Stratos Global Corp. stands to become the world’s largest reseller of Inmarsat services with its planned acquisition of Xantic B.V., a move that also could trigger further consolidation in the mobile satellite services market, industry officials said.

Stratos announced Aug. 15 it signed a letter of intent to purchase Xantic for $191 million from owners KPN N.V. and Telstra Corp. Ltd. The purchase price is subject to adjustments based upon audited earnings before interest expense, taxes, depreciation and amortization, or EBITDA, for the 12 months immediately preceding closing of the deal and specified working capital levels. Stratos expects the deal to close by early 2006.

For Stratos, the acquisition will boost the company’s reach into the maritime segment, an area company President and CEO Jim Parm views as a hot growth market. The move follows a minor acquisition Stratos made in the maritime segment earlier this year, acquiring a 49 percent stake in Navarino Telecom SA and NTS Maritime (collectively referred to as Navarino), Stratos’ largest maritime dealer, with an option to acquire the remaining interest (SN, Jan. 17).

“[The Xantic acquisition] balances our portfolio,” Parm told Satellite News. “We were smaller in the maritime industry, and we think that is a key industry for remote communications going forward. Ships at sea are starting to use more data and just like we have experienced on the land mobile side in recent years, the growth has been in data more than voice. We see that same trend continuing in the maritime segment.”

Currently, 21 percent of Stratos revenues came from its maritime business and 39 percent are generated by its land mobile operations. Once the Xantic acquisition is complete, maritime is expected to account for 36 percent of revenues, with land mobile revenues dropping to 30 percent.

More Consolidation Coming?

In addition to building Stratos’ revenue potential in the maritime business, the acquisition also makes Stratos a leading provider of Inmarsat services around the globe with a market share of about 44 percent. More consolidation is expected in the sector and questions are being raised on whether Telenor Satellite Services, the number two competitor with about a 24 percent market share, will make any aggressive moves to bring more balance to the market.

Parm, for one, is predicting more consolidation, though he would not specify what companies were likely acquisition targets. “I think there could be more consolidation within the industry,” he said. “There are a lot of relatively small players that don’t have the scale to operate properly. We will certainly look at other acquisitions, [such as] things that add capability to our company and market reach or capabilities or reach within specific verticals.”

The need for a more efficient marketplace is driving consolidation, Parm said. “Distribution in its current form is very inefficient,” he said “It only takes a couple of land earth stations to service the entire world and there are currently 30 plus out there.”

Telenor will not respond to Stratos’ move by jumpstarting its acquisition activities, spokesman Tom Surface told Satellite News. Telenor plans to take a “wait and see” approach, though Surface did acknowledge that more consolidation among smaller companies in the sector is “probable.”

While Telenor is not speaking publicly about making a more aggressive move, one industry analyst questioned whether the company would be satisfied with its current share of the Inmarsat market.

“Can they stand by with 24 percent, when the main competitor has 44 percent, or do they take a run at France Telecom?” Peter Rhamey, analyst with BMO Nesbitt Burns, told Satellite News. “My thinking is [Telenor wants] to be a major player in the industry. Are they happy where they are, and if not, can they do anything about it? It is nice if you want to go buy France Telecom, but France Telecom may not want to be sold at a price that would be rational.”

However, any short-term maneuvering to hold the top spot in the Inmarsat reseller market could be rendered moot over the long term.

“Eventually, I could see Inmarsat becoming a fully integrated end-to-end company,” Rhamey said. “Maybe there will be two large distributors working closely with Inmarsat. Maybe Inmarsat owns one and the other is a third party provider. Maybe there will be companies that always exist because there always will be some countries that resist foreign ownership.”

Inmarsat spokesman Chris McLaughlin said the company currently has no plans to acquire its distribution partners, but is not opposed to consolidation among them

“We have been encouraging consolidation amongst our distribution partners over time because we believe a consolidated base assists our customers and assists our distribution partners,” McLaughlin told Satelite News.

–Gregory Twachtman

(Chris McLaughlin, Inmarsat, +44 207 228 1015; Doug Gunster, Stratos, 301/968-1954; Tom Surface, Telenor, 301/838-7805)