Wind of change blows through Inmarsat

Originally founded as a governmental organisation, Inmarsat is waking up to commercial reality as it focuses on an IPO to offer its new BGAN services in the Middle East. European CEO Michael Butler spoke to CommsMEA about the company's future plans on a recent visit to Dubai.

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By  Philip Fenton Published  March 3, 2002

|~||~||~|Inmarsat is a company undergoing deep-rooted change. This was the resounding message as European CEO Michael Butler visited the UAE to promote the company's next generation technology and services in February.

Making the transition from IGO [Intergovernmental Organisation] to a private company in 1999 has forced the company to consider its position in a now competitive environment. Thrust into competition with international voice service operators for the first time, its new focus on BGAN [Broadband Global Area Network] services and technology is forcing the company to consider local partnerships, internal organisation and investment structure.

The most graphic example of this came last year when, keen to penetrate the lucrative though congested US market, the FCC [Federal Communications Commission] placed a difficult barrier in its path. Aiming to offer next generation services in local American markets, the FCC insisted on what Butler calls "substantial dilution" of its investors.

The only route open to Inmarsat was to take the company to IPO, something which caused a stir on the market and which, due to weak market conditions, lead to two failed attempts. Butler was keen to clarify the position.

"Our intention was to do so [go to IPO] last year. We prepared for this early last year, but though useful the exercise was ultimately fruitless due to current market conditions [the onset of recession]. The second go; no-go decision was scheduled to happen in Morgan Stanley's offices on September 14th, but this was obviously over-shadowed by events."

Butler was also at pains to point out that the move was not motivated by finance, but by the desire to penetrate the US market with Inmarsat's new services.

"It was not a matter of finance. In fact we have quite of a available capital and also a debt facility which is funding our next generation of satellite," Butler explains. "The reason is that the FCC demanded a substantial dilution of our investors. We can provide maritime and transatlantic services [aircraft transmission] but we cannot offer new areas such as BGAN in the US until the IPO is sorted out. The key driver is penetration of the American market."

The situation has reached a conclusion of sorts. Inmarsat has successfully lobbied the FCC and has been granted an extension on its IPO for another year, possibly extending to 18 months. Moreover, as an interim measure its five key distributors of services in the US - which include Telenor, Seasat and Stratos - have been granted licences. Inmarsat now has to decide how to re-jig its shareholders and wait for the US market to stabilise.

How the shareholder issue will be resolved is more of a mystery. Interestingly, of the company's 80 shareholders, many are based on the Middle East, and probably less surprisingly all have significant licensing rights to the next generation services Inmarsat aims to offer. Batelco, for example, currently has a 0.5 per cent interest, Saudi Arabia's STC owns an additional 1 per cent, and other shares are scattered around Libya, Iran, Egypt and Iraq.

"Of course, due to our public service obligation, by charter no one company can own more than 15 per cent of our shares," he continued, uncertainly. "What will happen to the current shareholders is not certain yet. Some may want to increase their investment while others liquidate if the IPO is not granted."

The next generation service to which Butler refers is the Inmarsat Satellite Communicator. The device is essentially a laptop with a phone connected, and offers BGAN [Broadband Global Area Network] services at 64 Kb/s. The device can transmit and receive data, voice and packet data [GPRS] and can be connected to the Internet via modem or Bluetooth technology. Aside from its lightweight frame, making the formerly bulky solution to remote communications obsolete, the user only pays for data transfer allowing an always-on connection at low cost.

Primarily aimed at professional organisation, the device is currently a favourite with the Middle East region's news operators such as Al Jazeera: it's light frame making it a logical choice for remote and challenging areas such as Afghanistan.

Inmarsat intends to expand this concept to include additional technology, all based upon the principle of sending and receiving voice, data and GPRS in remote areas via portable devices. BGAN, claims the company, will be available commercially to the mass market on November 18th of this year.

Central to the Inmarsat offering in the Middle East is agreements with both local land-earth satellite stations and ground level service providers. This is essentially what the recent visit of Butler, and the previous establishment of a new regional director, has been aimed at. It is interesting to note that of the regional investors in Inmarsat, all provide land-earth facilities within their countries. Butler is keen to point out, however, that "we try to keep distributor agreements and shareholder relationships separate."

This mode of business - where Inmarsat is heavily reliant upon local agreements to enable its BGAN remote service - is yet another change from the once privileged position of being an NGO. Admits Butler: "Previously we had licensing agreements for our services in 180 countries. However, some are looking at us differently now after privatisation."

The relationship with Thuraya in the UAE is an example of this new business strategy. Until 2004, Inmarsat is renting Thuraya transponder capacity for voice and low-speed data. The transaction is complete, and a deal with Hughes has been struck to offer data transfer at 144 Kb/s.

At first glance, the deal may seem a strange one. For a start Inmarsat has a satellite network of its own covering, according to Butler, "covers from Scandinavia to Africa, and Asia across the Middle East. Our coverage is currently 99 countries."

However, the service is not sufficient to provide the high level of data exchange needed, so the has announced an investment of US$1.3 billion in its next generation project. This will mean the launch of 3 satellites between 2002 and 2003. "This is an interim measure until," explains Butler, "allowing us to find a customer base until our service is launched, giving us end-to-end capability."||**||

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