Its been a tough year for MSS operators in all segments of the market. Government business has been down as a result of the drawdown in Afghanistan and the sequester in the United States, the shipping industry has continued to struggle and even handheld and M2M sales, which were two of the rare bright spots in recent years, have been slow. As a result, some MSS operators are pushing through price changes to boost their revenue prospects in the short term.

Airtime Prices

Most notably, Inmarsat has announced that airtime prices for its older B and Fleet services will rise by 48 percent in January 2014, continuing the trend seen in the last two years where much of the company’s revenue growth has come from maritime price rises. Iridium also raised monthly subscription charges for its voice services at the beginning of 2013, to offset declining usage, and has recently signed a new U.S. government service contract under which the Department of Defense (DoD) will increase the amount it pays each year in exchange for unlimited access to the Iridium network.

However, price rises can only do so much in the longer term, especially as some traditional MSS users are increasingly able to make use of VSAT alternatives, particularly in the maritime and aeronautical sectors. As a result, operators and investors alike are turning their attention to whether the new satellite constellations planned by Inmarsat, Iridium and Orbcomm, along with the recently completed Globalstar second generation system, will support an acceleration in revenue growth over the next few years. Iridium, Orbcomm and Globalstar plan to compete mainly for traditional MSS customers, but each hope that lower costs and greater capacity on their new systems will lead to higher growth and market share gains. However, all three are diversifying: Iridium is looking to new hosted payload opportunities, including its Aireon air traffic monitoring venture, Orbcomm is focusing on retail service provision, even using connectivity on other satellite and cellular systems, while Globalstar is seeking to exploit its spectrum assets for use as a terrestrial Wi-Fi extension band.

In contrast, Inmarsat is investing in its Global Xpress Ka-band system to address VSAT competition head-on, and aims to make mobile VSAT services an off-the-shelf solution, much like Inmarsat’s current L-band offerings. To achieve this Inmarsat is not only intending to support smaller antennas (60cm versus the 1m antennas that are typically used in maritime VSAT today), but is also investing in a service enablement platform from Cisco, which will essentially provide an Apple-like App Store for value-added services. However, Inmarsat will have to ensure that Global Xpress does not just substitute for its existing L-band services, but both expands the overall market and takes substantial market share from other providers in the maritime, government, energy and aeronautical markets.

Traditional Business Models
It seems clear that MSS operators can no longer simply rely on their traditional L-band business models to fund needed investment. However, though it may be necessary, current diversification plans add to the risk in an MSS sector which already suffers by comparison to FSS operators who typically have a multi-year backlog of transponder leases to provide revenue certainty. It has been obvious for several years that capital investment in the MSS sector is out of proportion to the available revenue opportunity, notably when LightSquared, TerreStar and ICO built new satellite systems simply to try and exploit their spectrum assets rather than to expand the MSS market. And while consolidation might provide one solution to a problem of overcapacity, incompatible satellite systems make that a difficult proposition for existing customers. To date, pricing discipline has been maintained, and this has enabled MSS operators to squeeze more money out of existing customers. But it is far from clear that the status quo can be preserved indefinitely. VS

Tim Farrar has worked as a technology consultant formore than 19 years, specializing in satellite communications and wireless spectrum. He leads his own consulting firm Telecom, Media and Finance Associates, Inc.