Written evidence submitted by Inmarsat (SAT0037)

1. Inmarsat is pleased to provide written evidence to the Science & Technology Select Committee enquiry: ‘Satellites and Space’.

About Inmarsat

2. By way of context, Inmarsat is the largest UK headquartered satellite operator and is the global leader in the segment of mobile satellite service ‘MSS’.  Inmarsat’s primary mission is the provision of ‘highly reliable broadband data and voice connectivity services in regions where terrestrial network services are unreliable or unavailable’[1].
3. Inmarsat was founded in 1979 under UN auspice to enable ships anywhere in the world to stay in constant touch with shore or to call for help in an emergency.  Inmarsat remains the only satellite network able to meet the stringent International Maritime Organisation ‘IMO’ Global Maritime Distress and Safety System ‘GMDSS’ requirements.  Being based in the UK, along with the IMO and substantial of the maritime economy meant that Inmarsat increased the UK’s prominence as the global centre for maritime.  Inmarsat continues to support the UK maritime community as a Diamond Sponsor of the ‘London International Shipping Week’[2].  In addition, Inmarsat contributes to the development of global maritime skills and capabilities through direct funding of the Inmarsat Chair at the ‘World Maritime University’[3].  Though the scope of Inmarsat’s activities has broadened significantly since foundation, maritime remains a core focus accounting for c50% of MSS revenues[4].
4. Inmarsat’s business model is to commission high integrity satellite communication networks, and sell access to the network, similar to a mobile phone business.  Factor inputs include: the satellites themselves, launchers, insurance, ground infrastructure and the creation of an ecosystem of application developers, terminal manufacturers and distributers.  Inmarsat acts as catalyst of a large, complex, global supply chain, which contributes a considerable amount of value to the UK’s ‘Space Innovation and Growth Strategy’ growth targets.
5. As a consequence of the scale of Inmarsat’s operations, it is a major investor into and has exposure to performance of both the upstream and downstream space sectors.  The scale of Inmarsat’s investment is evidenced most recently by the December 2015 procurement announcement[5] for two ‘Inmarsat-6’ satellites from Airbus at a contract value of $600m[6], which will see substantial of the manufacture take place in the UK – the programme includes a major UK contribution, including UK based major technological developments.  Airbus won a global competitive tender to secure this deal.
6. At the time of writing, Inmarsat is a member of the FTSE 100 with a market cap of £4.82bn[7].  A large number of Inmarsat’s employees are UK based (c700 at the Old Street Headquarters), whilst the vast majority of revenues (2014 revenues of $1.286bn[8]) are export sales, predominantly via independent channel to global shipping, aviation, government and enterprise users ranging from media, NGO through to oil and gas.
7. Inmarsat is fully funded and generates revenues in the main from private sector sales, as well as $300M+ revenue from governments across the world, including the US.  In recent years Inmarsat has won awards both as ‘Best Telecommunications PLC[9], as well as from the International Telecommunication Union ‘ITU’ for humanitarian engagement in crises around the world[10].  In addition, the team responsible for assisting the response to the MH370 Malaysian airline incident[11] has been widely credited[12] with making an important intervention, with significant international impact.

•                               What satellite-based capabilities should the Government particularly support — telecommunications, navigation, earth observation, space science, or others — and how?

