Inmarsat

In 2010, revenues from the maritime sector were US$360.6m, a marginal increase over 2009. Data services grew by 4% with voice revenues reducing as expected. There is migration away from our older maritime services, especially Inmarsat-B which is due for closure at the end of 2014, to our FleetBroadband services which have cheaper tariffs and higher transmission speeds. This accounts for some of the reduction in revenues, particularly for voice revenues. Ship owners and vessel captains scrutinise opportunities for cost control and we have seen a trend of moving to using voice over internet protocol (‘VOIP’) services and email rather than making traditional voice calls. During 2011, we will launch FleetPhone for the maritime market, as part of the IsatPhone family of products, and expect to capture some of this voice market again.

Our FleetBroadband services are now accepted and endorsed in the maritime market. The MSUA, which is a non-profit organisation promoting the interests of mobile satellite users worldwide, gave an Innovation Award for our FleetBroadband service, recognising the benefits of this service to the maritime market. FleetBroadband 150 has made a strong start, having only been launched in mid-2009, and is successfully targeting the leisure and fishing markets which are new market segments for us. In 2010, across the range of three services – FB500, FB250 and FB150, we added more than 10,000 FleetBroadband terminals. This is more than double the number added in 2009 and is the fastest growing maritime service in Inmarsat’s history. FleetBroadband 150 was also recognised in early 2010 in Sail Magazine’s annual awards as the most innovative new electronics product.

In September 2010 it was announced that AP Moller-Maersk, the world’s largest shipping company, had confirmed an order to more than double the number of vessels it operates with FleetBroadband connectivity. This retrofit order of an additional 200 vessels to the existing 170 already equipped, represented commercial shipping’s largest ever commitment to Inmarsat maritime services. The roll-out of the service is going well and almost all vessels are now equipped. During the year there was strong endorsement of FleetBroadband through industry awards and its use in challenging maritime events such as the Velux 5 Oceans round-the-world solo yacht race. We are also delighted to have been selected again by the organisers of the Volvo Ocean Race to provide the communications throughout the round-the-world challenge for the 2011-12 event. For the first time we are acting as Race Partner. All raceboats will have the use of FB500, FB150 and Inmarsat C. Our handheld satellite phone – IsatPhone Pro – will be included as part of the safety kit.

Since the launch of FleetBroadband, we have explored how to enhance the service offering to customers. We recently announced our intention to launch a dynamic telemetry service on all FleetBroadband services to enable cost-effective transmission of constant low-data communications. It will support a range of applications, such as engine management systems on deep-sea tankers sending real-time data to shore-based specialists and also provide vessel monitoring systems for fisheries protection.

Our heritage as the only provider of satellite communications services for GMDSS remains important for us. We are committed to extending GMDSS on FleetBroadband in the future so that we can continue to provide mariners with the reliability and security they need in a distress situation. Our ‘505’ emergency calling service, which has already been used over 100 times since its launch in autumn 2009, introduced a new innovation in safety communications. The short code dialling facility provides direct access to Maritime Rescue Co-ordination Centres around the world. Receiving a prestigious International Safety at Sea Award recognising the ‘505’ service was a great accolade.

Easy-to-install FleetBroadband 150 terminals are ideal for coastal merchant and small leisure vessels.

Inmarsat has signed as Race Partner to the Volvo Ocean Race 2011-12.

Revenues from our land mobile sector were US$153.7m, an increase of 4.9% compared with 2009. Data service revenues grew just over 6% to US$146.4m with voice services continuing to trend down as expected as our Mini M service comes to the end of its life.

Our land mobile business is diverse, with revenues coming from many different segments. Government, media, oil and gas exploration and aid agencies are all key sectors for us. Our user groups are susceptible to events such as natural disasters and military activities and these can cause spiking of use of our services and so some volatility in traffic usage.

Our BGAN service celebrated its 5th birthday during 2010. Since launch it has seen good subscriber growth, increasing 46% in 2010. With the rapid take-up of our BGAN service, we have seen a corresponding decline in our older data service, GAN, and so have announced the closure of this service to be by the end of 2014. We have already started to see migration away from GAN and expect this now to accelerate. Receiving awards for our BGAN service in the Middle East and Africa from both CommsMEA 2010 for the ‘Most Innovative Non-Voice Service’, and the Digital Studio Industry Leadership Award in early 2011 for ‘Satellite Services/Provider of the Year’ voted on by professionals and organisations in the broadcast industry, recognise the continuing interest in our BGAN service.

