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SatCom Update: Its a Buyers Market

Published Jan 8, 2012 10:59 AM by The Maritime Executive

As prices come down amid fierce competition, purchasers of new or upgraded equipment stand to benefit.

By Art Garcia

The maritime market for satellite communications is changing rapidly. In fact, it’s in turmoil, contends Alan Gottlieb, Managing Director of Gottlieb International Group in Arlington, Virginia. Inmarsat started making waves in August of 2010 with the announcement of Global Xpress, to be introduced in 2013 as a potential game-changing effort to catch up with the VSAT (unlimited data for a fixed monthly fee) providers that started taking a considerable amount of its business. The fallout: a continuing price war that’s provided a cost break for maritime operators.

Inmarsat operated what it called i4 satellites, which ran on L Band technology (fees are dependent upon the amount of data used) and charged by the byte. Then another kind of VSAT, a higher frequency Ku Band, came into use over water, making it applicable to vessels, which were able to obtain higher frequency at a lower price. “As usage increased, mariners wanted low, fixed-price broadband,” explained Gottlieb. “They didn’t want to pay by the byte, which was extraordinarily expensive, much too expensive to allow freely surfing the Internet.”

Inmarsat was very slow to adapt to this technology until it started losing business to VSAT providers and finally responded by coming up with Global Xpress, which will operate on Ka Band. It also reacted by acquiring ShipEquip, a large provider of maritime VSAT, which had been one of the companies taking a big bite out of Inmarsat’s sales. With ShipEquip, Inmarsat was able to offer Ku Band service, along with its FleetBroadband for L Band as a backup, an interim move until the debut of Global Xpress.

Price Wars
That helped trigger the price war between satcom system providers that’s still raging. Adding fuel to the fire was Inmarsat’s offering in July of a low-priced competitive system combining FleetBroadband from ShipEquip with Ku Band VSAT. “Inmarsat dropped its prices so much that it initiated a price war that will have severe effects, especially on many of the small and intermediate distributors it had because the amount of money these guys could make was no longer anywhere near what they were making previously,” Gottlieb said. “Essentially, Inmarsat cut the throats of its own distributors and moved toward a direct sales strategy. That has caused a great deal of anger among Inmarsat’s distributors.”

Vizada, which owns Marlink, Inmarsat’s major competitor, was recently acquired by Europe’s EADS Astrium, which has a relatively unlimited pocketbook, enabling Vizada to come back a month after Inmarsat announced its price cut and slice its own pricing even deeper. “Distributors are going to now be in very bad shape because their revenues and their margins are falling” Gottlieb explained. “If the price war does get worse that will be a break for shipping operators. However, if the providers drive each other out of business, ultimately prices could go up.”

The high level of competition in the market means prices will continue falling on fixed-price VSAT for the shipping community because demand for fixed-price broadband services over deep ocean routes is soaring. “In a labor market where attrition is high and the cost of recruitment and training is rapidly rising, ship owners and managers know that such services as low-cost ship-to-shore communications, cellular aboard ship, transmission of video clips, and live and near-live entertainment of IP television increase crew-retention rates,” Gottlieb said.

“From what I’m seeing, it appears everybody is trying to wrestle for a spot in the market,” said Urs Rathgeb, President and General Manager at Radio Holland USA with responsibility for the North American market from Houston. The company is a subsidiary of Rotterdam-based Imtech Marine Group. The competition in the marine satcom market has become so keen that Rathgeb definitely expects to see a round of shakeouts and consolidations. “I think it’s started already,” he added. “Another thing besides pricing that will significantly impact the market will be when Inmarsat comes out with its Global Xpress. That will really make it very difficult for other people to compete.”

More-Demanding Customers
Meanwhile, maritime users of satcom equipment and services are getting smarter. “They’re becoming more educated and are starting to ask more questions about satcom speeds, whereas in the past you just told them that it was slow or fast,” Rathgeb said. “We’re seeing more of our customers asking for actual statistics and confirmation.” He noted that customers more and more are looking at lease packages: “I do think that in the mid-term most VSAT equipment will be leased or the equipment will be free against a contract, similar to what you see with wireless phone services. We see that definitely as a trend.”

Joe Apa, Stratos Vice President, Global Marine in Bethesda, Maryland, said that since Inmarsat’s launch of FleetBroadband in 2007, the company has led the market with FleetBroadband activations on more than 10,000 vessels. That’s helped Stratos, a wholly owned subsidiary of Inmarsat, maintain its position as the largest supplier of mobile satellite services to the maritime industry with communications to more than 40,000 maritime terminals worldwide. He described the maritime market as going through “a challenging period” with ship managers looking for more ways to increase efficiency and reduce costs: “Ship managers and crew members are demanding faster, more reliable communications. This has prompted shipping companies to accelerate their plans to upgrade existing networks.”

