Flying sky high

The Middle East and Africa is one of the most important markets for mobile satellite service providers. Traditionally a niche industry, satellite providers are expanding the appeal of their offering and Ronan Shields caught up with a number of the players effecting the change.
Flying sky high
By Ronan Shields
Tue 10 Jul 2007 12:00 AM

The global mobile satellite services market is undergoing something of a resurgence since the dark days at the early part of the decade, which saw industry stalwarts Globalstar and Iridium file for bankruptcy protection.

A recent survey conducted by the Satellite Industry Association recorded an average 10.5% annual revenue growth year-on-year across the global satellite industry between 2001 - 2006.

An additional breakdown of statistics displays an industry-wide, year-on-year annual revenue growth rate of 19.5% between 2005 and 2006, compared to just 7.4% for the year ago period.

The survey concluded that the overall value of the industry reached US$106.1 billion in 2006, with satellite services constituting 59% of that figure for the surveyed period.

In a development highlighting the growing appeal of mobile satellite services, global mobile satellite provider Inmarsat recently partnered with several global distribution companies, including Dubai-based Axiom Telecom, to support the launch of its new satellite phone services scheduled for launch in 3Q07. Other distribution partners include: ACeS, Chinasat, Evosat, Fono, MCN, MVS, SatCom Global and Stratos.

"Our distribution partners play a critical role in our service proposition, and will form the foundation for the global delivery of our new satellite phones," said Michael Butler, president and COO of Inmarsat.

Inmarsat's new suite of satellite phones - which includes a handheld, fixed and maritime phone - are scheduled for launch from early 3Q07. The services will initially be available in the Middle East, Africa and Asia before they are rolled-out globally, underpinning the importance of these geographies to Inmarsat.

Traditionally a provider of voice and high-speed data communications to the governmental and enterprise verticals, Inmarsat has been able to leverage its network of 440 partners to generate revenues of US$500 million for the year ended December 31 2006, translating to a pre-tax profit of US$89.8 million.

The recent agreement with mobile phone retail specialist Axiom Telecom suggests that not only is Inmarsat developing a new route to market, it is also targeting a new and wider market segment.

"We typically see the first adopters of our satellite phone services as being our present customer base," states Samer Halawi vice president of Inmarsat, Middle East, Africa and Asia Pacific.

Inmarsat claims its agreement with Axiom, which is essentially a supply and distribution contract, forms a core component of Inmarsat's market strategy, with Halawi predicting that consumers will begin to represent a growing percentage of the company's overall subscriber base.

This strategy correlates with Thuraya's policy of increasing market share by targeting the consumer segment. The strategy of Thuraya, a mobile satellite provider that is controlled by the UAE's Etisalat, has seen the satellite provider recently negotiate prepaid roaming agreements with regional GSM operators, including Etisalat and Saudi Telecom, in a bid to increase its 260, 000-strong customer base.

Thuraya's prepaid subscribers can now roam on the GSM networks of the operators with which it has agreements, and in turn the prepaid subscribers of those GSM operators are permitted to roam on Thuraya's satellite network, which extends to over 110 countries.

Gleb Larionov, managing director of Thuraya international service provider XSAT, claims Thuraya launched its ThurayaECO package as a response to the changes in consumer behaviour observed in the market.

"Approximately 40% of our customers in the Middle East and Africa are end-user customers, including small scale traders and large scale corporations, which demand connectivity no matter where they go," he says.

"Many of our target users will travel into areas where GSM coverage is sparse and through our partnership with Thuraya we offer extensive coverage with tariffs as low as US$0.20 per minute," he adds.

Larionov also points out that Thuraya's channel strategy bears a close resemblance to the distribution tactics employed by GSM operators, given the wide availability and GSM-compatibility of Thuraya products in the retail market.

However, he also notes that despite the corporate segment accounting for only 10% of XSAT's Thuraya subscriber base, the segment helps generate 50% of XSAT's Thuraya revenues.

Inmarsat predicts the global handset satellite voice market currently stands at around US$350 million a year and that this figure is expected to grow to US$500 million by 2010. Inmarsat expects to target a 10% market share at that time.

"This year we are expecting our revenue growth to double that of 2006, as a result of our aggressive market manoeuvres. We believe that the satellite phone service will be a big driver behind this growth," Halawi claims.

He also notes that the buoyant growth predictions are based on the performance of the company's Broadband Global Area Network (BGAN) service, first launched in 4Q05.

"BGAN has been our fastest growing service in our history. In 12 months our subscriber base for this service reached 10,000," says Halawi.

Inmarsat's confidence is also spurred by what it claims are the comparatively harsh economic conditions facing two of its main competitors (Globalstar and Iridium). "We also think the current climate in the satellite phone services market will offer us an opportunity to grab a sizeable market share quite quickly," states Halawi. "Our satellite service will not expire until 2020 whereas Globalstar's and Iridium's will expire sooner than that. They will also have to replenish their satellite services," he adds.
Inmarsat's recent US$1.5 billion investment in its satellite constellation was primarily focused on the design, construction and launch of its fourth generation of satellites, two of which were launched in 2006 meaning the company is able to cover 85% of the global market.

