Inmarsat

Whilst Global Xpress complements our L-band franchise, it can also provide an upgrade path to existing customers who may develop higher bandwidth needs, and affords them the opportunity to migrate over time from existing services to the new GX services. Some customers may also choose to use both services simultaneously in the future through hybrid packages we plan to offer. With Global Xpress we also intend to pre-sell some of the capacity, as most Fixed Satellite operators do today. In the first demonstration of this we have signed Boeing as a distributor with a significant commitment for capacity on the Inmarsat-5 (‘I-5’) constellation representing 10% of the planned income in the first five years of operations.

Of course, we remain well-positioned to continue growing our core L-band franchise as well. With three generations of satellite constellations in operation, another one currently being built – Alphasat, which will operate in the L-band spectrum – we continue to invest for the future here as well. We have also recently launched new services such as our global handheld phone, IsatPhone Pro. New low data rate services and the next generation safety services are examples of more to come. We intend to maintain our L-band network, and will purchase new satellites for this network on a rolling procurement basis, which means that they will be replaced over time rather than in a concentrated investment period. This allows a smoother investment and cash-flow profile that benefits our capital requirements.

The dropdown chart reflects the different market opportunities we see for our business. These all build upon a successful broadband business which has been developed over the last five years. Our Broadband Global Area Network (‘BGAN’) business was first introduced to land mobile users and then expanded into FleetBroadband services for maritime users and SwiftBroadband for aeronautical users. We see more growth ahead for this platform as we benefit from more applications, penetrate new industries and target specific geographic areas.

An important new addition to our L-band satellite constellation will be the Alphasat satellite, being built by Astrium, which is currently due for a late 2012 delivery. This project involves us as the commercial partner for the European Space Agency (‘ESA’) and our investment in this satellite will provide additional capacity and redundancy, so enhancing our L-band services. We are already in advanced discussions with manufacturers for a range of new and enhanced Inmarsat products and services to work on the Alphasat platform and our existing L-band satellites. With this investment we give our customers even further assurance that their existing services will be supported well into the next decade, protecting their investments – something most of our competitors cannot currently match.

Two new offerings, which are supported on our L-band satellites are our global handheld satellite phone, the IsatPhone Pro, and our satellite low data rate (‘SLDR’) services.

We have seen our land voice revenues decline over the years and the introduction of IsatPhone Pro is our opportunity to reverse this and grow voice revenues over the coming years. The IsatPhone Pro is a small handset, with a ruggedised design and clear voice quality for the special remote environment market we serve globally. It has the longest battery life in the industry and the lowest retail price for the handset. Initial sales have been positive and we expect to take a 10% share in the established market within the next two years. Although this market segment is already very competitive with offerings from regional and global providers, we believe the voice quality and reliability we can offer for many years to come is unmatchable by our current competitors. In a recent independent survey, the IsatPhone Pro was rated the best-performing product in the market compared to handsets from two other MSS providers, and is being offered at the lowest price.

The SLDR services referred to above were first highlighted in last year’s annual report, when we commented about the opportunities we saw through expanding our services in the telemetry market which would drive more traffic onto our network without us having to incur any significant investment – either capital or operational. This vision has started to provide a revenue benefit as the number of applications using telemetry units has increased. Our investment in SkyWave Mobile Communications (‘SkyWave’) came at a good time in its development and for our expectations of market growth in that sector. We also have seen development with a BGAN-based telemetry service which will be offered through all of our Distribution Partners.

Another important development in the year was in the area of satellite/terrestrial hybrid networks. In December 2007 we signed an agreement to work with another satellite operator, LightSquared, to enable the rebanding and efficient reuse of L-band radio spectrum covering North America. It was intended this would provide flexibility and operational terms to support the development and deployment of 4G ancillary terrestrial component (‘ATC’) services by LightSquared. In August 2010 we received notice from LightSquared triggering Phase I of this agreement and in January 2011 we received Phase II notice. Payments are now to be made to us on a quarterly basis, which would result in US$368.8m of payments for Phase I (within 18 months) and US$115m per annum (with a 3% annual escalator) for Phase II. After significant planning for this, we are now ready to make the required changes over the next few years to protect our customers from the effects of the terrestrial implementation. Of course, we will incur costs, particularly in the first few years of this development and these are more than adequately covered by our income from the agreement. However, assuming LightSquared completes its implementation, we do expect this to represent a steady income stream for the future. Also, we are exploring similar hybrid activities through our S-band satellite programme in Europe and other activities in our existing L-band system. As a business, we continue to explore optionality in our business that can deliver incremental value to shareholders.

In January 2010, we successfully completed the acquisition of Segovia, which provides secure internet protocol (‘IP’) managed solutions and services to government defence users. Segovia is now part of the financial reporting group of our Stratos segment. Our decision to acquire this business is to position us more deeply with key customers and offer integrated edge to edge solutions using our network and other technologies. Segovia met our expectations in its first year in the Group, and our other operating government subsidiary, Stratos Government Services, saw strong growth in the year as well. We continue to work closely with all our distributors to profitably grow together in the diverse markets we and they serve.

As part of our ongoing strategic decision review, we look at opportunities to profitably grow our business and manage the risks we face. At the time of our IPO we laid out a roadmap with multiple paths to accelerate our growth. Achieving the growth targets also demonstrated our ability to leverage our fixed cost base to accelerate cash flow growth as revenues increase. With an established and successful track record for strategic development, we are well positioned to achieve more in the coming years.