Competition in the MSS industry is heating up as major FSS players look for a slice of the action. While others are launching next generation systems, UAE-based Thuraya is happy to take its time to flesh out its future. Fresh from a far-reaching restructuring, CEO Samer Halawi talks to SatelliteFinance about the road ahead.
Competition in the MSS industry is heating up as major FSS players look for a slice of the action. While others are launching next generation systems, UAE-based Thuraya is happy to take its time to flesh out its future. Fresh from a far-reaching restructuring, CEO Samer Halawi talks to SatelliteFinance about the road ahead.
Ed Ansell: Where are we with your restructuring process?
Samer Halawi: When I joined Thuraya in 2011 my goals were in three different buckets: An operational turnaround in the business, expanding its scope, and finally looking at the next generation capability.
The first part was really to address a horrifying situation at the time. As a company we were pretty much bankrupt. We didn’t have any cash in the bank and our revenues had been declining by a CAGR of 8% for the three years before that. So we implemented a full transformation programme, resulting in a restructured balance sheet and revenue growth of +11% between 2011 and 2014. So that element was the most critical.
The second bucket involves expanding the scope of the business, because this is a business of scale and the more scale you have the more you can optimise and spread your fixed costs.
One of the things that we put into action recently is a new gateway facility that will be based in Cyprus, and this enables us to provide even more stringent security capabilities and redundancy in the satellite. And because it’s in a NATO-friendly country it enables us to target some of the more security aware government agencies, especially the Department of Defense.
So that’s one way for us to expand our scope, and we’ll obviously look at other partnership possibilities with different companies.
The third bucket about next generation capabilities is about putting something together that makes sense 10 or 15 years from now. You’ve heard a lot of announcements from others in the last few months – and there’s now a lot of interest in the sector from venture capital and even governments, but it’s important to not just throw money at projects like what happened with the first generation LEO constellations. Some of the next generation plans that have been announced, and in some cases launched, by our competitors are either very similar in capability to what they had a long time ago – which in some instances failed – or the compromises on the technology are too high.
Given that the life of our satellite does not expire until 2020, we have some time left to make a decision, and we just want to make sure that we have the right system in place that makes sense in multiple ways.
EA: When will a decision be made about the next generation project?
SH: We want to announce something sometime next year – maybe the middle or end of 2016. We’ve had some really good discussions with the major manufacturers. We’re still trying to push the envelope more on capability. At the same time this summer we paused to reflect on what’s going on in the industry around us. In some ways there could be possible partnerships here that makes sense, and some of these players coming in might not succeed on their first go, but they might open up an idea or drive a new technology or innovation that would be good for us, and that’s what we’re looking at – for instance with some of the new ways of manufacturing a satellite. When we’re talking about building 2.5 satellites per day we’re talking about a different type of constellation.
EA: So you’re not just considering GEO-based systems but also LEO – do you have regulatory rights for that?
SH: Yes, and there are ways around this. We have some rights as well, and some filings. So we’re not that concerned about this. We’re most concerned about getting something that works for what we’re looking for. That’s high mobility – because we’re in the high mobility business with small devices – but also higher capability.
EA: From a satellite perspective, are we looking at more capacity, the ability to adjust, etc?
SH: We’re looking at coverage, we’re looking at how many users we can sustain, and looking at the traffic distribution patterns. It’s one thing when all the users are in one beam and it’s another if they’re all spread out. Then you’re looking at how you can close the link with a device. For example something like an omni-directional antenna requires more gain than a flat or dome antenna. We want to give people the freedom to move around.
EA: When you talk about partnerships, are they with the satellite operators or beyond then?
SH: I’m a big advocate for partnerships because I think this industry lacks them and that hurts us because we simply don’t have scale. If you were buying the same type of electronics that are in our devices for a cellular phone then they would cost considerably less. Apple goes to someone like Texas Instruments and orders 10 million chips, and we order 10,000. It’s a whole different scope.
EA: Do you think we could see this in the industry?
SH: I think we could. I think we could see a bit more cooperation between the FSS and MSS guys. At the end of the day the end user cares less about what frequency band they are on. Who says now that L-band is MSS and Ku is FSS? That definition is long gone. Some people have Ku capabilities, some have Ka and others have L-band, and if you put that all together then one possibility is to develop products where you have the uplink in L-band and downlink in Ku or Ka. What that does is strips away the receiver from the Ku/Ka, which makes that unit much smaller, and has downlink capability that’s much higher than you could ever get on L-band.
