Inmarsat is set to look back at 2005 as a momentous year. In June, the operator performed a successful initial public offering (IPO), and later this year it is set to launch its BGAN (Broadband Global Area Network) service, the company’s latest innovation in mobile data services. Inmarsat shares already are proving popular, trading around the GBP3.50 mark ($6.20), up from the offer price of GBP2.45 ($4.33) (for more on Inmarsat’s stock performance, see the “Orbiting Wall Street” column).

Maury Mechanick, counsel at Washington, DC law firm of White & Case LLP said the Inmarsat story is likely to be very appealing to investors.

“As the wave of private equity funds has spread across the satellite services business, the Inmarsat story remains rather compelling,” Mechanick told Satellite News. “Inmarsat’s private equity owners essentially pioneered the private equity romance with the satellite industry, armed with what now clearly appears to have been a cohesive forward-looking strategy tied to sound business fundamentals. The most telling confirmation of this is the company’s recent move into the public markets, seemingly effortlessly effectuated.”

The launch of BGAN also will be a key facet of the operator’s performance in 2005. Based on Internet protocol (IP) technology, BGAN delivers data rates of up to half a megabit and the service is accessed through a small, lightweight satellite terminal. The service is scheduled to launch in Europe, the Middle East and Africa. However, competition will be tough.

“Mobility has become the new mantra of the telecommunications world, and the competition coming on multiple fronts — satellite, terrestrial and hybrid networks — will be fierce,” Mechanick said. “Flexibility to evolve and adapt to rapidly changing market conditions remains the key to long term viability.”

In an exclusive interview with Satellite News International Editor Mark Holmes, Inmarsat CEO Andy Sukawaty talks about the company’s prospects, his expectations for the BGAN service and the other challenges facing Inmarsat throughout the next 12 months.

Satellite News: How would you compare Inmarsat’s IPO to those launched by Panamsat and New Skies? Do you think the Inmarsat story is more appealing to investors?

Sukawaty: Inmarsat’s IPO was different than the other satellite companies. We are the only mobile services company to do an IPO. We, I think, have a different financial profile, which we were quite clear in presenting. In the mobile satellite services business we don’t have long-term contracts or order books and we don’t talk about things like transponder utilization. Instead, we sell on a minutes and bits basis. To get into the mobile satellite business, we believe you really need to have a global presence. It requires a large capital investment up front and then you reap the benefits of that over a large period of time as opposed to the Fixed Satellite Services business, where you put up satellites with a contract for a specific geography, rather than [for a] global [presence].

To get that story told, required making it clear to people that we are different, so we decided to list in London instead of the United States, where the recent IPOs in the satellite sector have been done. I think that was quite effective, because we got our story listened as well. We were able to differentiate ourselves. The facts speak for themselves when you are able to do that.

Satellite News: How do you view the reaction to your IPO?

Sukawaty: We priced at the top of the range and we were 10 times over-subscribed. So demand was clearly there. I think it was a combination of our strong dividend yield along with the prospects for growth that is quite a unique profile in the financial markets today. That got people’s attention. Also, there are not that many companies that are as mature as we are that are doing their initial public offering. So that made us a new entrant but one which was a unique and rare opportunity to get on the bandwagon with.

Satellite News: Is Inmarsat looking to play a role in the satellite radio market in Europe? Do you think the success of Sirius Satellite Radio and XM Radio can be replicated in the European market?

Sukawaty: Satellite radio in Europe has potential. It is not a market like the United States. The United States already has two competitors. Also, you have the segmentation of the market, both from a cultural language perspective and a regulatory perspective. That makes the case for satellite radio much weaker or much more difficult to make in Europe.

Given that, we have an investment already in place, I think this puts us in a good position to potentially support a provider of satellite radio with our backbone. That has been our intent in pursuing opportunities in that area. I think, having looked at it more deeply, there is some real opportunity there, but it won’t be the same type of service that you see in the United States.

In terms of the timeline as to when this might happen, it is too early to say. We are in exploratory discussions at this point.

Satellite News: Do you think a linkup between Inmarsat and SES on satellite radio is in the cards?

Sukawaty: No comment.

Satellite News: What role will Inmarsat play in Galileo? Do you think the decision to have a joint consortia was the correct decision? Were you surprised this was not done sooner?

Sukawaty: The Galileo Joint Undertaking (the organization formed to award the Galileo concession) took a long time to decide. I think that made it inevitable that we had to look at bringing the consortia together. These are very expensive types of developments and the longer the decision making process continues, the more difficult it is for all the players to do a high-quality job. Bringing the consortia together at this stage, I think, makes a lot of sense. The actual structure of that is still under discussion. We think the parties involved make it a very strong overall competence that has been bought to the table. I think there are complementary skills at the table. We play a very vital role, because we are the only U.K firm involved in it. We also have the operational and satellite expertise and the procurement expertise that a lot of the others around the table do not have.

