” and the company’s private sale should suffice. SES Americom and MSV counter, essentially, that the law is the law and the intent of Congress is not subject to interpretation by the FCC in this matter.

Granted, this verbal sparring in the regulatory arena only directly involves a few companies. However, the implication is clear that SES Americom is taking a strong interest in mobile services and likely would like nothing more than to lease more transponder capacity to Connexion by Boeing and others in the future. SES Americom already is signed to offer Asia-Pacific capacity to Connexion by Boeing. If the new venture succeeds and its need for satellite capacity expands appreciably, SES Americom would be wise to ride that growth wave. If part of its competitive strategy is to take mobile satellite business opportunities away from Inmarsat, its regulatory objections last week should not be shock anyone.

MSV, a company that is struggling to become successful in the face of Inmarsat’s MSS dominance, also may wish to slow down the expansion of the sector’s undisputed leader. If a regulatory filing hampers Inmarsat in anyway, MSV could gain a bit of leverage on its competitor.

Legal arguments notwithstanding, marketplace motivations appear to be driving both SES Americom and MSV. In comparison to the pitched MSS regulatory battles involving spectrum that unfolded in the 1990s between the data-oriented “Little LEOs” (low-Earth-orbiting) systems and the voice-focused Big LEO giants, this spat seems comparatively tame. However, it does provide the potential to thwart Inmarsat’s apparent intent to avoid an IPO that its officials now consider unnecessary.

When the LEOs were seeking licenses, legal work was plentiful, money was flowing into MSS, and FCC officials seemed to favor encouraging industry combatants to settle things among themselves or risk regulatory inaction for long stretches of time.

How the Inmarsat situation should be handled is open for debate.

“No doubt the comment about Inmarsat ownership change reflects SES’ position as the new or presumed owner of the Orbcomm assets,” said Roger Rusch, a satellite consultant who heads Palos Verdes, Calif.-based TelAstra. “Speaking plainly, the ORBIT law was intended to dismantle the international government organization characteristics of Inmarsat and Intelsat. The purpose was to establish a commercial enterprise that would behave as a normal business and not an extension of government policies.

Certainly, Inmarsat is no longer the private domain of the old European PTTs. It runs like a private company and its shares have been sold off to private enterprises. Although SES might question some picayune aspects of the legislation, certainly the intent of the legislation has been satisfied for some time.”

Fixed satellite services (FSS) consultant Steve Symonds, who leads Wilton, Conn.-based Symonds Associates, offers a far different view.

“Inmarsat’s planned ownership change is, in my opinion, not even close to being sufficient to comply with either the letter or intent of the ORBIT Act’s requirement for an IPO,” Symonds said. “It should have been relatively simple for Inmarsat to structure these deals so that they comported with the Act. Instead, Inmarsat wants its cake and eat it, too — recapitalizing the company on its own terms, then selectively interpreting the deal elements so as to make it seem that they meet the Act’s IPO requirements.”

Because private sale of Inmarsat clearly “flies in the face” of the policy objectives of the ORBIT Act, the London-based company is displaying “world-class chutzpah” in seeking to avoid an IPO, Symonds said.

No matter what the FCC decides, it is certain to be second-guessed. This matter also may begin a fresh round of lively MSS regulatory battles well into the future.

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