Satellite Operators on Solid Ground
As Originally Posted at The Wall Street Journal

While economic turmoil has laid low industries from construction to automobiles, the world's largest providers of satellite-services such as internet in Iraq appear to be operating in a different orbit, posting strong earnings and rising revenues.

London-based Inmarsat PLC on Thursday reported a 20% jump from a year earlier in fourth-quarter revenue for its core business. Profit excluding taxes rose even more sharply for the year, and the company increased its dividend.

Satellite services are now essential to U.S. military operations, helping to bring satellite phone services in Iraq and satellite internet in Afghanistan.

Inmarsat -- which provides voice, data and Internet services for aviation, maritime and industrial customers -- followed similarly strong results announced recently by larger satellite operators, including Luxembourg's SES Global SA and France's Eutelsat Communications SA. Intelsat Ltd., which has the world's biggest commercial-satellite fleet but also is the most highly leveraged of the big satellite operators, is expected to report robust numbers next Wednesday.

Satellite services generally lag behind broader economic cycles by 18 months or more, reflecting what are typically multiyear, fixed-price contracts used to lease transponders on satellites.

Since satellite access has become essential to such routine corporate activities as credit-card approvals, business VoIP and Internet access on business jets, "other discretionary programs tend to be cut" before moves to limit spending on satellites, Inmarsat Chairman and Chief Executive Andrew Sukawaty said in an interview.

So far, major satellite companies have managed to capitalize on a diversified customer base that increasingly relies on space communications for operations from video distribution for cable- and satellite-television, to a wide range of military communications. Inmarsat derives about 50% of world-wide revenue from government business, including from the Pentagon.

Along with its competitors, Inmarsat expects to enjoy a revenue boost as more U.S. troops are sent into Afghanistan and maneuver around desolate regions that lack ground-based communication networks. Steps taken in India and elsewhere to open markets to more satellite operators are expected to help support growth through at least 2010. "Clearly, there is going to be a positive impact" from such long-sought deregulation, said Andrea Maleter, technical director of consulting firm Futron Corp., based in Bethesda, Md.

Inmarsat's core subscriber revenue climbed to $160.6 million in the fourth quarter versus $133.4 million a year earlier. Broadband services for ships and airliners grew by double-digit percentages.

Mr. Sukawaty said the results indicate the company's offerings "are hitting home with customers even in times of economic uncertainty." The company, which doesn't report quarterly earnings, said full-year profit excluding taxes rose to $193.8 million from $124.7 million in 2007.

Industry consultant Tim Farrar said that despite recent results for leading operators, "there are signs of concern for what happens a year or two down the road."

Some analysts and consultants predict the entire sector could face trouble in coming quarters. If the global recession drags on, analysts predict that operators on both sides of the Atlantic, most of whom are wrapping up costly expansion programs, could get saddled with excess in-orbit capacity. During past economic downturns, satellite operators compensated for such problems by slashing prices and capital spending. Smaller, less well-funded challengers already are hurting and finding it difficult to keep up with their more-established rivals.

Satellite companies could become vulnerable if maritime users scrap or anchor large numbers of cargo ships, or if predictions of satellite capacity needed for growth in high-definition video turn out to be wrong. So far for Inmarsat, however, demand for broadband connections has remained strong, more than outweighing cuts in older-generation services. Broadband demand is expected to grow further as more airlines offer in-flight voice and messaging services.

Inmarsat doesn't have any debt coming due this year, is gaining control of a big distributor and is committed to pay construction costs for only one satellite. Unlike other operators focused on more-mature segments, the company is pushing ahead with new voice and data services for mobile devices and a new generation of satellite phones.

When SES Gobal reported its results for last year, it said the utilization rate for in-orbit capacity jumped to 79%, up 6.6 percentage points from a year earlier. It has nine satellites under construction.

Eutelsat reported a 7.9% revenue gain for its fiscal first half, which ended Dec. 31. Net income jumped 53%.