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Inmarsat Invests $1.2 Billion in Boeing Ka-Band Satellite Deal

By , | August 6, 2010
      [Satellite TODAY 08-06-10] Inmarsat will invest more than $1 billion in three Ka-band satellites that will be manufactured by Boeing based on the 702 high-power platform, which be used to launch Inmarsat’s Global Xpress service, the company revealed in its latest financial results issued Aug. 6.
          Global Xpress will target what the operator views as a $1.4 billion incremental market opportunity in VSAT services for maritime, energy and government sectors, with further growth potential in developing markets such as the aeronautical sector. The company estimates the investment in its Inmarsat-5 constellation and Global Xpress will be $1.2 billion over four-and-a-half years, incorporating the fixed cost of the satellites as well as the cost of additional ground network infrastructure, product development, launch services and insurance. Operations are expected to start in 2014.
          Global Xpress aims to deliver seamless coverage and mobile broadband with speeds up to 50 megabits per second  to customer terminals from 20 to 60 centimeters in size.  Inmarsat says it is targeting $500 million of annual Ka-band revenues five years after global service launch. 
            Boeing will act as a distribution partner for both Inmarsat’s Ka-band and L-band services and has pre-committed to capacity purchases representing more than 10 percent of Inmarsat’s target Ka-band revenues in the first five years after global service launch.
                 In a conference call, Inmarsat CEO Andy Sukawaty said the operator chose Boeing because of its position in the Ka-band market. "Boeing has built over 70 percent of the Ka-band satellites in Orbit. We felt that they were the right choice because of their heritage, low-risk factor and based on what they have been doing with the U.S. Military’s WGS program."
                 Richard Roithner, senior analyst at Euroconsult, told Satellite Today that the investment is a logical consequence of Inmarsat seeking to introduce a more competitive service into the market in a relatively short term, “Otherwise, the company risks losing more market share and could miss a significant growth opportunity (based on current market forecasts for mobile VSAT services). We see this clearly as a strategic move by Inmarsat that is on the one hand seen as a consequence of increasing competition and the limited growth possibilities for pure L-band systems and on the other hand a pro-active move towards a relatively new technology through which Inmarsat wants to keep its leading position in its core markets. In parallel to new generation MSS systems, Inmarsat faces in its core maritime market more and more pressures from mobile VSAT, especially the Ku-band systems that have become better performing as well as smaller cheaper in recent years, and has lost some of its high-end customers to VSAT.”
              Wei Li, also a Euroconsult analyst, outlined the risks of Inmarsat’s Global Xpress service. “The key risks are however clearly the new and unproven Ka-band technology that still has to prove its technical feasibility and service reliability (in particular in areas such as Asia where even Ku-band maritime services have still a hard time due to rain fade and pointing issues). If those issues can be overcome, the new system would give Inmarsat a very complete product portfolio for mobile satellite communications.”
             Li also said that while Global Xpress would make an impact on the Ka- and L-band services market, the system would not be seen as a game-changer for the MSS industry “but rather an evolution of mobile satellite commutations complementing existing L-band MSS solutions that will continue to see demand and growth opportunities. What it might change however is the competitive position between MSS and FSS operators with more direct competition between Inmarsat and large FSS players such as Intelsat or SES.”
             Tim Farrar, president of TMF Associates told Satellite News that he wonders if Inmarsat can reach revenue forecasts for the new Global Xpress Service. “The question is whether a $500 million target in five years is too aggressive, though if achieved it would be an excellent return on the $1.2 billion investment. For comparison the target at launch of the I4 constellation (originally stated as costing $1.5 billion) was $200 million of annual BGAN revenues in 5 years (and they will fall short of that). To achieve that level of growth will require rapid acceptance of these new small terminals (the development of these terminals at a reasonable price point is the biggest technical risk in the whole project), particularly by defense customers. However, the global Ka-band coverage from a single provider is clearly a big advantage over the fragmented Ku-band oceanic coverage of other satellite operators.”
             However, Farrar did see this as a positive move by Inmarsat, “My initial reaction is that this is a positive move by Inmarsat to maintain its leadership position in the maritime market. From a defensive point of view it addresses the challenge from maritime VSAT, but is also an offensive move to attack high usage customers (energy, government, etc.) that Inmarsat hasn’t been able to serve effectively with its current L-band solution.”
             In Inmarsat’s 2010 six-month financial results, released Aug. 6, the operator generated revenues of $570.7 million, an increase of more than 12 percent compared to last year. Its profits before tax reached $151.8 million, an increase of more than 55 percent compared to last year.
            Inmarsat’s maritime business revenues grew less than 1 percent compared to the same stage last year at $177.7 million.