Yes we can! (Maybe)
With the political fervour in the US growing daily stronger it seemed appropriate that the 2016 Satellite show followed hard on the heels of the Conservative Political Action Conference at National Harbor, on the outskirts of Washington DC. But once the politicos had departed, the prevailing mood echoed the outgoing president’s best-known slogan.
There is a pretty simple reason for this. The huge amounts of new capacity coming onstream over coming months and years contrasts starkly with the depressed end user market. Where FSS/mobility providers are eyeing expansion into terrestrial markets and talking up compatibility to the next generation of cellular services, there is no escaping the gap between maritime ambitions and the reality of the market.
This means the providers have to believe in something that at first seems highly questionable. As more capacity and greater competition acts to lower prices, shipowners will be persuaded to use more data, the pie will grow and the supply side will prosper.
These same providers must be able to differentiate on more than cost and in doing so must still make a margin. This is happening at a time when the trend in VSAT is towards lower margin, more commoditised services, similar to current L-Band offerings.
The maritime panel at Satellite 2016 featured three network operators, all of whom are bringing new capacity to market, either High Throughput or enhanced L-Band and the service providers that enable the ground segment and whose role is to distribute these services to end users.
Billions of dollars are being spent on campaigns to convince owners and managers not only that they need more bandwidth, but also that they should choose a particular flavour even if it is more expensive than what they are using now.
This makes this more like an election campaign than the participants on the maritime panel would probably admit, but if this is a battle, what wins? To Matt Broida of HarrisCaprock, the formula “is 60% cost, 30% business model and 10% technology” but he sees growth significant potential from the latent demand in a number of deepwater segments.
But that cost element shouldn’t be all about price. Broida pointed out that Exxon has cut staff by 20% in 20 years but produced 25% more oil in the same period. “That’s the model we have to go to. Bandwidth and hardware prices are going to come down but keeping that value for yourself is the business model. Staying competitive means you don’t want to give that all away to customers.”
His view is that it’s the value chain that is disruptive “and if your strategy is to keep doing what you’re doing but better, you’re waiting to go out of business”. Services providers had to figure out who to partner with. “If you choose the right partners you can come out of disruption on the right side of it. It forces you to place some big bets but it enables you to place more bets than you could make on your own.”
For Inmarsat’s Drew Brandy the move from the company’s legacy L-band services to VSAT is an inflection point with a similar metaphor. “Like us many others are gambling on increased demand driven by new applications and that we can evolve to provide new differentiated solutions,” he said.
The Inmarsat FX VSAT model is designed to mirror its L-band offerings, built for simplicity and pre-assembly so moving away from bespoke nature of VSAT. “It strips some of the cost out of the solution because you’re not doing bespoke customised installations every time.”
Perhaps driven by the need to prepare previous damage to its partner relationships, Inmarsat is focussed on adding value for its distribution channel to provide sufficient margin support and thinks there could be more for SPs than in current L band deals.
Inmarsat was one of the innovators in crew calling but Brandy expressed frustration that less than 30% of crew are properly served. Crews consistently put comms access near the top of their needs but the lack of delivery is not going to change until vessel operators accept it as a differentiator. “As costs start to fall over the next few years, the internet will become for accessible and available and owners will start to make that change provided strict access policies are in place” he suggested.
This elephant is still in the room. Intelsat’s Chris Insall bemoaned the vessel operators’ decades-long focus on price above all other things. “That’s just part of the process and the focus we see is increasingly on operational efficiency. We’re entering a phase where there is a realisation that sub-500kb systems are unable to match the requirement of crew and operational demand. I hope we have moved beyond area of focus on cost.”
As a result he took issue with the assertion that maritime bandwidth is in oversupply for either crew or operational demand. “The majority of users say they need more bandwidth than is currently available, there is a need for genuine broadband services.
To Comtech EF Data’s Louis Dubin the proliferation of High Throughput Satellite products and solutions was still creating confusion and he stressed a need for innovation to be baked-in. “If price is your only differentiator we’re all going down quick.”
The risk for owners he said is that they cannot capture the benefits of HTS because they are relying on a previous generation of infrastructure. In the space segment very little changed for decades but with so much changing so fast, owners are increasingly looking for a consultative approach to their investments. “It’s not their core competence,” he said Dubin, “they need you to prove it for them.”
So this need not be a zero sum game – even if the session title was Battle on the High Seas. What they must do is find ways to help their users make money, not just with cheaper communications but with applications that allow them to realise efficiencies, according to Iridium’s Brian Pemberton.
“Some customers are very content with the basic operations they are running but others are interested in might be possible and which might get them 10x or 20x connectivity without increasing their spend 20 or 30 times.”
Iridium to a great extent made its reputation in crew calling, providing commodity voice services at competitive prices. Nonetheless this is a segment that remains underserved and Brian Pemberton doesn’t expect that to change. Much of this comes back to their desire to pay for it.
“Understanding crew behaviour and cultural expectations is very tricky. We see a lot of opportunity going forward, but the willingness to pay and ability to pay are definitely challenges,” he said.
There are a lot of operators who analyse the opportunity and conclude crew communications is a pot of gold. “In fact it’s about taking mean margins from a lot of people aggregating those into something. There are a lot of broken business cases out there,” he added.
And neither does he see the operational segment as a cash machine as owners bank on increased data for competitive advantage. “They want to enable that connectivity but what they often find is that they already knew 99% of what the data is telling them. What I think we could see is that processing taking place on the vessel with just the exceptions sent back.”
But he added that customers shouldn’t expect the same from Iridium’s new services as they had in the past. Iridium he said planned to be “quite disruptive to the market in migrating our customer [and] putting tools into hands of distribution partners which they can use to differentiate and earn better margins.”