We have seen our partners use BGAN in more creative and innovative ways – including support for elections in Brazil and the Philippines, enabling votes to be cast, collected, counted and announced in record time. We were able to play a part in the excitement of the rescue of the Chilean Miners with news crews using BGAN to broadcast events as they happened. BGAN was used to help map the oil slick in the Gulf of Mexico following the explosion on the rig in April 2010. The data sent back via BGAN allowed incident command staff to view updates as they happened and liaise more easily and quickly with the relevant government departments.

We have been innovative in working with partners and media customers to provide an additional suite of BGAN services they can use, offering price points to suit all types of situation and size of business operations. Our premium BGAN X-Stream service is available worldwide offering a guaranteed minimum symmetrical video streaming rate of up to 450kbps. We also introduced a new 176kbps streaming rate which is suitable for talking head shots and low movement scenes. This lower streaming rate is ideal for broadcasters who have greater budget constraints as it still delivers good quality video to their viewers at a lower price. Combined with the introduction of the 176kbps service, we also developed three new propositions for our distribution partners and solution vendors which can be combined with a customer’s existing infrastructure to enhance its value or if the infrastructure does not exist, to offer options for last-mile connectivity to deliver content into the studio.

Forging a close relationship with our partners and customers is vital to help educate and share best practice and experience about our services. In August 2010, we were involved in the promotion and education of the IsatPhone Pro and BGAN services during the Africa Endeavor 2010 summit which was attended by 30 African nations. The aim was to promote interoperability among African nations. The ability to give training on equipment at the Summit will help facilitate their future communication needs.

We also created a video showing that setting up a BGAN terminal and establishing a broadband connection takes only three minutes – this was a helpful marketing tool for partners when explaining how satellite technology can be easily used in day-to-day business activities in remote areas.

IsatPhone Pro was launched at the end of June 2010 at a price point and with performance leadership which we felt were powerful messages. An independent study of our phone, comparing it to leading handheld satellite phones from Iridium and Thuraya, validated the claims for our phone. The study reported that the phone worked everywhere and is the most rugged, has excellent voice quality and a reliable network connection, plus has the longest battery life of the three satphones tested. As anticipated, the revenue contribution from IsatPhone Pro was not material in 2010. Working closely with our appointed distribution partners and their channels, we are focused on gaining market share and growing our subscriber base and revenue contribution over the coming years.

The use of low data rate satellite communications for SCADA (supervisory control and data acquisition) and telemetry activities has increased and we believe that this continues to be a good market sector for us. A recent successful implementation of a SCADA network based on BGAN was deployed for a major oilfield services company to monitor and control hundreds of unmanned sites. The SCADA network monitors critical technologies such as electrical submersible pumps and temperature gauges with the customer being able to monitor all the controls from a central operations centre. We are developing this market sector through our relationship with SkyWave and our other distributors. New services are being developed to run over the Inmarsat-4 satellites which we expect to be introduced in 2011-12.

High-end terminals are capable of operating with the premium
BGAN X-Stream service to offer video streaming of up to 450kbps.

A range of docking stations is now available for use with the
IsatPhone Pro.

During 2010, revenues from the aeronautical sector were US$101.0m, increasing by 33% from 2009.

Our Classic Aero services, which are used by airlines, business jets and military aircraft for operations and safety-critical services, provide the links between the flight deck and air traffic control and showed excellent growth for this mature service of 15%. Our Swift64 service, which is a high-speed data service, experienced a healthy increase in the number of channels being used.

