[Satellite News 04-12-11] The MSS sector has undergone some significant changes during the last year, with industry giants such as Inmarsat and Iridium making major moves.
     While it may have been a difficult economic time, MSS operators held up well, with many securing funding to fund their next-generation business plans. Jonathan Atkin, a satellite equity analyst at RBC Capital Markets, believes the MSS industry performed well overall in difficult times. “Operationally, the industry appears have to fared well in the recession during 2009 and 2010, and we see no reason for trends to deteriorate from here,” he said. “Many of the MSS companies we track have posted unit growth in nearly every product category in both the commercial and government sectors. The products they sell tend to be quite sticky, so churn has not climbed appreciably as it has for companies in other telecom-related sectors. Financially, the major MSS players have demonstrated the ability to access outside capital for their next-generation projects and constellation refreshes,” he said.
     The dynamics of the MSS market are very different than just12 months ago, said Tim Farrar, president of TMF Associates. “What has become clear over the last 12 months is that, unlike in the FSS sector, it will be difficult for consolidation to ever emerge as a major theme for the MSS industry while there are large sums of money being injected from export credit agency financing and spectrum investments. As a result, all of the satellite-focused operators need to focus on differentiating their business strategies, so that they do not simply end up competing for the same customers. Inmarsat, Iridium and Globalstar have all done this quite well, with Global Xpress, the 9602 SBD transceiver and the Spot product range respectively. Whether all of them will be as successful as they hope is yet to be seen, but at least they are not just beating each other up to capture the same group of handheld satellite phone customers,” he said.
     Export credit agency financing secured through organizations like Coface has appeared to put many MSS operators on a strong financial footing. “I think that everyone underestimated the willingness of Coface to offer such attractive financial terms. In early 2010, many observers, including Iridium itself, appear to have thought that they would have to raise several hundred million dollars as matching finance for the Coface-guaranteed loan, based on the Globalstar experience in 2009. Indeed, one might speculate that Inmarsat set its handheld pricing at such a low level precisely because they wanted to make it hard for Iridium to raise that money. Basically it was never a question of would they get [export credit agency] financing but how much would they get,” said Farrar.
     Chris Baugh, president of NSR, credits the funding for improving the state of the sector. “Public funding has been a lifeline to the industry amidst uncertainty from traditional sources of funding. When Globalstar reached a deal with Coface to build its second-generation network in early 2009, NSR clearly indicated that governments were the new banks in the midst of the global economic downturn. Later in mid-2009, NSR reiterated the view that it was… ‘less risky for the MSS industry to seek government support, which has bailed out far more troubled industries lately, than to wait for investors.’ This now looks like it was not only the way to go for MSS but also satellite operators in the FSS sector,” he said.
     Hoyt Davidson, managing partner for Near Earth LLC took this a step further and said MSS players may owe their continued existence to the funding. “The export credit agency financings basically saved the MSS/LEO industry and helped get O3b off the ground. Globalstar has negative cash flow, and even Iridium will be very leveraged following its financing. Even in good times, which most of 2010 was not, we doubt private markets would have provided financing for these projects on reasonable terms. We applaud these agencies and only wish the U.S. Export-Import Bank would have contributed similar amounts. Unlike many types of government spending to combat the recession, these projects create thousands of high-paying technology jobs, strengthen the aerospace industry base, create important new telecommunications capabilities for the future and, ultimately, increase tax revenues.”

Taking Advantage of the Funding

The MSS players used this funding to launch a series of major moves in 2010. Iridium in June announced that it had secured a comprehensive plan for funding, building and deploying its next-generation satellite constellation, Iridium Next. Iridium secured a contract with Thales Alenia Space for the design and construction of satellites and followed with a launch agreement with SpaceX worth $492 million to put the constellation in orbit.
     In July, LightSquared launched its nationwide 4G-LTE wireless broadband network integrated with satellite coverage that it hopes “will revolutionize communications in the United States.” LightSquared aims to provide wireless broadband capacity to a diverse group of customers, including retailers, wireline and wireless communication service providers, cable operators, device manufacturers, Web players, content providers and others.
     Inmarsat in August unveiled a move into Ka-band behind an investment of more than $1.2 billion to build a Ka-band satellite network. Three satellites will form the Inmarsat-5 constellation, and Inmarsat will offer a next-generation global service, Global Xpress, which will target what Inmmarsat says is a $1.4 billion incremental market for VSAT services. Farrar says this move “makes sense” for Inmarsat. “We are running up against the limits of what you can do with L-band to support broadband communications. Ka-band will offer much higher speeds and lower costs. However, there are still plenty of hurdles to overcome, as with any new business venture, both in the technical development and in the commercial arrangements, where the smaller Ka-band beams may make it difficult to guarantee sufficient capacity for some large vessels with very heavy usage,” he said.
     In terms of how he sees the MSS industry shaping up, Davidson said, “Activity is high, but revenue and profits remain hard to come by, except for Inmarsat and Iridium, both of which are developing new satellite systems. With its satellites beyond their design life, Iridium had little choice in the matter, but Inmarsat ordered a new series even though Inmarsat 4 is only a few years old. These new satellites are in a band that hasn’t previously been used for mobile services, the Ka-band, which has much greater capacity than Inmarsat’s existing L-band satellites. We think this move on Inmarsat’s part is an acknowledgement of the material threat that mobile VSAT terminals and service represent to their legacy business. Technologically, we are seeing increasing convergence between FSS and MSS and this increasing competition is likely to be a boon to consumers,” he said.
     In terms of the prospects for LightSquared and Globalstar, Farrar said, “LightSquared is a bet on terrestrial spectrum demand, with a side business in satellite communications. Globalstar is a (consumer-focused) satellite communications business, which just happens to also have some spectrum assets. Thus the prospects for these two companies are almost completely decoupled from one another. LightSquared needs to find a terrestrial partner who values its spectrum assets and terrestrial network very highly, so that (owner) Harbinger can raise funds to build out its network and, hopefully, make a return on their investment to date. Globalstar needs to stimulate wider consumer interest in its satellite products, such as the new Spot Connect device but doesn’t need to raise billions of dollars to make this happen.”