[Satellite News 05-12-10] Trends in the MSS industry’s 2010 first quarter results show the sector spending more money in aggressive efforts to increase growth rates and establish mobile market leadership.
   The largest MSS companies, boosted by ATC allocation initiatives outlined in the U.S. Federal Communication Commission’s recent broadband plan and a recovering global economy signaled by increased spending from enterprise customers, have sacrificed profits on acquisitions and next-generation projects despite enjoying healthy increases in service revenues.
    Iridium Communications’ transaction to merge with GHL Acquisition Corp. in September aimed to eliminate Iridium’s $131 million in debt and allow the mobile satellite service provider to develop its next generation satellite constellation, Iridium Next. Iridium received $77 million in cash and 36 million common shares upon completion of the transaction, with Greenhill & Co., which invested about $23 million in Iridium convertible debt, receiving about 2.3 million common shares of the company.
    However, despite solid revenue, service and subscriber equipment growth across all of its business units for the last two quarters, costs related to the merge with GHL resulted in a net loss of $1.3 million during the 2010 first quarter and posted a $4.7 million net loss in the 2009 fourth quarter.
    Raymond James analyst Chris Quilty praised Iridium’s own performance, confirming the company’s projections that it will meet or exceed its 2010 operational EBITDA forecast of $145 to $155 million. However, Quilty emphasized the importance of Iridium’s future investments. “The more important near-term driver remains the ECA financing event, which we believe could happen within the next 30 to 45 days,” said Quilty.
    Quilty referred to a statement by Iridium CEO Matt Desch, who confirmed that the company still needs financing to proceed in its future plans. “Iridium is set to select the prime contractor for its Iridium Next constellation soon. … We made substantial progress towards securing the comprehensive export credit financing we need to fund our new constellation and we expect to complete that financing this summer,” Desch said while summarizing the company’s 2010 first quarter results.
    Inmarsat, like Iridium, also is looking to expand through new investments and acquisitions. The operator completed its acquisition of Segovia during the 2010 first quarter, which could lead to Inmarsat getting more business from the U.S. government, according to Inmarsat CEO Andy Sukawaty.
    “They are a well-run company. They have done a terrific job in growing that business.  If you consider how the defense sector views its procurement, we believe that increasingly they will look at buying a service package as opposed to putting a bundle together themselves of information services and communications services,” Sukawaty told Satellite News.
    However, unlike its competitors, Inmarsat’s profits have increased simultaneously with its revenues. In the 2010 first quarter, Inmarsat’s profits jumped 40 percent to $62.5 million driven by 12 percent growth in first quarter revenues to $281.5 million and $200.7 million in revenues generated by its Inmarsat Global business.
    Globalstar Chairman Jay Monroe said his company is depending on new projects to turn losses into profit. In Globalstar’s 2010 first quarter conference call, Monroe reported an $8.7 million operating loss and $35.6 million net losses, which were partially caused by $25 million in costs related to its $738 million Coface financing to support the very same programs designed to generate profits.
    “We are now about two months away from taking delivery of the first of our new second-generation satellites. Once our new satellites are in operational orbit, the most immediate impact will be on those commercial enterprise and recreational customers who utilize our satellite voice and duplex data services. With each of our first four launches, we can expect a progressive return to the high reliability and service quality they enjoyed prior to 2007,” said Monroe.
    Globalstar, along with fellow MSS companies Thuraya and TerreStar, also areinvesting in next-generation consumer products such as GPS messenger systems and dual-mode satellite handsets. Thuraya expects to sell 20,000 units of its Thuraya XT handheld phone in 2010, according to the company’s sales forecast, and already has sold 8,000 units in vertical sectors such as oil and gas, military, government, NGOs, broadcast  media, large corporations, and maritime since the beginning of this year.
   Will these investments turn into profit? According to a recent poll of Satellite TODAY readers, the mood is less than optimistic. When asked if is there enough room for growth in the MSS sector for all of the companies currently operating, a majority 50 percent of responders answered “No,” expecting that the sector will see MSS companies merge or fold in the near future. About 37 percent said they believed there is enough room in the market for the current MSS companies to grow and 13 percent said that there would be neither growth nor contraction in the near future.
    Maury Mechanick, counsel with White & Case, believes the determining factor for MSS growth or contraction will be financing. “While the trend in the financial markets will be in the direction of greater openness, funding will continue to be somewhat tight, which is one of the reasons that there will be continued resort to export credit agency funding whenever possible, even for operators that in the past would not necessarily have moved in that direction.