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.
When Malaysia airlines MH370 disappeared on a flight from Kuala Lumpur to Beijing in April 2014 it was reported at the time the technology exists to track every civilian aircraft in flight.
As well as using satellite comms for civilian aircraft tracking Pearce offers the example of aircraft relaying weather information to planes behind it on the same flight path. Today airline pilots receive a weather report prior to the flight and know what to expect. But once airborne and flying over big open stretches of water they don’t receive further detailed updates. They must react to what they find by, for example, climbing, descending or flying around extreme weather. But, says Pearce, using the Global Xpress system a lead aircraft on a transoceanic route could relay real time weather data to aircraft behind it thus giving better warning and improving safety.
This is the type of commercial application for aviation that Global Xpress will provide because of its global coverage.
On a less critical but equally if not more commercial prospect is cabin connectivity. You may think of long haul flights as providing a break from the connected world but that’s not going to last. Cabin connectivity is a huge market for Inmarsat.
The opportunity in satellite mobile broadband is is huge but Pearce recognises the shifting market mean increased competition.
Competitors come from satellite and terrestrial mobile broadband industries.
The good news for Inmarsat and its investors is that the trend in business is mobile broadband moving from nice to have to mission critical.
Global mobile broadband traffic increased 60% last year. Estimates from even conservative market watchers predict 20 billion connected devices within five years.
"There’s an inflection point happening because industries are taking to the power of being on the move. They want to access mobile services on the cloud or behind VPNs and they are saying, ‘this is transformational. This is going to lead to higher pace and agility in my business and I’m going to be driving new revenues through the power of mobile broadband."
Pearce, a lawyer by training, recognises that growth opportunities create competitive environments.
"Very high growth opportunities mean you can expect the competitive dynamics to change. It is going to attract capital and this is what you are seeing in the space sector. Traditional fixed players see growth in mobile broadband and they want a piece of it."
Competition is also coming from unusual places. Oneweb raised $500m from a variety of backers to launch hundreds of low earth orbit satellites to provide broadband to remote areas.
Google is testing the use of balloons and Tesla founder Elon Musk launched SpaceX.
"It is attracting capital because the growth opportunity is so big so we’ve got to respond to fundamental growth dynamics."
Being in the position of having attracted and deployed his capital investment in the infrastructure Pearce points to the potential penalty paid for success for his competitors. "If the demand curve is very steep and the APRU (average revenue per user) curve is flatter, the question is how do you make that work? That’s going to shorten capex cycles," he says.
"It is going to force firms like ours to invest in lowering cost per bit. We’ve seen it in the terrestrial world and it is no different in the satellite world. So how do you make that work.?
"The move from L band to Ka band gives us huge 2Ghz of capacity and we’re investing to deploy that spectrum far more efficiently around the world. We’ll have more capacity to keep downward pressure on cost per bit and we’ll keep raising the capacity of our network. That’s how we meet the challenge."
[In the satellite game] if you snooze you lose because the demand side from the customer is forcing it to move, and that’s not a how the traditional satellite world looked until very recently.
Pearce says: "It has been a world where you put a satellite up there and you have a 15 year annuity. It is not going to look like that anymore. "
Inmarsat (International Marine Satellite) was launched in 1979 in order to improve safety at sea through better satellite communications as a collaboration between 80 different countries who wished to set up a satellite communications systems to communicate with ships far out at sea.
Today the company is listed on the London Stock Exchange and recently made it into the FTSE100.
For the half year to 30 June 2015 revenues were $616m with wholesale Mobile Satellite Service revenues up 4% to $403.8m. EBITDA was $342m down from $369.7m with profit after tax of $131m from 2014’s $136m.
In Q2 total revenues were $311m (2014 $307m)
To give an idea of its revenue mix – though this is changing, maritime down $5.3m to $147.3m (-3.5%); Government down $10.1m to $70.4m (-12.5%); Enterprise up $0.5m to $40.4m (+1.3%); underlying growth (excl. disposal) +8.9%; Aviation up $7.0m to $30.8m (+29.4%); $17.5m from LightSquared (2014: $1.8m).
Wholesale Mobile Satellite Service (MSS) revenues $205.6m, up 4.8% (2014: $196.1m)