Talk to handheld

The concept of handheld satellite phones just refuses to die. Arguably it should have been DOA nine years ago when LEOsat pioneers Iridium and Globalstar promised the world ubiquitous mobile comms anywhere on the planet, only to discover the hard way that GSM's roaming capability was enough coverage for most people - especially for what Iridium and Globalstar were asking in terms of both handset prices and per-minute charges.

Yet both Iridium and Globalstar still survive. Nine years after both of them opened shop, the niche markets where handheld sat-phones found an audience - vertical markets like oil, gas and transport, governments, satellite news teams, etc - have proven to be stable enough to keep both companies in business, as well as smaller players like UAE-based Thuraya and Indonesia-based ACeS. Even as terrestrial cellular coverage grows (by mid-2007, 90% of the global population was living within range of a cellular network, according to Informa Telecoms & Media) demand for handheld terminals that can connect in the remaining dead spots continues to grow. The market opportunity is significant enough that even in the US, where cellular coverage is near-ubiquitous, the FCC has issued Ancillary Terrestrial Component (ATC) licenses in the US to TerreStar, MSV and Globalstar to offer handheld mobile satellite services (MSS).

But the handheld MSS saga took an even more dramatic turn earlier this year when Inmarsat - the maritime satellite powerhouse that served the vertical market niche with its Mini-M satellite phone service well before Iridium and Globalstar - launched its planned handheld MSS service in partnership with ACeS with a raft of distribution partners, including Chinasat, Evosat, Fono, MCN, MVS, SatCom Global and Stratos.

Inmarsat's timing arguably couldn't be better, according to satellite analyst firm NSR, which estimates the global MSS market will grow from 1.8 million in-service units in 2005 to more than 6.7 million units at the end of 2012.

Much of that will be L-band devices, and will be driven by aggressive and new unlimited pricing plans as more players (namely the ATC players in the states) enter the handheld MSS game, NSR says.

However, with both TerreStar and MSV not expected to get their satellites in orbit before 2009, it may be up to Inmarsat's new IsatPhone service to generate more immediate excitement. The trouble is, the more attention is refocused on the handheld MSS space, the less thrilling it starts to look, new players or not.

Turbulence for Thuraya"&brkbar;

The recent buzz over the handheld MSS revival originated from a couple of things: Inmarsat's interest in the sector and the success of Thuraya.

However, Thuraya's star appears to have waned somewhat. The company reported impressive growth in subscribers and revenues in 2002 and 2003 with the launch of US-led wars in Afghanistan and Iraq, two markets where cellular coverage simply didn't exist at the time. Since then, however, GSM services have been launched in both countries, and Thuraya has reportedly seen usage drop as a result. As a private firm, Thuraya doesn't release details on its finances, but an October 2007 report from market analyst TMF Associates estimates the operator's revenues plummeted 51% in 2006 to $158 million (from $328 million in 2005). Its ARPUs have also declined from $90 in 2003 to around $53 in the first half of this year, the TMF report says.

However, that includes all of Thuraya's revenue streams, such as pay phones, DSL/IP and GPS modules, and it includes hardware sales as well as the actual service tariffs for each. And it's far, far below Thuraya's own ambitious forecasts of topping $1 billion and 768 million users by 2009.

"&brkbar; And for everyone else

To be fair, it's been a somewhat rocky period for all the MSS players in recent times, says TMF Associates president Tim Farrar.

'During 2006 total MSS operator revenues for Inmarsat, Iridium, Globalstar and Thuraya fell for the first time on record,' he says, from $1.14 billion in 2005 to $1.01 billion in 2006, a decline of more than 11%. Wholesale service revenues for Thuraya, Iridium and Globalstar declined almost 30% in that time.

This year hasn't been much better, for a variety of reasons. Iridium reported strong subscriber growth in the middle of 2007, and Globalstar reported 285,000 subs on its network in Q3 this year, up 7,600 from the previous quarter. But Iridium's gains were in part the result of Globalstar's satellite network experiencing problems with S band antenna amplifiers, and Iridium ended up facing a handset shortage. Muddying the outlook, says Farrar, is claims by Iridium that several thousand of its users are Globalstar customers contracted out by Globalstar in an effort to maintain its customer base. Making things worse for Globalstar is that, according to an 8-K SEC filing in June, its S band amplifier problem has raised the real possibility of losing almost all of its two-way comms capability by sometime next year if it can't find a technical solution in time.

Despite all this, as with Thuraya, market analysts still aren't predicting a decline in handheld MSS any time soon. But market growth may be more subdued than expected. TMF has downgraded its handheld MSS forecast from 15% CAGR growth in revenues and 17.2% in terminals by 2010, to just 6% and 11.7%, respectively.

Only you can save MSS

This is the market that Inmarsat now finds itself in with its IsatPhone service, which actually comprises several terminal types, not just handheld satellite phones. Fixed-line terminals (LandPhone) and maritime terminals (FleetPhone) also figure into the service. Ever since the global operator announced its partnership with ACeS in September 2006, speculation has been rife over the impact Inmarsat's handheld ambitions would have on the overall market.