Halawi explains that Inmarsat is scheduled to launch a third such satellite by mid-2008 - requiring an addition US$80 million investment - in a move that will bridge the remaining 15% gap in the company's global coverage.

Despite difficult conditions, Iridium counted 183,000 subscribers worldwide as of March 31, 2007, representing a 23.6% increase over the company's 148,000 subscribers for the corresponding quarter the previous year.

Iridium also reported first quarter revenues of US$52.7 million in 2007 and EBITDA of US$13.6 million. Overall, the company reported revenues of US$212.4 million and EBITDA of US$53.8 million for the full year 2006.

A study conducted by consultants Frost & Sullivan, which compared Iridium's service to that of another mobile satellite provider, claims that while only 36.2% of the Iridium competitor's calls were successfully connected and completed without being dropped during a three-minute period, 98.1% of those calls placed on Iridium handsets were successfully connected and completed.

Iridium has begun to overhaul its current 66-strong low-earth orbiting constellation with the launch of its US$2 billion ‘Iridium NEXT' initiative in February, with the company claiming the move will give Iridium customers access to the "largest commercial satellite constellation in the world" without any service gaps.

Speaking at the launch of the initiative, Matt Desch, CEO and chairman of Iridium said: "Independent studies confirm our expectation that the Iridium constellation will be fully operational into the next decade. We are acting now to ensure a smooth transition to NEXT.

"We are making major infrastructure investments and we are inviting potential partners to work with us on this breakthrough programme."

Iridium plans to ensure that the NEXT programme is compatible with its current satellite constellation offering services such as high-bandwidth data, voice, and short messaging services; enabling new applications for both commercial and government users using an IP-based architecture.

The company additionally claims that over the next 18 months it will focus on the following objectives: Identifying and defining customer and system requirements; surveying the industry for new and innovative capabilities and technologies; developing the NEXT architecture; selecting both NEXT development and deployment partners.

Inmarsat's Halawi credits the revival of the mobile satellite services industry over the last five years to the growing demand for voice and data services in the emerging markets of the region where GSM coverage has at times been patchy.

"As much as GSM is growing, there are major coverage gaps around the world. This part of the world [MEA] has a lot of infrastructure problems given the low population density in parts of the region," he explains. "Economically speaking, it does not make sense to deploy telephone infrastructure in regions that have sparsely populated areas and low ARPU levels, thus creating demand for our services," he adds.

Halawi additionally estimates that as much as 60% of activity in the global mobile satellite services sector takes place in the Middle East and Africa region and cites the recent natural disasters as an example of the demand in the region.

"In this part of the world [MEA] there are a lot of hurdles for major enterprises to negotiate, such as natural disasters. If you look at the recent cyclone to hit the Gulf region the telephone infrastructure was quickly incapacitated," he points out.

Iridium concurs with this view and states that its presence in the region is continuing to grow claiming that it is actively seeking to enhance its regional footprint.

Iridium recently tied up with Kuwait-based United Arab Shipping Company (UASC) in a deal that will see Iridium terminals installed in 29 UASC vessels through its partners World-link Communications and Stratos.

Iridium's strategy is to continue tapping into the enterprise sector where it counts the US Department of Defence as one of its major clients. In 2Q07 Iridium signed up as an official supplier to the not-for-profit organisation Connect Africa, whose goal is to roll out mobile communications and public service facilities to rural communities in at least 10 countries across the continent by 2015.

"The Iridium service is ideally suited for industries such as maritime, aviation, government, emergency services, mining, forestry, oil and gas, heavy equipment, transportation and utilities," says Greg Ewert, executive vice president for sales, marketing and business development at Iridium.

Inmarsat also hopes to make inroads into this sector by launching a fleet broadband service similar to its flagship BGAN service that is capable of high-speed data transmission up to half a megabyte per second.

Additionally the company will also launch a voice-centric service in the maritime segment in September 2007.

Unlike its major competitors Inmarsat and Thuraya, Iridium does not have any immediate plans to target the consumer segment except for a "very small consumer market that focuses on adventure travel" according to Ewert.

"At the beginning of the decade there was a lot of scepticism about both the satellite communications industry and the Middle East's economy, but Thuraya has continued its growth in the region by leveraging the technological advancements in the hardware segment to make its products more accessible to a broader market," asserts Larionov.

He points out that all segments of the satellite communications industry have successfully altered market perceptions of the services offered being uneconomical in both the corporate and consumer segment.

Inmarsat's Halawi echoes this claim, adding that prices have reduced dramatically as competition has increased helping to drive up consumer numbers. "Ten years ago it may have cost as much as US$10 per minute to make a phone call on satellite services, now it costs less than US$1 and in some cases considerably less than that," he states.

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