8. Inmarsat provides telecommunication services, so is best qualified to provide comment on that segment.  Notwithstanding, in daily life all of us are dependent on the capabilities enabled by the full range of space based technologies listed above – each delivers substantial economic and social value, with further promise to be realised.  In practice, many space applications blend several space technologies together, which is an increasing trend as capabilities mature[13] - for example Inmarsat connectivity often marries with earth observation capabilities to support humanitarian response efforts; Inmarsat and GPS are mainstays of modern ship navigation.
9. Today, the UK supports telecommunications system development through subscription to European Space Agency ‘ESA’ Advanced Research in Telecommunication Systems ‘ARTES’ programmes.  ARTES funding flows from ESA Member States into ESA, where it is then made available, often on a match funding basis, to identified programmes.  A ‘georeturn’ rule applies, which ensures that contributing Member States are able to invest into programmes of national relevance, whilst advantaging ESA value add.
10. Inmarsat gains from this R&D spend often through benefits that it provides to key technology suppliers.  Inmarsat’s role is often a catalytic one – the majority of ARTES funds that benefit Inmarsat end up at Inmarsat but are channelled to specialised providers, often SME’s, who might be the sole provider of a necessary component globally – there is sometimes a strategic benefit from ESA spend in that regard.
11. In recent years, the UK has engaged jointly with Inmarsat to deliver flagship space innovations, such as the Alphasat/Alphabus, described by ESA as ‘the biggest public–private space project ever made in Europe’[14].  IRIS[15] is another Inmarsat/ESA initiative which will modernise European / global air traffic control via the EU’s SESAR programme – it will contribute to safer, more efficient aviation and is set to expand this year[16].  Inmarsat is also presently progressing the ESA sponsored Inmarsat Communications Evolution ‘ICE[17]’ programme, which will pave the way for modernisation of the mobile satellite world.  Some of these benefits will be captured by Inmarsat in terms of an improved system that can be made available but the majority accrues to upstream manufacturers, ecosystem and downstream providers.  Inmarsat has also announced a significant pan EU aviation programme ‘European Aviation Network’, which is a partnership with Deutsche Telekom[18].  Impetus came from access to pan EU ‘S-band’ radio spectrum - it is a further example of the importance and relevance of satellite telecoms to the space economy.
12. The recently published London Economics Space ‘Case for Space 2015’[19] sets out the economic rationale for support of the telecommunications segment.  Inmarsat provided economic evidence into this study, which was prepared by an expert outside economist in line with best practice economic methodologies.  The evidence provided by Inmarsat looked specifically at the UK return from ARTES spend[20].
13. Aside from the economic aspect, which is an important gating criteria for use of public funds, there are other public policy considerations at play.  Satellite capabilities employed to support modernisation of global maritime and aero transportation modes delivers productivity benefits, as well as the ability to ensure compliance with emissions, fisheries, safety and welfare requirements.  Similarly, Inmarsat is also used to enable peacekeeping, crisis relief, stabilisation and interventions.  It is an important global infrastructure that the UK utilises in the pursuit of some of the main challenges outlined in the recent Strategic Defence and Security Review ‘SDSR’, particularly around: resilience, stabilisation, enabling prosperity and crisis response.  Furthermore, the SDSR identifies the need for resilient satellite communication to ensure the reach of our Armed Forces.  The global coverage and resilience necessary to support the stringent requirements placed upon Inmarsat by the IMO have been exploited by the Armed Forces as far back as the Falklands Conflict.  In increasingly uncertain times the use of such resilient communications capabilities should be readily available for all defence, security and public safety users in the UK and in support of UK interests overseas.
14. Inmarsat has entered into a broad partnership with the International Telecommunication Union (ITU) to provide satellite terminals, which can be deployed at the request of a Member State whose telecommunications have been disrupted by disaster[21].  In practice, Inmarsat has already donated 70 state-of-the-art, highly-portable satellite devices capable of delivering voice and broadband data, to the ITU, which have enhanced the UN agency's capacity in deploying mobile telecommunications to assist countries in preparing for disaster and in strengthening response and recovery mechanisms. Only to account for 2015, the Inmarsat equipment was deployed to disaster areas in Malawi, Vanuatu, the Federated States of Micronesia, Mozambique, Nepal, and Myanmar[22].
15. Many countries around the world, particularly rapidly developing emerging markets, are realising that space is a highly effective route to delivering service to all areas of the country – no matter how remote or disadvantaged by disaster.  This trend[23] represents a tremendous opportunity for Inmarsat and the UK to share expertise and partner with these emerging space users.
16. The UKSA’s International Partnership Space Programme ‘IPSP’ is a well-timed strategic intervention that supports deepening bilateral ties through the medium of space, which sits as the enabler of benefits to the recipient country.  Inmarsat has engaged fully with this programme and has worked with a best of breed consortium to deliver maternal health improvements in Nigeria and inclusive financial services in Kenya.  The method employed has potential to be taken to the global scale and we have already progressed partnering discussions with leading actors in Brazil, Philippines, Nigeria and elsewhere in Africa.
17. A key aspect of Inmarsat’s programme, which is called ‘Pushing Digital Frontiers’[24], is to ensure that the knowledge gained is leveraged by the UK and disseminated broadly to centre the UK as the world leader in space applications in emerging markets.
18. As part of the Inmarsat lead IPSP programme, a community portal, ‘STARHub[25]’ (Satellite Technology Applied Research hub) has been established at the Space Applications Catapult ‘Catapult’.  STARHub sits behind real world interactions.  It takes inspiration from the successful experience of the global mobile phone industry in ensuring enormous gains from mobile uptake in the developing world and casts it into the satellite world[26]. 
19. The intent of STARHub is to bring together space application providers with key emerging market users – ensuring that the benefits of space are widely advantaged by those most in need and leveraging the UK’s competitive advantage in satellite applications.  Catapult has proven itself as a very capable outwards looking organisation to partner with in endeavours such as this.
20. With the successful launch and placement in geostationary orbit of the third satellite of the Inmarsat 5 Global Xpress ‘GX’ series[27], Inmarsat is now ready to provide service within the framework of the first global broadband satellite system for earth stations in motion ‘ESIM’s’. Whist this space application was fully recognized internationally in the ITU Radio Regulations and service was regulated in Europe, GX global service development is crucially dependent on the establishment of harmonised licensing frameworks in different parts of the world enabling timely market access based on service authorisation and free circulation of terminals. One international framework, which could certainly facilitate circulation of GX ESIM’s, is the ITU GMPCS-MoU and its Arrangements[28], of which the UK Ofcom is a signatory.   

