MSS: New Services Changing The Market

By | November 1, 2007 | Cover Story, Telecom

The mobile satellite services (MSS) sector has a definite role to play in the future of communications as the reach of terrestrial telecommunications services providers only extends so far. However, increased competition in the handset market coupled with expanded terrestrial cellular footprints in some regions around the globe are forcing MSS companies to revisit their business strategies.

With new satellite launches looming, new handsets and lower prices, the MSS sector is preparing for what it hopes will be an influx of new customers. Despite recent failures of broadband aeronautical service initiatives, delays and jamming of some mobile satellite networks, and satellite performance problems experienced by Globalstar, the MSS sector overall has been on a steady growth path, says Claude Rousseau, senior analyst for Cambridge, Mass.-based NSR, who expects this growth pattern to continue throughout the next five years.

NSR estimates that the overall retail and equipment sales for the MSS market in 2006 were nearly $2.9 billion. “We need to take into consideration not only L-band, which is by far the largest contributor to date, but also C-, Ku- and X-band and various data services offered in L- and S-band through digital audio radio services as well as satellite TV on-the-go, an emerging market that often leads to greater broadband product penetration,” says Rousseau. “Over the next five years, revenue share will shift in favor of the maritime and land-mobile segments, followed closely by handhelds,” says Rousseau.

Tim Farrar, president of TMF Associates Inc. of Menlo Park, Calif., sees some positive signs, but generally does not view the MSS sector “growing as fast as some would think. Overall, the picture is therefore far more mixed with Inmarsat and Iridium doing well, but Thuraya and Globalstar struggling,” he says. “The biggest risk is that excess capacity will be deployed in North America, which is the biggest growth area in MSS at the moment.”

Consolidation also will play a role in the future of the MSS sector, says Farrar, and is underway with moves such as the takeover of Stratos, the largest distributor of Inmarsat services, and the creation of Vizada, which combines the former Telenor Satellite Services and the former France Telecom Mobile Satellite Communications. “The challenge for Vizada and Stratos is that Inmarsat margins will decline over time as customers migrate to Inmarsat-4 services and market share is lost to distributors entering into direct agreements with Inmarsat,” he says. “Inmarsat’s launch of handheld service may put pressure on Thuraya’s equipment margins too if Inmarsat continues to be aggressive on handset pricing.”

Another factor in the market will be the development of hybrid ventures that combine satellite services with wireless capabilities. In early September, Reston, Va.-based ICO Global Communications Ltd. and Clearwire Corp. of Las Vegas, announced that they will test interactive mobile video services using Clearwire’s 2.5-gigahertz (GHz) terrestrial broadband spectrum and ICO’s 2.0-GHz satellite spectrum together in early 2008 in Raleigh, N.C. According to Rousseau, Craig McCaw has an ownership stake in both ICO, which plans to launch a mobile interactive media suite of digital video broadcasting over satellite handheld-based services, and Clearwire.

Rousseau also sees other hybrid development efforts, such as ones between Mobile Satellite Ventures’ (MSV) and Nortel on WiMax services and TerreStar working with Nokia Siemens Networks, as a sign that the MSS sector is in a state of flux. “Hybrid satellite-wireless ventures will only rise in number and scope as broadband wireless networks build out and applications such as mobile TV require more support for broadcasting and gap-filling,” says Rousseau. “While most announcements to date are merely trials, NSR expects valuable 2.0 GHz satellite spectrum and the nature of satellite coverage to make MSS players a solid fit with new wireless networks.”

Iridium, Globalstar Make Next-Generation Plans

Iridium and Globalstar, two names that define the struggles of mobile satellite service provides in the late 1990s, have found success following respective bankruptcy filings. Now the two providers are making plans to launch next-generation satellite constellations to replace their original systems and keep them relevant in the new MSS market.

Iridium, based in Bethesda, Md., unveiled plans in February to spend more than $2 billion to build and deploy a second-generation satellite constellation dubbed Iridium Next. Plans call for the 66-satellite system to be rolled out incrementally, with a portion of the cost funded through cash flow, which is about $60 million per year, and the remainder from capital markets and strategic partners. The company’s revenues and cash flow are being driven by growth in the aeronautical and maritime markets.

“Much of the current (aeronautical) growth has come from helicopter fleets, many of which are installing Iridium-based automatic flight following equipment to meet new government regulations and improve operational efficiency,” says Liz DeCastro, an Iridium spokeswoman. Iridium has also developed a push-to-talk multi-user networking capability for military and other specialized applications and has announced plans to introduce an enhanced-bandwidth service in the first quarter of 2008. “Serving the high end of the MSS market demands low latency, security and extreme reliability. The industrial segment is where the money is and that any consumer market business that comes our way is upside only,” she says.

Globalstar Inc., based in Milpitas, Calif., also has cemented plans for its second-generation constellation. In December, the company awarded a contract worth about $865 million to Thales Alenia Space for the construction of 48 satellites. The first of four firm launches of six of the satellites is planned for mid-2009 aboard an Ariane 5 rocket. In the meantime, Globalstar is scrambling to keeps its customer base happy as the company’s current satellites suffer from performance problems. In February, Globalstar warned customers that its satellite constellation is plagued by degraded performance, and that customers could begin to experience a loss of two-way voice and data service as early as 2008.

