LONDON — Mobile satellite services provider Inmarsat recently told investors to expect a never-ending capex cycle whose peaks are much lower and whose valleys, also known as capex holidays, all but disappear. For Chief Executive Rupert Pearce, it’s the only way to stay current with the all-but-insatiable bandwidth demand by customers.
That means maintaining and upgrading the company’s historic L-band service, with increased transmission speeds; and using its four-satellite Global Xpress Ka-band network as just the first rung on the later to super-high-throughput capacity for mobile customers. The two Inmarsat-6 satellites, to launch at the end of the decade, will have both L- and Ka-band.
Pearce spoke during the March 20 Satellite Finance Network conference.
Each Inmarsat 6 satellite will have 12 times the Ka-band of your Global Xpress satellites?
I was talking specifically about one of them, Inmarsat 6 F2, which will have about 12 times the GX capacity, yes.
F1 is running in a slightly different configuration. It’s got some specialized payloads on it so it has a slightly smaller Ka-band capability.
The advances in what you can get on a payload from when we designed Global Xpress’s first generation in 2010, to where we are today. The advances are obviously material.
You can put a lot more Ka-band capacity on a payload than before, plus we no longer have to replicate capacity. Instead of building for coverage, we can go deep, where we need to go deep, at augmentation.
The first generation of three or four satellites GX satellites gives us that unique global coverage with a reasonable amount of depth. But in order to compete over the horizon, with HTSs and — much more importantly — in order to continue to be relevant to our customers, to continue to deliver on their demand, we need to go deep. And this is what the next generation of Ka- capacity will do.
How much Ka-band capacity is on the Inmarsat 6?
I don’t think we’ve disclosed that. “A lot” is a very nice number.
Your Thales InFlyt Experience customer is investing in satellite capacity over North America. For the rest of the world, they use GX. In Europe you offer your future satellite-terrestrial European Aviation Network. In Asia, it’s just GX. With Inmarsat 6, you’ll have enough capacity to match, say, the ViaSat-3’s 1 Tbps?
The short answer is: yes. It’s not just about the Inmarsat 6’s. It’s about a series of investments that come together in space and on the ground. You’ve seen us make announcements about our investment in the air interface for GX, to take data speeds from 50 Mbps to over 300 Mbps. That doesn’t require more spectrum or different satellites.
We’re investing in the antennas on the ground or on the aircraft to improve the efficiency and effectiveness on the antenna.
We’re also putting more capability in space as well — on the Inmarsat 6’s, and there will be satellite platforms to come. This is an evolving process. But the pain point in networks keeps moving around from ground to space to the antenna and back again. So you’ve got to look at this thing holistically to get it right.
So after Inmarsat-6 comes an infrastructure with ViaSat-3-type throughput?
Yes. Our ambition, having been earliest to market with a global mobile broadband capability, is to keep investing in that capability so that we continue to be at the forefront of the service offering that can be made available.
And yes, absolutely the benchmark over the horizon — if it gets built — is ViaSat-3. But there will be something else after that, and then something else. We’ve just got to keep leveraging our free cash flows, our industrial base and above all our customers.
Because when you get somebody like a Deutsche Lufthansa, for example, signing up to GX, they are making a very long-term decision. The decision itself gave us exclusivity for 10 years, so that’s just one contract. But the reality is that you tend to stay on for the life of the aircraft.
Our customers want to know where we’re going to be in 10 years, in 15 years, in 20 years. Being a satellite operator, we are in a very strong position to show them the direction of travel.
None of these networks being built, including Viasat-3, are being built for in-flight connectivity. My suspicion is that over the next 20 years we will see the evolution of specialist networks to serve this community.
It’s a very unusual community. It’s a bit like serving cruise ships. You’ve got small vessels with a couple of hundred people on them, you could be looking at upwards of 50 percent take-up — half the plane wanting connectivity at the same time.
You may see in-flight entertainment coming off even the long-hauls, so that people will entertain themselves.
No more seat-back screens: You see that coming?
It is certainly a prospect. Airlines are keeping their options open. If you can provide high-quality broadband to the seat, to a device that people bring on themselves, which is not regulated, and does not require certification and vast amounts of money you spent on it, and which can be updated, at the customer’s own expense, every couple of years, that’s probably better than having in-flight entertainment in the seat-back.
Yes, it’s a real possibility.
You see future satellites that are specifically tailored for in-flight connectivity?
These aircraft have a habit of coming together in different places at different times of day. So to serve them you have to have a very specialized mobility network. If this becomes the $4 billion market that it’s projected to become by the mid-2020s, I think you’ll see people like us investing to make sure the customers have the best experience possible.
Connected aircraft for cockpit and safety and maintenance vs passenger connectivity: Which is ultimately the bigger market?