What steps should the Government be taking to build markets for both new satellites and the ‘space services’ that they provide (such as space-based internet services or high resolution imaging)?

21. Satellite is now an established mainstream technology – it is a way to access connectivity in an increasingly network agnostic world, which is the challenge of 5G.  Whereas at one point satellite was expensive for the end user and difficult to integrate, today satcoms is increasingly regarded as a mainstream connectivity channel – however, in some communities those obsolete views still linger and more needs to be done to allow prospective users to open up their potential suite of options to include satellite.  The focus should be on delivery of communications of which satellite can be a crucial element. 
22. The internet of things (also known as ‘IoT’ as well as ‘machine to machine’ or ‘M2M’) has become a driving force to deliver productivity benefits and new methods of conducting business. The generation of ever larger data sets is not limited to terrestrial connectivity. It is estimated that only 10% of the world’s surface has cellular coverage. The driving need for productivity or regulatory compliance globally requires that reliable connectivity everywhere, all the time be delivered on a global basis– a concept we refer to as ‘The Internet of Everywhere’[29].  Resilient infrastructure is also a part of the story here – enabling control during terrestrial network failures, sometimes as consequence of disaster event.  Without connectivity, whether it is satellite or terrestrial – we are more vulnerable and less productive.
23. Satellite based IoT or (M2M) is one rapidly developing area, with applications in a variety of global industries such as agriculture, oil & gas, utilities, fleet transportation, cargo transportation, maritime vessel tracking and management, aviation tracking and management, civilian and military tracking and communication. At present, there are a number of standardisation and research activities ongoing[30] – it is important that satellite finds a role as a complement to terrestrial systems and can do so through investments that enable low cost satellite solutions to be deployed and integrated into IoT and M2M solutions.
24. Concretely, the government should ensure that the satellite angle is considered for feasibility in all discussions about connectivity – and that end user communities are brought into the debate to understand how space can assist at the earliest possible time.  The upside to the UK is substantial, particularly with the successful launch of the ‘Catapult’, which will help to ensure that the UK is the most attractive country to run a satellite applications activity from.
25. The UK needs to continue to balance investment in telecommunications with prudence.  In recent years a large number of new satellite networks have been announced, many employing new technological and commercial concepts.  Whilst innovation and entrepreneurialism is to be welcomed, key industry commentators have expressed a need for caution[31].  In the late 1990’s a string of commercial failures harmed the reputation of the sector for a decade and though much has changed since that time, a long term view must be taken.
26. Our membership of NATO drives a wider opportunity in the satellite communications sector that would benefit from Government intervention.  The provisions of satellite communication services to NATO has a number of different flavours, of which commercial satellite communications like those provided by Inmarsat is one.  Current procurement plans for the NATO satellite communications Capability Package, CP-130, is expected to have a planned total budget in the region of €1.5Bn, with approximately €200M being allocated for commercial satellite communications.  The unique nature of Inmarsat Global Xpress and it ability to deliver both military and commercial services would be of great benefit to NATO and the UK’s interest therein.  It is worth noting that commercial satellite communications are funded through the NATO Common Funding mechanism to which the UK contributes 9.85% of the direct funding to NATO. Therefore, it is essential that the Government maintains its National Technical Experts inside the relevant NATO agencies, specifically the NATO Communications and Information Agency, NCIA.

•                               What is the impact of the current UK regulatory environment on growth in the satellites and space sector? Is it conducive to new players, such as SMEs and start-ups, entering the market? Has the regulatory environment kept pace with innovations in satellite/space technologies?

