The Heavens Open?

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After a couple of years of the worst market conditions the satcoms market has ever seen, could it be that a rain storm of cash is about to wash away the industry’s woes?  Intelsat, SES and Inmarsat have all invested heavily in global coverage for their In-Flight Connectivity services.  But as is the case with terrestrial broadband, as soon as consumers  get connected their demand for capacity becomes ravenous.  Consumers in the air do not like a second class service – they want to do the things they can do on the ground – download entertainment, stream live events, send and receive large attachments.    So the global coverage created thus far by operators is a good box ticked for global airlines and shipping companies, but deploying capacity very thinly could backfire if customers perceptions are poor.

There is a land grab occurring, with bidders funding the installation of equipment on board aircraft and taking some revenue risk to gain the rights.  But also a second round of investment may become necessary on the grounds that IFC will soak up all the spare capacity that has troubled the market since HTS satellites capacity hit the street.  One VSAT service provider told us at a show this week that pricing has stopped falling – it has not risen but it has flatlined, and that’s good for Satellite Operators but also, perversely, apparently good for service providers because if some certainty about price dynamics is introduced, they will have more confidence to invest in growth since they will not be worried about being undercut.  This is all being underpinned by IFC.  In recent months, announcements of major programmes have come from Saudia, American, IAG, Qatar and Aer Lingus, following Lufthansa which made a big and bold early commitment.  Industry sages Euroconsult said last month that the IFC market will grow 500% to $6bn.

According to SIA,  revenues from satcoms excluding TV are around $21bn pa.  So if IFC really does grow to $6bn, that represents a very major change in demand and revenues for the whole industry.  This means that new fleets like EPIC are likely to face strong demand, which goes someway to explaining why Intelsat shareholders shunned a merger with pie in the sky OneWeb.  It also means that the relatively low throughput GX system built by Inmarsat will have to be complimented by more capex.  Other major satellite operators like Telesat and Arabsat have not made big moves in this market, but it is likely that regional operators will find their own capacity is in demand.  Telenor recently announced partnerships with SES and Inmarsat to help them fill in gaps, and British HTS operator Avanti announced this week $4.5m sales of capacity to a “mobility” customer, rumoured to be Inmarsat.  It is likely that, rather than add lots of new satellites, global service providers will sweep up excess capacity in the market from regional operators to fill in high demand areas – particular over the major airline hubs and routes.  That kind of wave is likely to lift all boats.

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