CEO Briefing: “It is not for the faint hearted” says Inmarsat CEO Rupert Pearce, somewhat of an understatement when you’re betting $500m on each rocket launch.
Rocket launches are nerve-racking events. One in 20 launches fails. And when it comes to rockets failure means fireworks, big fireworks.
On Aug 28th 2015 Inmarsat launched its F3 GX 5 satellite. This satellite represents the final piece in the UK satellite telecoms company’s GX (Global Xpress) network. This will deliver high speed satellite broadband to just about anywhere in the world apart from the poles with global coverage from a single operator. Once operational at its 35,000km geo-stationary orbit above the equator, the Inmarsat spacecraft will be able to beam 50MBPS broadband on a global, regional or spot beam basis on the Ka (Kaay Ay) spectrum band.
There is a lot riding on it. Global Xpress is expected to generate $500m in annual revenues by 2020. The company’s revenue mix is changing. The mobile broadband business is rapidly changing. The networks themselves are changing.
A few weeks before the launch I sit with Inmarsat CEO Rupert Pearce in his office above Old Street roundabout in London (aka Silicon Roundabout) I begin by asking him why he is in such a high risk, highly capital intensive business?
"It is high risk in two ways. You have to put a lot of money to work to be in business at all. A satellite costs $300m or $400m US. To launch it costs $150m dollars. So you’re looking at half a billion dollar in up-front investment before you can make one dollar in revenue. And that’s just one satellite that gives you regional coverage," he says.
As it was still some weeks away, what was occupying Inmarsat and its boss at our time of speaking was the G5 F3 launch mentioned above – subsequently successfully launched on Aug 28th from Baikonur, Kazakhstan.
Robust investors required
"It is risk intensive and it is not for the faint hearted. You have to earn the thick end of $1.5bn to earn your first dollar. That’s a big barrier to entry. And although you can insure a launch, something like 5% of all launches end in failure."
Given the risks of failure even before it leaves the ground, what breed of investor is attracted to satellite operation?
"We IPO’d in june 2005 on the London Stock Exchange. For the first 5-6 years we grew at double digit rates so we were a growth star that paid a healthy dividend. Every year we’ve grown the dividend. So we’re seen as having a strong yield. Last year we grew the dividend 5%. We’re a rare company – we attract growth investors and yield investors."
That double digit growth rate has tailed off recently.
"For the last 2-3 yrs we’ve not been growing at double digit rates because we’re coming to the end of life on one technology and looking to move to a new technology. Once we’ve rolled out with Global Xpress we believe we’ll be back to double digit growth," he says.
Another risk in the satellite communications business is the remoteness of its asset.
"You invest all this money in this technology [G5-F3 was built by Boeing] you put on top of a giant firework – and fire it up into space -and then you turn it on. And what you get is what you get. You can’t send a man with a screw driver. Even with the efforts to put the technology on the ground most of the technology is in space."
It is also operating in the most harsh environment imaginable. The front (pointing at the sun) and back of the craft has a 400 degree temperature difference.
"You’ve got sophisticated electronics on a spacecraft, which need to last for a long time in a harsh environment which includes ions, solar winds and debris."
Once turned on the asset has a 15 year life span. Inmarsat has 15 years to generate a return.
The market environment
For an operator like Inmarsat, the communities served value global presence.
Maritime, aviation, media, mining and governments (think military) all are global industries or can require secure, reliable mobile communications in remote locations.
But Inmarsat’s revenue mix is changing. Government is declining with Aviation is seen as a growth opportunity.
Inmarsat was born 35 years ago by 86 countries collaborating and throwing money into a pot to create the global maritime distress and safety service. This established satellite connectivity to ships that is still a free service provided by Inmarsat and has saved countless lives.
But, Pearce says, once you’ve got a pipe to a moving ship there is much more that can be achieved. Now with 50Mbps the ship itself becomes a digital asset.
In the 35 years since its inception, Inmarsat has gone from voice and dial up to true broadband.
The satellite comms system is no longer just there for when a ship gets into difficulties or for occasional crew calling. "It is a fundamental enabler to the era of the smart ship which is completely revolutionising the way ships operate, the revenue streams open to them – their contribution to digital society objectives and to a greener oceans and a greener planet."
The type of services which can be delivered can include everything from OTT content provision, to personal communications, to being the comms infrastructure platform for Internet of Things for maritime applications such as smart engines, ship system monitoring, tracking and routing and many other applications currently under development.
Inmarsat held a developer conference and had hundreds of software application developers attend.
Inmarsat is a satellite operator. On August 28th its Boeing built $400m GX-5 F3 satellite was successfully launched atop a three stage Proton rocket and Breez booster built by Khrunichev State Research and launched from the Baikanor Space centre in central Kazakhstan.
Being in a network operations centre in the countdown to launch one could feel the tension building.
Fifteen hours and 31 minutes after launch there is spacecraft separation. The spacecraft goes into super synchronous transfer orbit which takes it as far as 65,000km from earth.
The satellite is now being operated by Inmarsat. Six days after launch the satellite is switched on for testing and it is then that the operator learns of any operational problems. It will settle into its 35,000km orbit and be tested before becoming fully operational for commercial services by the end of the year. Commercial airlines are thought be lined up for the services so expect more broadband on your flight soon.
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