Satellite News: What are your views on the allocation of 2 gigahertz spectrum in the United States? How realistic is it for Inmarsat to obtain this spectrum to become more of a global player?

Sukawaty: Time will tell how realistic it is. I think it is clear that if it is something in the mobile services satellite sector globally, we want to be involved in it. That may not have always been the case for Inmarsat when it was an intergovernmental organization. While we have the spectrum we require today to meet most of our needs, we are looking to the future and 2 gigahertz could be an expansion band for us to provide new services. So we see that as a real opportunity, and we are not going to let this pass us by.

In the United States, there are complications because they give out U.S.-only licences. Therefore, if we are going to get a global license, we have to be playing in the U.S., where we have a gap and therefore, we are forced to comment on the proceedings with the Federal Communications Commission in this area and put our best foot forward. I think we have done that. We have put a business case in, which I understand others have not from their comments and filings. We will continue to press for allocations where we think we can add significant global value to the services that are provided.

Satellite News: How much of a boost to your global BGAN strategy would it be were you to gain this spectrum?

Sukawaty: In the short- to medium-term, it would not make a whole lot of difference. We fully contemplated going with L-band only spectrum and that is what we have planned for. But you have to look well beyond the horizon here. If we were to dream up that next constellation to put in the sky today, by the time it got designed, built and launched into commercial service, you are talking about a minimum of a five- to six-year window. Add a little bit onto that for licensing and potentially fund raising for it, and you are talking between seven to nine years. So we may be looking beyond an eight- to 10-year horizon for this S-band.

Satellite News: What are the major issues ahead of the BGAN launch?

Sukawaty: We have launched the first satellite. The second is scheduled to be launched later this year or early next. The service itself is on track for a launch in November. We have got terminals from three of the four manufacturers that we are working on and testing. We have announced nine distribution partners. We have trained people in three regions now. So our channels are being trained on the service. This is not just for sales but also for support of BGAN service. There have been hundreds of people who have been trained so far. We are gearing up and feeling quite good about a strong introduction of the service later this year.

Satellite News: Could you give us an update on your capital expenditure plans and how you see BGAN services developing over the next two years?

Sukawaty: Next year is the last major year of our Inmarsat-4 investment. After that, it starts to taper off quite dramatically and I think the forecasts show that. I think our defense sector continues to be a high priority for us in terms of growth. We can see from the conversations we and our distribution partners are having that there is a prospective high level of demand coming from that sector, which is consistent with what we have seen historically in the growth in our defence sector.

We see media being a strong area for us for BGAN. To have a terminal this small, one third of the size, cost and weight, but three times the data speed, is a pretty strong proposition to put into various sectors that we are dealing with. In the media sector, there is a race to stay competitive in the services that are offered. We see a particularly quick take-up in that sector.

Satellite News: How do you see the mobile satellite services landscape changing throughout the next two years?

Sukawaty: Clearly the move to data services has been enormous. Almost 70 percent of our traffic now is data. The move to IP data is going to be more pronounced. It is simply piggy backing off of applications that already exist in other wireless networks terrestrially. That will clearly be a trend.

As you see more PDAs out there, as you see more laptops on Wi-Fi and WiMax networks, there is going to be greater demand for it to be used in the areas where we are as well. We like to say we are an extension of those terrestrial networks to other areas. Clearly, with data applications growing, we are going to be a in good position to capitalize on that.

In terms of the sector itself, I think we will continue to see growth in the hand-portable voice market. You have seen Iridium, Globalstar and Thuraya all grow in a fairly healthy way. Perhaps they cannot support the capital investments for what they have put up there with voice-only, hand-portable service, but they have grown a significant market. I think the estimate for last year is that hand-portable voice was that it was a $450 million annual market. That is something we might go after in the years ahead with our Inmarsat-4 satellites. We can certainly implement another air interface to address the hand-portable voice market, so that could be a change in the landscape as well.

Satellite News: With the influx of 3G, is the market opportunity just as big for Inmarsat here? What are your targets in terms of customers a year after launch?

Sukawaty: Minimal. 3G has not only taken off slowly but the applications development has been slow and very specific to a city or country. So, football clips, picture messaging, but between closed groups. It has not been business applications that have been driving it. We deal in the governmental, industrial base. As the business applications take off, we will be able to capitalize on that. That is a longer development and buy cycle. So, we would see three years out, impact from the 3G services launched.

Satellite News: What are the major challenges facing the company over the next 12 months?

Sukawaty: You have the launch of BGAN and the launch of our second satellite. You have the adjustment to being a public company meaning we need to make sure we execute on a quarter-by-quarter basis. We have got some opportunities to continue healthy growth but tempered by some challenges that we have to carefully manage.

(Chris McLaughlin, Inmarsat, Christopher_McLaughlin@inmarsat.com; Maury Mechanick, White and Case, mmechanick@washdc.whitecase.com)