A final dispatch from the recent GVF seminar in London, not because it didn’t bear reporting sooner, more that it might serve as a springboard going forward.
Amid optimistic forecasts of a doubling of maritime satellite communications terminals over the next decade and the rush towards High Throughput Satellite offerings by Inmarsat, Intelsat, O3B and others, it always pays to listen the person who has run the numbers on the demand side.
Roger Adamson whose company Stark Moore McMillan, has been running a rule over the maritime market for a couple of years with help from iDirect, used his speaking slot to point out that a ‘re-acquaintance’ with the maritime market would always be an illuminating process.
Adamson’s most salient point was to remind the vendors that shipping is still a highly fragmented market – with some 9,000 owners out there, 4,000 of which own but a single ship.
The cruise sector, VSAT’s traditional arena of operation, is far more consolidated with some 300 vessels, 175 of which are controlled by three players. Similarly the offshore support vessel segment is spoken of as a VSAT hunting ground. But as Adamson pointed out, even though the OSV sector has close to 10,000 ships, at least half are idle or laid up and 30% are 25 years or older.
The even more interesting news for those selling fat pipe solutions is that vendors of VSAT and L-band alike – are selling into a market that is at a high level at least, far from sophisticated.
SMM’s survey found that 48% of owners are still using the obsolete Inmarsat-B, 75% of them for primary voice communications. As Adamson pointed out, “we are dealing with a market that is still at 9.6kbps data.”
Spending on L-band is stable at around $1,000 per vessel per month, whether on B, Fleet or FleetBroadband. In 2010 VSAT customers were spending $3,500 per month on average. By this year that had fallen to $2,600 reflecting price pressure and increased competition.
Despite the increased incentives, Adamson said, the realities of today’s market would constrain a wholesale move towards VSAT on grounds of price.
“The slower growth in VSAT market is partly due to market conditions. The niche is becoming well penetrated, but it is also down to VSAT industry not communicating ROI properly. Sales have to be on quantifiable benefits not on functionality,” he said.
“The shipping industry is in survival mode in most sectors and it is not focussed on IT and comms, unless you can provide them with clear ROI benefits as to why they should be moving to VSAT and spending 2.5 times more than they are currently spending,” he went on.
Trouble is, Adamson thinks VSAT vendors are not communicating the benefits effectively enough. Not only is there a reluctance to invest in technology, there is a genuine aversion to the kind of long fixed-term contracts that characterise VSAT. He noted the newest kid on the block O3B was offering “fixed terms of 5-10 years and to be honest that’s not where the market is. They may take a few off the top, but it’s unlikely to find much sympathy in the broader commercial market”.
In bulk, tankers and containers, owners are likely to be laying up tonnage, so there is little appetite to pay for airtime when the ship is idle. Even when they are sailing – often below operating costs – the benefits are hard to quantify.
“When iDirect asked customers whether fitting VSAT had generated cost savings, 60% said no, 20% said yes and 20% said not sure,” he continued. “I’m convinced that that VSAT can deliver savings but nobody has as yet started to look closely at the process.”
The difference is that where Inmarsat was an easy sell to IT managers and superintendents, the cost and complexity of VSAT needs to be sold at board level, where a story that frames the potential efficiency gains across whole business can gain wider approval.
The next uncomfortable fact is that the majority of tier two owners – regional or coastal players – are unlikely go to VSAT while GSM coverage in coastal waters continues to improve.
“My take on where VSAT is going is beyond offshore and cruise and into the tanker sector. There is a huge charterer requirement for data coming off the vessel and this could be the next big market for VSAT providers. There are 15,000 ships in the clean and products trades and they are starting to become receptive to the VSAT business case.”
But there was a twist in the tail – or perhaps just another contradiction in this most fickle of markets. The SMM survey found a big increase in data usage, but the majority of the new traffic on L-Band and VSAT is for crew welfare rather than for shipmanagement applications.
“The effect is even becoming pronounced for VSAT users,” Adamson noted. “Where business efficiency was the killer app in 2010, the importance of crew welfare had increased by 2012, with VSAT a driver to increased retention for crews wanting to use instant messaging and other social media applications.”