EUROCONSULT EXECUTIVE BRIEFING
Emerging Apps Driving MSS Industry Growth
by Richard Roithner
The MSS industry is currently at a crucial point with several operators about to replace their aging satellite constellations, an economic crisis that impacts several key vertical target markets and a difficult environment for financing. Nevertheless, the industry is expected to grow in the years to come, driven primarily by data applications, increasing use of MSS in maritime and aeronautical markets and rising demand in emerging regions.
In 2008, MSS operators generated total wholesale revenues of $1.23 billion, a 6 percent growth over 2007. The leading three operators Inmarsat, Iridium and Thuraya account for close to 88 percent of the total industry revenues, with Inmarsat alone having a market share of over 51 percent. The three leading MSS operators, Inmarsat, Iridium and Thuraya, also reported a positive EBITDA for 2008, with the remaining three operators Globalstar, SkyTerra and Orbcomm reporting negative results. The number of global active MSS terminals has increased from less than 500,000 terminals in 2002 to close to 1.8 million terminals in 2008, largely driven by the strong growth in M2M terminals.
The years 2002 to 2005 were highly successful for the MSS industry, with total industry wholesale revenues growing from roughly $740 million in 2002 to close to $1.2 billion in 2005, mainly driven by military and government activity in the Middle East and increased usage of MSS in vertical industries throughout North America, Europe an Asia.
After 2005, several MSS operators started to struggle for various reasons. Middle East-based Thurayas results have been impacted by technical issues with the satellite and a high number of pre-paid users who stopped using their phones. U.S.-based Globalstar has seen a sharp decline in financial performance beginning in 2007, due to technical problems with the satellite. The 2007 financial crisis added to the industrys woes as operators needed to replace their aging satellite constellations.
New applications driving the industry
Today, the MSS industry is undergoing a major shift from legacy voice dominating traffic towards more and more data traffic. This has led to a number of new products and applications over the last years, such as low data rate M2M products as well as MSS broadband systems. MSS broadband (i.e., >128 kbps data rates) has seen strong growth over the last 2 to three years with more than 30,000 terminals deployed at year end 2008. First launched for the land-mobile market, with main users being government/ military, media, and the oil & gas sector, MSS broadband is now also gaining momentum in the maritime and aeronautical markets with dedicated products for those markets. Inmarsat s BGAN is still the dominant product in the market.
Launched in 2005, more than 27,000 BGAN terminals were deployed as of December 2008. Growth rates for MSS broadband systems are expected to remain high over the next years with the total number of terminals expected to more than triple by 2014. The main drivers underlying this growth are the increasing need for remote mobile data communications in a number of vertical markets (e.g., media, merchant shipping, business aviation, etc.) and a number of new end user applications supported by the higher data rates. With new end-user applications, data usage per terminal is expected to increase leading to higher ARPU and revenues.
The market for mobile satellite M2M and low data rate products has equally been strong, increasing over the last few years from around 200,000 terminals in 2003 to roughly 1.2 million today. Growth has mainly been driven by increasing use in vertical markets including land transport, energy, utilities, constructions, heavy machinery as well as in some maritime markets. With a decrease in hardware and service pricing, satellite has become instrumental in those markets for data collection, fleet management, telemetry and SCADA. M2M is becoming also increasingly important in the maritime market tightening regulatory requirement including AIS and LRIT. In terms of revenues the M2M market stays however primarily an equipment and value added service market and is thus not a major contributor the wholesale MSS revenues. With an increasing number of end user applications and higher M2M data capabilities the ARPU is expected to grow.
Land mobile still the largest MSS market with fast growth in maritime and aeronautical
Initially created for maritime communications, the largest user base for MSS today is in land mobile markets, which accounted for roughly 86 percent of total MSS terminals in 2008. Distribution of MSS revenues among the segments is more balanced with maritime accounting for roughly 35 percent and land for roughly 58 percent of wholesale revenues in 2008.
Future growth of the MSS industry is in particular expected to be driven by the aeronautical and the maritime markets, both estimated to gain in importance in terms of operators revenues. The current economic crisis which is deeply affecting those end-user markets could however slow growth, at least in the short and medium term.
Growth in the maritime market in recent years has primarily been driven by data applications. MSS operators and service providers are pushing for higher bandwidth products. Inmarsat launched its FleetBroadband product (up to 432 kbps) in late 2007, Iridium is currently starting commercial service of OpenPort (128 kbps) and Thuraya recently launched a broadband version of its ThurayaMarine system.
In addition to broadband, voice remains an important application for crew welfare and safety communications. Major maritime segments include merchant shipping, fishing, government/ military, oil & gas as well as some leisure markets including yachts and private vessels. The impact of the financial and economic crisis in some of these markets could lead to a significant slowdown in growth in the maritime MSS market.
In particular the merchant shipping and the fishing industry feel a significant impact of the economic crisis in various ways such as it currently leads to reduced maritime traffic, increasing pressure on prices and a decline in ship orders. As an illustration, the Baltic Dry Index, an indicator for the prices of maritime cargo transportation came down from over 10,000 in mid 2008 to under 1,000 in the first quarter of 2009. A recovery of the industry in the middle term could however rapidly result in a return to growth for MSS in maritime markets.
The aeronautical market for MSS solutions is still in its infancy, with slightly more than 30,000 terminals estimated to be deployed at year end 2008. However, MSS has become an essential part of aeronautical communications, in particular for long-haul, transoceanic flights. The growth of aeronautical MSS terminals and revenues has been significantly accelerating in recent years due to an increasing network of distributors and service providers and numerous new MSS products launched for the sector with a trend towards data communication terminals both, for high data rates (e.g., Swift64, SwiftBroadband) and low data rates (e.g. Iridiums SBD).
A major growth driver for MSS in the aeronautical market could be the uptake of in-flight passenger cabin communication systems. MSS seems in particular to be a viable solution to support in-flight GSM systems as currently offered by service providers OnAir and AeroMobile. However, the aeronautical industry is strongly affected by the current crisis, with the International Air Transport Association (IATA) forecasting a total industry loss for commercial aviation of $8.9 million for 2009 and an unprecedented revenue decline of 15 percent in 2009. The effect of these difficult conditions in the aeronautical industry on MSS may be a slower take up in market penetration than expected, in particular for in-flight entertainment applications.
Despite current difficulties, MSS industry poised for growth in the coming years
The MSS industry is currently facing some challenges, such as the financing needs for the upcoming satellite replacements, the economic crisis deeply affecting some of the key vertical markets for MSS, and the tough competition by other technologies including mobile VSAT. However, we see a number of growth opportunities for the industry lying ahead, in particular the increasing use of MSS broadband in the aeronautical and maritime markets, low data rate satellite M2M applications, as well as the ongoing increase in demand by government and military customers. All in all the market is expected to stay a niche market. Beyond the traditional MSS business, hybrid satellite/terrestrial systems in the U.S. (ATC) and Europe (CGC) plan to launch their services throughout the next two years. At the moment the business case as well as the systems impact on the traditional MSS market remains unclear and a number of candidates are struggling with technical issues, system financing and partnerships for the terrestrial parts of the networks. However, if the systems are successfully implemented and the business cases prove viable, the MSS industry as we know it could change significantly in some years from now.