Our SwiftBroadband service has seen strong revenue growth during 2010 and its widespread industry acceptance has been reflected in a corresponding growth in active channels of 140% year-on-year. SwiftBroadband enables cockpit, cabin and operational applications through one installation using a single antenna in the aircraft. We have continued to develop and evolve the service to meet the requirements of specific markets and users. We have introduced new streaming classes together with a dynamic ‘Quality of Service’ which allows onboard applications to use the bandwidth more efficiently. In addition to these enhancements, we have developed a new service called SB200 which will provide standard IP data, circuit-switched voice telephony and streaming IP data up to 16kbps. The SB200 service is a lighter, smaller system and antenna which will reduce the purchase and installation costs. With this development, smaller aircraft will be able to access SwiftBroadband technology. We’re starting to see smaller aircraft already benefiting from lighter SwiftBroadband technology, such as Australia’s Victoria State Aircraft Unit which uses the technology in its new planes to tackle fire fighting using real-time communications.

Use of SwiftBroadband technology helped Oman Air win ‘Technology Implementation of the Year’ at the Annual Aviation Business Awards 2010. The award recognised the pioneering introduction of in-flight mobile phone and Wi-Fi connectivity using SwiftBroadband. More airlines are starting to offer inflight mobile communications using SwiftBroadband and new adoptees to announce commitments have been Emirates, the Brazilian airline TAM Airlines, Air Asia, Qatar Airways and Singapore Airlines.

We were also delighted to be the industrial lead in a consortium working with the US Defense Advanced Research Agency and the European Space Agency on a project for a data-relay satellite system using modified SwiftBroadband terminals called the SB-Sat programme. The modified terminals will be used on Low Earth Orbit (‘LEO’) satellites to deliver telemetry and operational commands as well as relaying mission data via our Inmarsat-4 satellites and Inmarsat ground network. Using modified Inmarsat technology, the LEO satellites benefit by having ‘always-on’ data communications without them having to pass over a ground station to maintain connectivity.

Leasing

During 2010 revenues from leasing were US$111.7m, increasing by 8% compared with 2009. As noted in last year’s report, as the volume of our leasing business increases so does the need to secure renewals as contracts mature. We have been successful in doing this although dependent on the business needs of the customer, so we do not assume that all contracts will be renewed or extended. In 2010 we benefited from an increase of additional government contracts and had a net revenue benefit from aeronautical leases, with some contract extensions offset by non-renewals and reduction of some aeronautical and maritime leases. We’ve continued to experience some customers wanting to secure longer-term arrangements with us so that they have the knowledge of guaranteed access and where this happens we see the migration of traffic from one sector, such as maritime, to leasing. Our BGAN service offering is being enhanced in order to address the customer need for assured or guaranteed access on our latest generation satellites and this new service is expected to be available for trials during 2011.

Our government customers use Inmarsat services across all our sectors and we continue to support both military and civilian operations on a worldwide basis. We have seen our revenues fluctuate as government activities change around the world and have seen reduced traffic levels in 2010 from such users in the Middle East, reflecting this volatility. It is therefore difficult to predict usage patterns for these areas. As governments consider their spending plans for building their own satellite systems and balance this need against overall public spending, we can provide them with commercial capacity, so ensuring they meet the requirements for their communications needs. We have referred earlier in the report to the work we have done with the African nations providing education on the benefits of our BGAN and IsatPhone Pro satellite communications solutions. We work closely with first responders in civilian departments to provide first-hand experience of using BGAN and how its capabilities can benefit them in times of crises. We have also embarked on a programme to develop Software Defined Radio (SDR) for use on our BGAN system. This technology will allow instant deployment of BGAN to new and existing tactical communications platforms. We are actively engaged with major defence contractors to complete certification so that troops in theatre will be able to use this new system in the future.

On 12 January 2010, we acquired the business assets of Segovia. Segovia is a leading provider of secure Internet Protocol managed solutions and services principally to the United States Army and other U.S. military services and government agencies. We acquired Segovia to strengthen our relationships with these key government customers across land, maritime and aeronautical environments as well as bring enhanced services to the government sector generally. We are pleased that the management team in place before the acquisition continues to operate the Segovia business, reporting to Stratos at the executive level. We have been delighted with how this business, and particularly its management, have settled into the Inmarsat Group and worked across the businesses to achieve success.