27. UK regulations cover a range of areas, such as spectrum, orbital slots, outer space licence, insurance, standardisation, through to stances taken in key end user forums that set rules on safety standards, such as in the IMO, ICAO and elsewhere.
28. One possible future constraint on the growth of the sector is the ability to access spectrum on a sustainable basis, globally.  Technology improvements have allowed new frequency bands to be brought into use, for example in the Ka-band frequencies[32] where Inmarsat’s Global Xpress network operates and where Inmarsat-6 is planned to operate.  These higher frequency bands have larger spectral bandwidths available, allowing for significantly higher datarates for users than has previously been the case.  The use of the Ka-band frequencies for mobile terminals, such as those on ships and aircraft is enabled by technology improvements such as in antenna tracking, which allow terminals to maintain precise pointing to the satellite even on a moving platform.  The operation of mobile terminals in frequency bands that were previously restricted only to operation of fixed terminals is an area where the regulations are currently lagging technology.  Inmarsat is working with regulators to make the necessary changes to the regulations, but progress is slow due to the international nature of spectrum regulations.
29. Changes to the international spectrum framework require national regulators to work collectively to agree and maintain certain frequency bands that may be used for satellite services.  Ofcom plays an important role both as a domestic regulator, at regional level as an active player in CEPT and as a negotiator at the global level through the ITU, seeking a deal that aligns with the UK national interest.
30. There is often competing demand for spectrum, typically between satellite applications and terrestrial applications.  For example, Inmarsat is currently defending its MSS operations in the L-band spectrum[33] against the proposed operations of new terrestrial mobile networks in the adjacent band.  If not properly controlled, this proposed new terrestrial operation could cause damaging interference to our services.  This example is illustrative of where there is a need for internationally harmonised action to protect Inmarsat’s operations in the UK and abroad.  Another new development is from the quest for additional spectrum to accommodate terrestrial 5G applications which is placing large bandwidths in the millimetre wave frequencies under threat, including some bands which are currently available for satellite applications in the Ka-band and Q/V-band[34] ranges.  The high value that is attached to terrestrial mobile spectrum, as indicated by some of the high auction fees obtained by governments, makes the case to maintain spectrum for international satellite services all the more challenging.  
31. Another area of major concern to Inmarsat is the ability to secure orbital resources for the operation of planned geostationary satellites.  With the proliferation of filings and the congestion in the orbital arc, it is difficult for a satellite operator to gauge which of the satellite filings that have been made are speculative and which have a more genuine basis.  This itself perpetuates a cycle where additional filings are made by operators to overcome uncertainty and to increase the chance of securing an orbital location.  Ofcom are commended in trying to tackle this issue within the ITU.  However, their approach includes setting unilateral due diligence requirements on satellite operators, stricter than those applied by other administrations. This can place significant disadvantages to UK operators due to the in-balance in regulations that results between the different administrations.  Inmarsat would like to see a more international and consolidated approach in tacking the issue of speculative filings for orbital resources. 
32. Sometimes the national and international perspectives are in tension and the role of Ofcom as a domestic regulator does not always marry neatly with UK space policy priorities, where a more international perspective is required.  This problem has recently been addressed by the establishment of the Space Spectrum Advisory Committee, but its role and influence is still in its infancy.
33. UKTI has played an important role in facilitating market access and commercial engagement overseas.  Our experience has been extremely positive.  We have found in (for example) Philippines that local staff are well versed in the local economic scene and are enthusiastic to support.

•                               What mechanisms are needed to encourage investment in UK space and satellite technology, and improve access to finance?

34. Inmarsat is listed on the London Stock Exchange and has completed several successful bond issuances since listing in 2005.  From that perspective, Inmarsat is able to raise sufficient financing to fund its borrowing requirements, however, this is due to Inmarsat being a well-established business with a strong Balance Sheet and credit history.
35. The ability to raise financing in the market is only one aspect as the key issue facing the industry is the requirement to fund significant upfront investment for the build and launch of a satellite with a payback over many years.  Any help to fund this large capital bridge would obviously help, such as that offered by, for example, the US Export-Import Bank which provides lower than market interest rates with a long tenor.  Although UK Export Finance does offer this to some extent, it has not been widely available for the space and satellite sector. 
36. Where there is perhaps room for improvement is in access to capital for downstream applications businesses, who can see a commercial opportunity for a satellite connectivity business but cannot describe the level of returns typically demanded of venture capital and consequently face a funding gap.
37. Finally, Companies are attracted to invest in countries which have a stable and beneficial tax regime.  Companies in the space and satellite sector require certainty over the tax environment over the long term due to the long term nature of the investments they undertake.  Incentives such as those offered by the UK Patent box regime which reward innovation are very helpful.  The current regime, however, is very focused on ‘patent heavy’ industries such as the pharmaceutical sector, rather than on the model of the space and satellite sector. 