Apa said ship managers are demanding high-performance broadband connectivity to ensure peak performance of a wide range of business-critical applications: “They are insisting on a robust platform on which they can perform IT support from shore while a vessel is at sea through remote PC management, including downloading software updates to entire fleets simultaneously.” Many of the world’s leading shipping companies are demanding higher volumes of data with the dependability of L Band satellite communications to support critical applications. “They also want to choose from a range of price plans that meet their specific requirements,” he added.

Ongoing Consolidation
This year has already seen consolidation in the market as demonstrated by the acquisition of ShipEquip by Inmarsat and Vizada by EADS. “It would not be a surprise to see further consolidation in the market at this level,” said Apa. Steve Griffin, Commercial Sales Manager at Middletown, Rhode Island-based KVH Industries Inc., said there has to be consolidation or a shakeout in the industry: “I believe we’re going to continue seeing acquisitions and potentially new providers popping up here and there, mainly VSAT providers most likely. If you talk to 10 people you’ll probably get 10 different answers, but I do see a lot of shifting around in the future for the industry, in the near future as well.”

“It’s too bad because ultimately the people who get confused are the end-customers who may have had one service for a while and are considering going to another service,” Griffin added. “They need it. The demand is there, but with all the stuff that’s happening they’re looking now to say ‘OK, who can I work with today that I know is going to be here five years from now?’” What IT managers and chief information officers at companies with hundreds of vessels really want is the same kind of capabilities on their ships that they have in their offices. “All the high-tech stuff most of us in corporate America have enjoyed in our offices is what they’re now trying to put on their vessels,” he said.

“We’re starting to see these people spending money now,” Griffin said. “There was a time when a lot of vessel companies weren’t looking to invest in brand-new satcom hardware but just in the meetings I’ve been in, they’re starting to buy. I’m starting to see these companies look seriously at what they’re going to put on board for communications for the next four to five years.” Griffin noted that economic strains in various places around the world are causing a decreased demand for goods, which means a lower demand for transportation of those goods: “This financial pinch has many shipping operators looking for ways to cut costs without reducing business efficiency, which is where services with affordable airtime plans, like mini-VSAT broadband, offer a benefit.”

An area manager in China for Imtech Marine of Rotterdam reported that package sales of satcom products for newbuild vessels is “robust at present,” but he expects a decline as newbuild contracts have dropped. Otherwise, business is picking up in certain areas as ship owners look for financing options. Customers are becoming more price-sensitive, focusing on free equipment and airtime packages. New potential markets for the company are the growth of pleasure boats in south China and offshore rigs. Price erosion, meanwhile, is still apparent. He said ship companies are going more for VSAT and limiting their purchases of more expensive pay-per-minute satcom systems.

New Product Introductions
San Diego-based Boatracs Maritime Communications, a provider of wireless  information solutions, will introduce its BTConnect software platform at the WorkBoat Show in New Orleans in late November. It can connect remotely, from home or while traveling, with vessels at sea. “We’re making absolutely sure that our new software program has integrated mapping and messaging so it’s a lot more than just points on a map,” said CEO Irwin Rodrigues. “A lot of companies just provide points on a map but what we’re doing is building more intelligence into that mapping software so you can actually click on a vessel and you can send it a message,” he said. “We’re making that available from any device so you can run it on an iPad, an iPhone and Android. You can easily send an email to your vessel.”

Rodrigues considers the potential for mobile capability “extremely important because a lot of times we work with small-to-midsize companies whose owners, operators and dispatchers are always on the move. Some of these companies are pretty short-staffed, so their ability to keep track of where their vessels are, from the office, at home or on the road, is very important. In our case, particularly because we focus on this market, it’s critical, and we’ve definitely gotten that feedback from our customers.”

Another new Boatracs innovation to be introduced at the WorkBoat Show is a tri-mode product that combines satellite, cellular and Wi-Fi communications in one unit. The price will be “very affordable,” according to Rodrigues. “No one else has this, a tri-mode, including Wi-Fi,” he said. “Some people may have built something like this, but integrated into one box, I’m not aware of it.”

It’s a buyer’s market, all right, for those seeking new or upgraded satcom solutions. Get ‘em while you can! – MarEx

See Art Garcia’s companion piece on dynamic positioning elsewhere in this edition.