Stratos, as a major distributor, provides services directly to the customer, or through a network of service providers. It provides Inmarsat Global non-broadband services, such as GAN, Inmarsat C and Fleet, through its terrestrial network, including land earth stations (‘LESs’) located in Australia, Canada, the Netherlands and New Zealand. It also offers fixed-site remote telecommunications services over fixed satellite systems and through its owned and operated microwave facilities. In addition, Stratos provides customised turnkey remote telecommunications solutions, value added services and equipment and engineering services.

The Stratos segment includes Segovia and we report revenues in two categories. This first category is the MSS business, which is sub-divided into revenue for Inmarsat Global airtime services and then into ‘Other MSS’ revenues. The second category is the broadband business which now includes Segovia. The majority of MSS revenues are Inmarsat Global airtime sales, which are approximately 78% of total MSS revenue, representing around 60% of total segment revenue.

MSS services
During 2010 MSS services represented US$557.4m of revenues, an increase of 1% compared with 2009.

Stratos has distribution agreements with Inmarsat Global covering the provision of services provided through its LESs, the provision of services offered over the Inmarsat-4 satellites and the provision of lease services. The price and volume of the various services sold by Stratos has been influenced by several factors, including price competition both from other Inmarsat distribution partners and competing MSS and VSAT services, as well as the migration to new lower-margin broadband services. In addition, the promotion of some of their former service providers to becoming new Inmarsat distribution partners as well as changes in the mix of services they sell or lease have all adversely impacted Stratos’s revenues and margins. Stratos’s achievement in retaining its market share of Inmarsat Global services and the profitability of its MSS business cannot be underestimated. Furthermore Stratos has been a major contributor to the early sales of our IsatPhone Pro service and has introduced a new service, FleetBroadband Plus, to meet the growing need for higher bandwidth services in the maritime sector in advance of our Global Xpress offering. This is a hybrid L-band and Ku-band service that provides both the global service of our maritime services with the higher bandwidth of VSAT.

In 2010, the growth in the Inmarsat Global airtime services came primarily from increases in the use of the aeronautical Swift 64 service, particularly strong FleetBroadband activity and with good growth also in leasing. This growth was partially offset by a decrease in the land mobile sector.

‘Other MSS services’ for Stratos primarily consist of mobile terminals and equipment sales, mobile telecommunications services sourced on a wholesale basis from other MSS providers, LES services provided to certain distributors and other ancillary services. Other MSS services, in general, have lower gross margins than Inmarsat Global services. The decrease in the revenues of Other MSS revenues was due primarily to decreased LES services provided to other Inmarsat distributors, partially offset by increased sales of mobile terminals and equipment.

Broadband services
Broadband revenues increased by 75% to US$159.4m in 2010.

The Stratos Broadband business, in addition to the Segovia business noted above, provides VSAT services, primarily to the oil and gas sector, microwave services to oil platforms in the Gulf of Mexico, equipment supply and engineering services. The Stratos VSAT network enables integrated data and voice telecommunications between remote fixed sites and land-based offices.

The increase in 2010 revenue is primarily due to the inclusion of Segovia revenues from acquisition on 12 January 2010 and increased microwave revenues. Partially offsetting the increase was a decrease in VSAT revenue as a result of the expiry of certain contracts, the sale of certain customer contracts in Germany and a decrease in revenue from equipment sales.

The Broadband division, excluding Segovia, is experiencing lower demand and an increasingly competitive trading environment. Stratos’s management has already taken a range of actions, and is planning further initiatives to improve results. The WiMAX frequency spectrum licences we acquired for certain areas of the Gulf of Mexico in late 2009 have enabled Stratos to promote its capability to offer radio access service in the Gulf of Mexico at broadband speeds, competitively priced against VSAT alternatives and with low latency which provides an enhanced experience compared to VSAT. We believe the investment in the licences will provide Stratos with opportunities to further develop its services in this geographic area.

Segovia’s expertise in designing, deploying and operating mixed satellite and terrestrial networks in the military’s challenging deployment and training environments, coupled with its secure, dedicated IP network infrastructure, have placed it at the centre of the U.S. Department of Defense’s (‘DoD’) transformation and modernisation initiatives. The trend within the DoD towards end-to-end solution acquisition versus piecemeal component acquisition is expected to drive demand for Segovia’s managed solutions and services in the coming years.