Ian Canning, VP of marketing and product management at Stratos, which distributes services for Iridium, Globalstar and Inmarsat, gives an upbeat assessment.

'The handset market has ebbed and flowed over the years, but we've seen good growth of satellite handhelds over the last few years, particularly on the data side with Iridium,' he told Telecom Asia. 'With Inmarsat coming in and bringing more awareness to the market, we could see double-digit growth, around 20% to 25% as a whole.'

Another thing Inmarsat brings to the table, says Mark Sykes, commercial director of global satellite phone services at Inmarsat, is instant credibility.

'We're a stable company with a strong portfolio and a proven track record of reliability,' Sykes says. 'We've been around for ages, so everyone knows us, and we've got a fully funded stable path for global rollout by early 2009 after we launch the last I-4 satellite next year.'

While it's early days for reporting uptake since the IsatPhone launched in July, Sykes says response has been 'positive', and that the subscriber base so far is a mix of new users, existing Inmarsat customers who were getting their handheld service elsewhere and former Iridium and Globalstar users who decided to switch, 'particularly Globalstar.'

In other words, while some subscriber poaching is happening as expected, the IsatPhone is generating some new business as well. Part of the credit goes to its price structure, says Canning of Stratos.

'The terminals are at a substantially lower cost, and the per-minute voice costs are lower as well, so that expands the market somewhat,' he says.

In fact, this is one strategy that gives Inmarsat an interesting potential edge over its rivals. Unlike Iridium, Globalstar and Thuraya, Inmarsat doesn't depend heavily on terminals sales for revenue, which means it doesn't have to try and keep handset prices at a premium.

'We don't seek margins on hardware,' says Inmarsat's Sykes. 'We see it as an enabler for services revenue.'

Inmarsat can afford to take that position because overall, says Farrar of TMF, because it primarily gets its revenue from maritime. 'So handheld voice was ever only going to be a modest part of their business, whereas for Iridium and Globalstar, the majority of their business is handheld voice, so they're more dependent on selling equipment to earn revenue,' he says.

However, a related issue is the fact that at the moment, Inmarsat's handheld terminal, the old ACeS R-190, comes with its own limitations built-in. For a start, it puts serious power demands on the I-4 satellite providing the service because it requires voice channels to be allocated in every small spot beam of satellite. It's also not RoHS-compliant, which means it can't be exported to Europe, which has banned electronic gear without lead-free solder since 2006.

This is a short-term problem, as Inmarsat has already contracted EMS Satcom to develop a new next-gen handset due for release in 2009 when the IsatPhone service is ready for global rollout. But this - along with the fact that for now the IsatPhone service is limited to the Indian Ocean region under the I4F1 satellite - could also mean that Inmarsat may not sell many handheld terminals in the meantime.

'Basically no one's got any really high expectations from the service until they upgrade it with the next-generation terminals around 2009,' says Farrar.

Consequently, Farrar adds that while he doesn't doubt that Inmarsat will achieve its stated goal of capturing 10% of the wholesale handheld MSS market by 2010, that's likely to include its Mini-M terminals, 'given the definition of the overall market used by Inmarsat' at its investor day presentation in September.

'In reality it will have only about a 5% share of the truly handheld market,' Farrar predicts.

Something for everyone

That shouldn't be seen as a case of Inmarsat jumping the gun, however, as Farrar reckons that Inmarsat at the very least had solid strategic motivations to target handheld MSS now, particularly via ACeS, which happens to own L-band spectrum that Thuraya has been struggling (without success as we went to press) to acquire for its planned Thuraya 3 satellite for the Asia-Pacific.

'Inmarsat had an opportunity to take ACeS out of the equation and gain some additional spectrum in Asia rather than letting Thuraya acquire it,' Farrar says.

Inmarsat is also keen to put pressure on Globalstar and Iridium, the latter of whom is Inmarsat's biggest competitor for maritime traffic, he adds.

'If Inmarsat's entry into the handheld business makes it more difficult for Iridium and Globalstar to finance their next-generation systems - and thereby reduces competition for Inmarsat's other services - then Inmarsat may consider this money well spent,' he says.

Canning of Stratos is more upbeat, describing handheld MSS market demand as diverse enough to keep all the current players in business.

'It all depends on what the customer needs,' he says. 'If you want true global service, then Iridium is really the only one. If you want voice and low-speed data for things like telemetry and tracking, then Iridium is a good choice.' Even when Inmarsat goes global in 2009, he notes, Iridium will still be the only operator covering the north and south poles.

If your needs are more regional, he says, then for now it comes down to Globalstar, Thuraya or Inmarsat, and where there's overlap, that's when pricing models start to matter.

'With Globalstar, for instance, if you're within one footprint, relatively static and operating under one gateway, then it's a simple price model, but it gets more complicated if you roam,' he says.
Canning stresses the importance of giving the customer what they want - even if it means sending them to the competition. For instance, Stratos doesn't have a distribution deal with Thuraya, but if customers require GSM crossover within Thuraya's footprint, 'we'll often recommend that they go to Thuraya. Of course we'll lay out all the options, but if what we have isn't right for them, it's not good business to try and force-fit them into a service.'