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Has satellite communication come of age?

As Neil Jamieson, general manager, of SatCom Distribution, a distributor of satellite communication solutions said: "It is becoming more prevalent to use mobile communications as the terminal is more discrete [than fixed terminals]. The tighter the fist the government exerts, the more people are pushed into the mobile sector."

Although Dubai itself is not a big market for satellite communication, because it is well covered by terrestrial networks, it acts as a sales hub for the rest of the Gulf region, the Middle East and Africa, explained Inmarsat's regional director, Samer Halawi. Therefore, it "benefits from the import and export business quite a bit".

Inmarsat is a leading provider of global satellite communications and is making the most of the strong demand in the region by launching its latest service -- BGAN, the Broadband Global Area Service — in the Middle East first. The service will allow users to set up a broadband mobile office virtually anywhere in minutes.

The company's chairman and CEO Andrew Sukawaty said: "Our business generates more revenue in the Middle East per square kilometre than any other place in the world." Sukawaty is former deputy chairman of London-based mobile telephone operator O2 which was spun out of the telecommunications provider BT.

BGAN is described as the first mobile satellite communications service to provide affordable voice and broadband data services simultaneously at speeds of up to half a megabit per second, through highly portable and easy to use terminals — terminals that easily fit into any briefcase and weigh less than a kilo.

With the support of the Inmarsat-4 satellite, launched in March, Inmarsat can cover 85 per cent of the world's landmass, or 98 per cent of the world's population. Terminals can be connected quickly and easily to a laptop or multiple laptops via wired or wireless connections, including Bluetooth and WiFi. Four terminals have been developed by different manufacturers and are officially priced between $1500 and $3500. It is likely however that they can be purchased for much less.

Inmarsat deals only in mobile satellite communication, a market in which there are four main players."We are also in a distinctly different business from other mobile operators because they generate 95 per cent of revenues from hand portable voice terminals. About 75 per cent of our traffic is data," Sukawaty explained.

Inmarsat terminals are used extensively in crisis situations, such as natural disasters, and in war zones by the military, the media and aid agencies. "This is a government service first and foremost. We serve highly critical applications where terrestrial services don't or can't go," said Sukawaty.

Nonetheless, the market for satellite phones is expanding. One reason is that it is possible to avoid the very high roaming rates that mobile telephone operators often charge. Inmarsat is a pure wholesaler so it bills the distributor, of which there are 440 in 180 countries, not the end-user. People pay for the minutes and bits when they use them, explained Sukawaty. Inmarsat launched the regional BGAN sometime ago and it has proved to be popular. Robbie Williams has several, as do the Rolling Stones, and many embassies around the world. VIPs across the Middle East, in particular those enjoying a pastime of hunting and falconry, and wish to remain in constant touch with their business dealings are also big users.

However, it is important to recognise that Inmarsat is "not really a consumer service, though it appeals to some," said Sukawaty. The end user is largely commercial or governmental, including police, fire and all emergency services. "What happens if their trusted networks go down?" he asked. The installation of 50 Inmarsat terminals by the New York Fire Department post 9/11 is indicative of the trend.

Halawi also said: "Ministries of Interior place BGANs in embassies around the world, especially in Africa, where there are no landlines or they are of poor quality. We are working with one country that is working to have all their vehicles tracked via satellite so that they know what happens at any given time. We are also speaking with the Saudi government about pilgrimage, because there is so much traffic there and security and safety issues are paramount."

Initially, the new BGAN has been developed for land but over time will be developed for maritime and aviation. "Historically, land has been a minor piece of our business but we are developing the model to provide land-based and enterprise solutions," said Sukawaty. About 55 per cent of the company's revenues are generated from maritime.

Although there is some competition with terrestrial networks, Sakawaty and Halawi say this is "at the fringes".

Halawi also said that the growth in terrestrial is helping to fuel demand for satellite terminals. The growth in terrestrial, with services like GSM and 3G, "the more it complements the type of service we offer," said Halawi. "People become accustomed to having that service wherever they go."

Licensing policy

One of the main challenges facing the growth of satellite communication is the fact that in many countries it is highly regulated. Typically, there are three methods of regulation. The first is the designated model where a terminal can be sold only through one distributor. This is the model adopted in Japan, for example. Another way is for the regulator to licence the service and to allow multiple providers to sell terminals. The third and more complicated model is the one in which the service is non-licenced; this is sometimes known as the "grey market". In this case, the Terminal Licencing Policy is adopted and "the burden is on the individual to license their own terminal", said Halawi. This is the case in Dubai, he said.

"In some cases, we have managed to get this changed so the licence is obtained through the service provider. And this is happening more in this part of the world," said Halawi. "The general trend is towards liberalisation. It may be a bit slow but in relative terms it is happening." Inmarsat engages in the lobbying of governments and in the last few years have "achieved a number of successes," said Halawi. "Last year we obtained a licence in Kuwait, a GCC country that traditionally people would not think would open up. We have just come from Egypt where we have licensed a service provider and we have two more on the way. Countries are opening up gradually in this part of the world," he said.

Financial position

Inmarsat's financial position is strong. Formed 26 years ago as a governmental organisation under a UN mandate to serve the maritime industry, it is now, after some shaky times financially, a viable and profitable business, said Sukawaty. In 2003, two private equity firms took a controlling interest and in June this year, 52 per cent of its shares were listed on the London Stock Exchange. The remaining 48 per cent is in the hands of about 30 owners, including governments. At the time of the June listing, the share price was 245p; it has risen to about 330p. Of the IPO Sukawaty said: "It was one of the most successful IPOs in London in recent times. The attraction is the unique combination of cash flow and solid dividends. There is a five per cent current dividend yield combined with growth. This is unusual and this is why institutions in the UK and elsewhere have bought into it."

He also said: "We are fully-funded and have one of the lowest debt levels in the industry so we can certainly fund the business going forward."

Despite the buoyant Middle East market, Inmarsat has no intention of listing in the region. "The days of multiple listings have passed," said Sukawaty. The cost of listing and the regulatory requirements make it too costly, he said.

The prediction is that the demand for satellite communication will continue to grow, particularly as costs fall. "It is becoming more cost effective and levels of competition around the edges forces us to become more efficient," said Sakawaty. "Our revenue on voice has gone up about 11 per cent in recent years while data has been skyrocketing. It used to cost $17 per megabit for data for our average services but now it is coming down to about half of that. Speeds have also gone up so we are going to be much cheaper."