With the raft of bad news from recent earning calls stating lower government revenues in the satellite industry, one has to ask the question: is a pessimistic view of the market fair when the changes coming will grow the market pie and offer more bits-per-hertz at a cheaper unit price.
The truth is that pessimistic views overshadow many opportunities for solutions developed over the past ten years that address military requirements of lower budgets while at the same time offering more bandwidth.
The inventor of electricity Thomas Edison once said: ‘Opportunity is missed by most people because it is dressed in overalls and looks like work’. Well, these new opportunities for the government and military users are indeed a lot of work with many still a work-in-progress. But these will not only change the make-up of the off-the-shelf products available but also who will jostle for position at the top of this marketplace.
On top of everyone’s agenda is meeting budget cuts, while at the same time addressing ballooning requirements for end-users, and to top it off, on-the-move. With huge steps in capacity coming online via high-throughput satellites (HTS), there is some elbowing going on within the industry to meet the mandate of governments to ‘do more with less’, in particular for high-potential mobility applications.
As the graph below shows, when assessing satellite operators serving this market, the largest portion of the pie is captured by FSS operators who generated more than 75% of revenues, while MSS operators take the rest. Intelsat, which expanded its off-network portfolio (MSS, X-band), has staved off competition and is far ahead in first, taking in approx. one-third of total market revenues.
Interesting to note, however, is the two companies that are just behind in 2nd place. SES, with a video-centric core and Inmarsat, with a merchant marine base of users, will likely not only rub shoulders more often in this market but participate in steering changes to meet the new high-bandwidth, low-cost challenges of government users. Furthermore, their market position will likely be determined by how well they can add more value to users with broadband mobility requirements.
When looking at this chart, one would say that today Inmarsat is a strong contender, but it has a lot of room to grow its government business. In particular, its FSS offering has been met with far less success than it would have hope for. The pull-out of troops in the Middle-East, the U.S Navy decommissioning of its terminals on a couple of hundred ships and the U.S. Coast Guard’s choice of Ku-Band VSATs for its Cutter Class vessels’ primary means of communications, instead of Fleet Broadband, are all misfortunes that the operators has had to grapple with over the past five years.
For SES, their position as a more diversified operator worldwide and its investment in the high-throughput market via O3b Networks has lessened the hit. Several new Ku-band transponders over oceans are also taking them on the path to address the market for bandwidth and mobile solutions.
And for Intelsat, keeping its no.1 share also means it must capitalize on its HTS EPIC satellites and deploy more capacity over places where ships, airborne platforms and UAVs fly, to lessen the recent drop in revenues due to transponder price cuts offered to the U.S. Government.
Having said this, it is easier to see why Inmarsat, which will be the first out of the gate with a global fleet of satellites offering high-throughput capacity to government users, is still targeting this market. A good portion of its revenue is expected to come from the agreement in place with Boeing whereby the satellite manufacturer’s take-or-pay of 10% of the fleet’s capacity aims at getting military users onto the military Ka-band part of Global Xpress payload. Specifically, these services will have advantages for troops, ships and airborne platforms with an ‘almost-like’ WGS connectivity on a global basis that is becoming a strategic communications infrastructure for many countries around the globe. And thus, with this key advantage, Inmarsat is hoping to forge itself a future expansion in the government FSS business in a market in dire need of cheaper bits.
The increased efforts to reduce the cost of communications links by satellite operators will not only bring more benefits to government and military users, but also create a more dynamic market where both FSS and MSS services will increasingly collide into each other. The work-in-progress sign is still up on the doors of many satellites operators targeting the higher bandwidth and mobility government satcom markets, but the opportunities are likely to be just beyond the doorway.
Information for this article was extracted from NSR’s report: Government and Military Satellite Communications, 10th Edition.
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