So what do you do? Get one satellite that has both L and Ku – can you do that without compromising on one or the other? Or do you put a very strong L-band satellite next to a very strong Ku satellite? Do you deploy two constellations or go into partnership with a company that already has the other system, which has a capacity that is probably not being filled because everyone is launching satellites today? So that’s what we’re looking for as well – areas where you can do fundamental partnerships where your whole system is based on that.
EA: Have you held discussions about this – are people interested?
SH: Yes of course, and some people are interested. I think people are becoming more rational and pragmatic. Early on the industry maybe had a lot of ego. Everybody wants to own their own car, and in our industry everyone wanted to have their own satellite. Though it’s a lot more expensive than having a Lamborghini…
EA It’s safe to assume your next gen will be a global constellation. In the interim would you look to try and go global with your current constellation by getting a hosted payload with someone else?
SH: Possibly. If there’s a good business case for something like this and there’s a right partnership then we’d definitely go after it. Having more coverage is a good thing, not only because you’re getting money from those markets but because you’re increasing the capability that you have where you are – especially from governments.
EA Has not having the global reach helped focus Thuraya on what works best?
SH: On the one hand where we are focused is challenging, on the other it does teach you how to get to market in a really difficult environment where people are price sensitive, and distribution networks are not as developed as they are in North America or Europe.
When you’re working in Africa just collecting money from your customers is a challenge in itself. When you’re working in Asia or the Middle East then licensing becomes very difficult and important, and so you learn how to deal with all those challenges as a company, and when you have more capability then your life is much easier.
I think that it also opens up the possibility of partnerships even more. You see operators announcing global constellations with a satellite that looks nice – but how do you go to market? Your market is not going to be Minnesota or the UK. It’s going to be in Mali, Myanmar, etc. How are you going to get there? Who is your distributor? Do you have a licence or not? Those are very difficult questions for those companies to answer.
I’d rather go from the position that we’re in to having more capability. Actually what I would like to do is partner with those people and have that capability, because we can offer them what they don’t have. What they have is that global coverage that we’re looking to have.
EA: Where do you see the traditional markets going? For maritime, for example, we’re seeing Inmarsat go one way with Ka-band and then the rise of the FSS players coming into that area. Is this a market you’re worried about?
SH: No we’re doing really well in maritime. We grew in maritime this year by 42%, year-on-year in the first half. The main reason for this is the huge size of the maritime sector. You start with the really big cruise liners, and those guys are really well served by VSAT or O3b Networks with very high throughput. We cannot serve that and we will not serve that.
Then you have the big shipping liners or commercial fleet that goes around the globe that uses some FSS and also L-band to get the continuity in coverage, and also provides a good service when there are issues such as rain fade. There are companies that are serving that market as well.
We focus on more of the regional shipping fleets and fisheries. Those guys are much more price sensitive, and they require basic communication services and narrow band. They don’t really need the high throughput of a cruise liner. At the same time they want some quality work because their lives depend on that. Those are the markets we focus on. There’s not many players in this world that focus on those markets. Everybody is after the high end.
The market we are targeting has been dying for alternatives and there hasn’t been any over the years, and that’s why we’re getting some good traction there.
EA Do you see a threat in markets such as Africa that are having a lot of capacity coming on board? Or is it a case that, you know these markets better than the big players coming in, and that it actually hasn’t affected you at all?
SH: It hasn’t affected us mainly because we’re on the handheld side of things. They are fighting each other. But even with all those big players, none of them have a good distribution channel in places like Africa.
The markets that are most lucrative for satellites are those that are the most difficult to address.
Cellular operators have been successful in every place they go. They have a licencing regime in place and everywhere has GSM. But it’s not the same for satellite. If you’re SES or Intelsat, etc, you can’t just walk into Mali and say this is how it should be, this is how I want my distribution. It’s not that straightforward. We’re trying to leverage the cellular markets and ride on that. And that’s why our go to market strategy via mobile operators is so important for us, because we’re leveraging the customer bases that are already set up – and we can also give something that is of interest of them. We have more than 370 roaming agreements with mobile operators – their sim cards work in our phones and vice versa. Those customers are probably not going to buy a VSAT, but they’ll buy a handset.
