PARIS — Maritime satellite broadband hardware and service provider KVH Industries asked for investor patience as it moves to a new service model that takes hardware sales out of revenue in favor of an all-service model the company believes will be a hit with customers.
Moving away from selling hardware and service separately means the company will suffer an immediate hit to hardware revenue, with a delayed uptick in subscribers as the new service, called AgilePlans, makes itself felt.
KVH is also introducing a higher-speed Ku-band service with new hardware and an expanded contract with satellite fleet operator Intelsat. It will use Intelsat’s Epic high-throughput satellites, as well as fresh capacity from Japan’s Sky Perfect JSat, combined an upgraded user terminal, called TracPhone V7-HTS, to provide higher throughput and a wider coverage area.
Downloads will be up to 10 mbps, three times the current V7 speed, with uploads up to 3 mbps, or three times the current system with a 60-centimeter-diameter antenna.
The per-megabyte V7-HTS subscriber packages, which will begin shipments in December, will come with a second channel with unlimited use, but slower speeds of between 128 kbps and 4 mbps. Subscribers electing not to move to the higher-speed package will not been to change their equipment, KHV said.
Commensurate with the V7-HTS introduction, KVH has purchased additional satellite capacity to give it more coverage of the South Atlantic and southern Indian Ocean regions.
The AgilePlans service model was introduced in the second quarter. Martin Kits van Heyningen, in a Nov. 3 call with investors, said 45% of all KVH maritime shipments in the three months ending Sept. 30 were AgilePlans. None of the hardware had been returned by customers despite the absence of an early-return penalty.
It’s an “all-inclusive, no-commitment subscription model,” van Heyningen said.
KVH competes with, among others, Inmarsat, Marlink, Global Eagle Entertainment and Speedcast in providing VSAT connectivity to the maritime market. All are moving toward next-generation hardware and connectivity solutions, and all — with the exception of Inmarsat, which sells its own satellite capacity — are benefiting from the steep drop in satellite-bandwidth costs.
“What we have have now gives us a big leg up over our competitors,” van Heyningen said of V7 HTS. “We’ve got better coverage — almost as good coverage with our Ku-band as we had with our C-band before. And it’s a single, 60-centimeter antenna with speeds that are more than double our 1-meter V11 product. And we’ve got the dual-antenna packages now where we’ve got the higher speed and the unlimited plans.”
Van Heyningen said that, all in, the cost to KVH of delivering a megabit to a customer has come down to where it’s nearly one-half of what it was.
But the near-term hit to the revenue line, coupled with hurricanes in Caribbean and the Gulf of Mexico in the third quarter, is clear.
For the nine months ending Sept. 30, KVH’s Mobile Connectivity business line reported a 7% decline in revenue to $101.1 million, with operating earnings down 35%, to $5.3 million.
The steep drop in revenue on the product-sales side from the move to AgilePlans was the biggest single factor.
“This is part of the transition of moving to connectivity as a service model,” van Heyningen said. “It’s always risky. You’re giving u the guaranteed hardware sales for growth in service revenue. For the first couple of quarters, it’s definitely a leap of faith.”
He said KVH was between three and six moths behind its original schedule on introducing the higher-throughput packages, “but we can definitely see it was the right one and it’s going to be a successful program for us.”