The cabin side of the business is the $4 billion wholesale business globally forecast by the mid-2020s. Today, virtually all our revenues come from the cockpit — what we call the connected aircraft, or safety and operational services. It’s broadband to the cockpit, next-generation air traffic management and broadband to allow all the systems and subsystems to communicate in real time to the ground, which is revolutionizing the cost of running and maintaining an aircraft, a good thing for all of us.
That is almost 100 percent of our business today. And the other piece is business aviation. So we treat connectivity in executive jets in a different way.
The business in safety and operational services is $130-$140 million business for us and it’s growing at double-digit rates and we think we are entering a 10-year era where we can expect to grow faster than that.
Business aviation will trade up to Global Xpress I am fairly confident of that. Safety and operations , with our next generation of service, we are very well positioned to deliver a lot more value into the cockpit.
And setting that against passenger demand for connectivity, which is the bigger market in a decade?
It’s the cabin. It’s just too big. You cant take a $130 million business and turn it into something that will be a $4 billion market.
The club of L-band satellite operators just shrank by one: Australia let its one L-band payload retire without replacing it. But the club grew by one with the Indonesian government’s decision to invest $800 million in an L-band satellite, a big one, for government mobile communications.
Mexico did the same.
Does the Indonesian project change the equation for you in Asia?
Not really. Since 2006, we’ve been working very happily with the Indonesians and the Indonesian government around supporting their L-band ambitions in-country.
But that was relatively small, and it was an Inmarsat satellite that helped them do that.
Yes it was. We supported the operations of the Garuda satellite and then we supplemented that with an Inmarsat-4. Indonesia is going to do what they want to do for their own regional needs. L-band has incredible characteristics for certain types of applications. We wouldn’t have invested in Inmarsat 6 otherwise.
We have a similar situation with the Mexican government for their own military use in Mexico too and we are very happy to work alongside them.
We offer augmentation and extension of coverage to these regional operators, just like we do with GX by the way. We deliberately try to make sure that our system is as open as possible so that people can jump onto our system as easily is possible and extend their coverage.
The US military just launched its 9th WGS Ka-band satellite. One more to go. You still see no negative impact of the WGS fleet on GX’s military Ka-band?
No, the fundamentals are there. There are no plans for the US government to launch more WGS’s beyond the 10th. Therefore there is going to be a very long hiatus. They have got an Analysis of Alternatives going on about how they fill that gap. A lot of people believe they are going to fill that gap by buying a lot more commercial.
Even with these satellites they haven’t got enough capacity to meet their own needs, let alone the needs of their coalition partners. There’s just not enough of it. If you can build capacity that can augment or extend the coverage of WGS, there’s a real business there and there’s just the prospect of a new type of relationship with the US government down the road, if you can deliver in a way that allows you to become an embedded partner.
That’s obviously what we hope for. It’s risky. The US government isn’t the only thought leader in this area. We’re finding the Australian government, the Canadian government for example both are extremely innovative not just in how they develop their capacity but new business models with the commercial side of things as well.
You have a take-or-pay contract with Boeing where they pay you a fixed amount no matter how the business is doing and they sell GX to the US government.
Correct, and it runs out in about two or three years. So if you’re looking to make investments going forward then we look through that to the broader strategic moves of the US government makes. Look: Space is congested and contested as far as the US government is concerned. They’re in an environment where they and the Five Eyes need this kind of capability in order to function.
Then they start worrying whether they have enough of it in the right places and what happens if their own capabilities are attacked in the first phase of any kind of kinetic activity. So then they start to think about proliferating their capabilities.
They also realize that the pace of innovation in the commercial space arena is now, for the first time probably in history, is moving faster than innovation in their own proprietary programs. In other words, governments only buying their own capabilities are buying stuff that’s out of date before it’s flown.
Therefore they’re looking to change that whole relationship and so say: We need to start treating the commercial world differently. We need to invite them in more often, we need to have trusting relationships so that what they build happens to align with what we need.
That’s the big opportunity for everyone. If we can get that right, we create a brand-new, multibillion-dollar market from nowhere. People should be very pleased about that. We have to stand ready to do that because of what we’ve achieved in terms of our capabilities.
Several of your counterparts have beaten their heads against the wall in Washington for years on behalf of this, without much result.
That’s because in large part we weren’t taking an “If I build it, they will come” approach. We were saying: If you pay me $1 billion I will put your payload on my spacecraft.
That requires two things to happen: One, for the government to pay up front. Second, government procurement cycles have to match commercial procurement cycles. Those two things just weren’t happening.
The game has been changed by something very like GX. Look, we’re not the only people doing it. Other people are doing it. But we built a military Ka-band capability that is global and that looks very like WGS, and we did it on our dollar, up front, at risk.
All I’m saying is that having done that, we then were able to create a completely different relationship with government — with many governments. There may be an opportunity of doing something like that with the UK government. I hope that’s the way it does go because I think a marriage of commercial procurement and military procurement works very well.
The commercial side gives you the agility; the procurement side gives you the specialities. I think that because we built something up front, government is now beginning to think about working with us in a different way.