•                               Is the Government striking the right balance between national and European/international endeavour? 

38. The international regulatory framework for the deployment of satellite networks is established in the ITU Radio Regulations and other ITU rules and practices implemented by the ITU Radiocommunication Bureau. This framework is in permanent review and is revised each 3-4 years by the World Radiocommunication Conferences and Council, bodies in which the UK Government participate in full capacity. The procedures to gain access to the orbit/spectrum resources are based on coordination between countries concerned, the ultimate responsibility of the UK Government, which is supported by the satellite operators during the technical negotiations. It is further noted that, to give rights to participate in this process, the ITU collects fees for the processing of notices submitted by the UK Government on behalf of the national satellite operators as Inmarsat. It is important to maintain the fee schedule at reasonable levels that would not impair the financial viability of existing and future satellite networks.
39. The visit of the President of China, Xi Jingping to Inmarsat underlines the critical importance of the space sector and Inmarsat in particular as an international asset – Inmarsat was the only UK company visited during the State Visit.  We are deeply appreciative of the role of the UK government in supporting this opportunity, which resulted in cooperation on China’s flagship ‘One Belt, One Road’ initiative[35].
40. Yes, the government has broadly struck the right balance and has a considered view that is sustainable. 
41. Space is an international and collaborative business.  The National Space Policy sets out in very clear terms why the UK engages with space and why it needs to be externally focused. 
42. Recently the UK secured an ESA Directorate and will have a UK Director – these are significant achievements and means that the UK will have real influence in the future of ESA’s telecommunications strategy.  The European Centre for Space Applications and Telecommunications ‘ECSAT’ is the first ESA facility in the United Kingdom and has been very important for strengthening Inmarsat-ESA relationship, particularly with regard to the ICE programme
43. The IPSP is an excellent complementary programme that leverages off of previous policy interventions and casts space as a tool to pursue important international objectives.

•                               What are the key challenges facing the Government and industry in developing and implementing new space capabilities and services?  What are the technical barriers to further growth in the sector, including the lack of a UK launch capacity?

44. Inmarsat operates a geostationary ‘GEO’ satellite network (as do the majority of major commercial satellite operators, including broadcast providers) comprised of amongst the largest, most complex satellites available.  GEO launch capability is provided at several sites across the world and there is no particular reason to require a UK site for use with the sort of satellites that Inmarsat uses.  Aside from the cost, there are physical reasons why this would be challenging.
45. The space sector faces a challenge of scale.  In the M2M market, abundant use cases present but research/testing is required to develop key reference users and deliver the benefits of commoditisation in what is a highly price elastic market.
46. Time to market for new space technologies is a competitive issue and one where performance improvements are always welcomed. ESA and UK processes/funding should ensure that the procedure does not harm the competitiveness of the UK space sector and support advantage where practicable.
47. With the rapid advances in satellite communications technology over the past decade, a key challenge for Government is to remain up to date with these changes.  A critical area where this challenge makes a real difference is in security and defence related matters.  The current acquisition programmes for the Emergency Services Network for the Home Office and Future Beyond Line of Sight for the MOD ‘F-BLOS’ are heavily dependent upon communications, with a critical need for satellite communications in both cases.  Government must address the need to maintain an appropriate level of suitably qualified and experienced personnel if it is to be a truly intelligent customer.  Our view is that Inmarsat is able to drive true competition within the satellite manufacturing market place and save $100Ms in Government capital expenditure on new programmes.
48. The depth and breadth of applications through which European governments can exploit satellite communications has been recognised through the work carried out in the EU under auspice of the ‘Govsatcom’.  These important applications range from border surveillance and crisis management to intelligent transport and beyond.  Inmarsat is engaged in the ongoing studies related to Govsatcom and recognises both the risk and opportunities it represents – the final deliverable of Govsatcom as a capability is unclear at present.  To ensure best value, ease of adoption and scalability, it is recommended that the Government fully understands the benefit to be achieved by this programme if driven towards the acquisition of satellite communications as a service.  It is a live agenda topic and full, deliberate engagement is essential to drive it to a successful conclusion.

January 2016