While the satellite problems are creating problems for Globalstar’s voice customers, the company is seeing strong growth for its Simplex data service, which is used for asset tracking and data monitoring applications and is not affected by the S-band antenna problems plaguing the current satellites.

“Globalstar has continued its strategy of shifting from a wholesale to a retail business model by consolidating various independent Globalstar gateway operators worldwide when requested by our independent providers,” says Globalstar CEO Jay Monroe. “We have also been enhancing and constructing new Globalstar-owned facilities to expand the geography in which we can market our services,” he says. Singapore Telecommunications Ltd., for example, now offers Globalstar’s satellite voice and data services in parts of Southeast Asia.

Globalstar also is rolling out new multi-channel duplex data modems with store-and-forward capability as well as a Spot Satellite Messenger, a Simplex-based personal safety device which can summon help using GPS coordinates. Our new Simplex data solutions, combined with the strategic prospects to enable ancillary terrestrial component service, demonstrate both the continued strength of Globalstar’s core satellite business as well as the future long-term and expanded opportunity offered by the overall MSS satellite industry,” says Monroe.

IsatPhone Arrives

With the launch of two Inmarsat-4 satellites in 2005 and the rollout of London-based Inmarsat’s Broadband Global Area Network (BGAN) service, Inmarsat has set about to penetrate existing markets more deeply and target new markets as well. Inmarsat introduced its first handheld satellite phone in July. The IsatPhone is a dual-mode satellite/GSM, pocket-sized device which costs around $500. Service comes with additional features such as call hold and waiting, call forwarding, conference calls for up to five participants, and in GSM mode, short message service. Initially available in Africa, the Middle East and Asia, an extensive network development and terminal modernization program will enable a global rollout by the end of 2008.

“We are launching a range of low-cost services that includes, for the first time in Inmarsat’s history, a handheld satellite phone,” says Michael Butler, Inmarsat’s president and COO. “ There are two real drivers for us entering the handheld market. Firstly, we have a constellation of satellites (Inmarsat-4s), which are capable of supporting such a service. Secondly, through the collaboration arrangement we set up with AceS last September, we have actually been able to bring our own handheld to market probably a year earlier than would have been possible if we had to build the service from scratch. We have entered the market much more cost-effectively than many of our competitors who have set-up their satellite networks specifically for a voice handheld offering.”

Fixed and maritime satellite phones known as LandPhone and FleetPhone are planned. “The attraction of this market sector is that it is continuing to grow,” says Butler. “We have seen our voice revenues decline over the last few years, but the worldwide wholesale handheld revenues are many times that. This is actually an opportunity for us to get into a growing market segment. It is a very cost-effective proposition. Our handsets will be amongst the cheapest on the market. The tariffs will be very competitive and probably lower than the incumbent global operators. The proposition is attractive for the customer because the service is delivered by Inmarsat, which has two decades of life still in its satellite constellation, so you don’t have to worry about your service not being around in a few years time. We were keen to get a foothold now. A lot of development work is ongoing to bring a fully global, modernized network, which will include a whole new handset as well, much more up-to-date and ready for a global rollout by the end of 2008. It fills a very important gap in our portfolio.

Landscape About To Change

Other companies are preparing to shake things up in the market with new services. Reston, Va.-based MSV, for example, already has more 200,000 terminals in use operating throughout North America. “Two years ago, MSV was an MSS–only company,” says John Mattingly, MSV’s president of satellite services. “However, in 2005 we became the first company to get an ATC license. This has allowed us to make significant investment in our next-generation network, which we feel will revolutionize the wireless communications market. … MSS companies must find ways to expand the addressable market. Today’s MSS users are very limited in scope and number. Future viability and success dictate that we expand the number of users by providing consumer-level, demand-driven services,” he says.

TerreStar Networks Inc., also based in Reston, intends to offer advanced mobile communications services across a broad array of appliances or peripherals, says CTO Dennis Matheson. “TerreStar is positioned for an advanced mobile communications capability that can enable any device seeking communications with terrestrial and satellite devices, seamlessly and ubiquitously across North America,” he says. “TerreStar intends to be the world’s first mobile communications services provider to offer a Web 2.0 model of introducing and delivering new applications across its satellite–terrestrial network.”

According to Matheson, the three biggest challenges facing the MSS industry today are credibility, capital and consolidation. “While there is some skepticism regarding new MSS business plans, the skepticism is misplaced,” he says. “We believe capital will continue to be available to verifiable, transparent business plans that show a synergy between the capital deployed and overall company progress that maps to licensing milestones established by the” U.S. Federal Communications Commission.

MSS companies are approaching the market with a variety of strategies, and MSS in Europe may be heading down a different pathway given a recent European Union decision to streamline mobile service licensing in all European nations. Thus, MSS is on the move and attracting lots of attention in the process.

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