Acta Astronautica 59 (2006) 100 – 106 www.elsevier.com/locate/actaastro
Emerging commercial opportunities based on combined communication–navigation services夡 Eberhard Gilla,∗ , Brian M. Foxb , Joerg Kreiselc a Deutsches Zentrum für Luft- und Raumfahrt (DLR) e.V., German Space Operations Center, Oberpfaffenhofen, 82234 Wessling, Germany b The Boeing Company, 2600 Westminster Blvd. (MS: 110-SK80), 90740-1515 Seal Beach CA, USA c JOERG KREISEL International Consultant (JKIC), Melanieweg 25, D-52072 Aachen, Germany
Available online 18 April 2006
Abstract Cost reduction pressure on companies and increasing regulatory and legislative demand together with rapid technological progress in space-based communication and navigation are opening up new and exciting commercial opportunities. In this framework, a novel service for maritime applications is presented using a two-way messaging system and the global navigation satellite system (GNSS). The system implements an end-to-end solution for asset tracking and fleet management, positioning and tracing, messaging and security for all types of sea-going vessels. The service applies a vessel-based terminal hosting a GNSS receiver which transmits the navigation status together with messages to a Service Center with a flexible return-link capability. A hybrid space segment is considered comprising the Inmarsat constellation of geostationary communications satellites augmented by two highly inclined low earth orbit satellites for truly global services. Services will be offered to commercial enterprises such as fishing companies as well as public entities such as National Coast Guards. A detailed market analysis has been performed to assess these markets and to determine their penetration. Commercial viability has been proven for business models purely based on Inmarsat and a hybrid space segment using Inmarsat and dedicated micro-satellites. Both cases represent viable businesses in the range of MEUR 100 p.a. Although tailored to a specific market, the approach can be extended to other commercial opportunities requiring space-based communication–navigation services. © 2006 Elsevier Ltd. All rights reserved.
1. Introduction To feed a rapidly growing world population, man increasingly looks to the oceans for food and nourishment. 夡
This work has been performed in the context of the Central Case Project (CCP) of the Seventh European post-graduate master program on space systems and business engineering SpaceTech (ST). Contributions of the members of the ST7 team are gratefully acknowledged. ∗ Corresponding author. E-mail addresses:
[email protected] (E. Gill),
[email protected] (B.M. Fox),
[email protected] (J. Kreisel). 0094-5765/$ - see front matter © 2006 Elsevier Ltd. All rights reserved. doi:10.1016/j.actaastro.2006.02.004
As a result, over-fishing leads to the potential extinction of native species with severe economical and ecological impacts. Sustainable maritime activity is vital for the global economy. In addition, security is a continued and growing concern. To protect vital shipping lanes and the global economy, government agencies rely on vessel monitoring services to protect exclusive economic zones (EEZ). Commercial businesses also track their vessels to ensure security and protect against the loss of valuable assets. To serve these customer needs, a business concept has been developed which provides public entities and
E. Gill et al. / Acta Astronautica 59 (2006) 100 – 106
Fig. 1. Architecture of a communication–navigation system for maritime users. A hybrid space segment is depicted which includes a constellation of micro-satellites in low earth orbit (LEO) and Inmarsat geostationary satellites (GEO).
101
Fig. 2. Basic services for maritime communication–navigation applications.
Table 1 Basic services for maritime communication–navigation applications
commercial enterprises with the capability to efficiently monitor and effectively respond to vessel activity. The concept considers a global communication system (Fig. 1) with value-added surveillance services allowing worldwide vessel tracking.
Basic service
Description
Vessel monitoring
Automatic regular transfer of vessel navigation data Message exchange ship-to-ship and ship-to-shore Provision of alarm messages upon violating restricted areas Reporting of onboard activities through predefined forms Transmission of alert messages with reception confirmation
Two-way messaging Geo-fencing alarm
2. Services and system 2.1. Customer needs An in-depth customer analysis was a key part of the performed market analysis. A number of interviews were conducted to gain an understanding of both the market application and the customer needs. As a result, a comprehensive and clear profile of the customer and the maritime environment has been gained. The considered services support a variety of users, particularly the following four: 1. 2. 3. 4.
individual vessel captains, fishing companies, coast guards, and national fishing agencies.
2.2. Services concept Today, global communication with remote areas is a well-established feature of satellite-based services. In addition, GNSS enables for global tracking of mobile assets. The considered services seamlessly integrate satellite communication and navigation to meet needs of the maritime community.
Electronic log-book Distress messaging
Based on an extensive customer survey, a modular service concept has been developed tailored to the specific customer needs. The services include vessel monitoring, two-way messaging, geo-fencing alarm, electronic log-book and distress messaging (cf. Fig. 2, Table 1). This modular concept eases the future addition of services such as weather reporting to vessels or supervisory control and data acquisition (SCADA) applications. Vessel monitoring comprises the automatic transfer of a vessel’s secure navigation and identification data to the Service Center at regular intervals. That data is then distributed via customized reports to authorized end users including national fishing agencies and fleet managers. Two-way messages can be exchanged both shipto-ship and ship-to-shore. Ship-to-ship messaging provides an easy, comfortable and secure inter-vessel communication without interrupting routine operations. In ship-to-shore messaging, the terminal user
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communicates with a terrestrial user via the Service Center, enabling communication between geographically remote users. Geo-fencing provides a functional extension of the vessel monitoring service. The vessel position is compared with existing geo-fences and an alarm is transmitted either to the Service Center or to the user terminal when geo-fences are violated. The alarm reliably reminds the vessel’s captain about his violation of prohibited EEZ for fishing and enables efficient monitoring and control of fishing activity in and around EEZ worldwide. The electronic log-book extends the vessel monitoring function. By completing simple electronic forms, the fisherman reports the type, amount and location of fish catch or the expected arrival time at the port. The Service Center receives the log-book transmission and forwards it to the national fishing agency. The electronic log-book replaces today’s paper reporting and frees more time for fishing and vessel maintenance. In distress messaging, the terminal transmits in case of emergency a high priority alarm message including the current vessel coordinates. The message latency is minimized by relaying the message through an Inmarsat satellite or a dedicated micro-satellite, whatever is faster. At the Service Center, the alert is received and transmitted to the most appropriate Rescue Center. The confirmation of distress messages will significantly reduce the number of false alarms which today represent a major cost factor for rescue organizations.
development costs and shorten time-to-market. On the other hand, the augmentation of the space segment by dedicated micro-satellites
2.3. System architecture
Modern fishing vessels pursue commercially attractive stocks across vast distances and report their position to their national fishing agencies and fleet owners. Due to the long distances involved and the global nature of fishing, only satellite systems can provide viable and reliable communication and navigation services to support this activity. Many fishing regions are threatened due to overfishing. Therefore, in 1995 the Food and Agriculture Organization (FAO) of the United Nations elaborated the Code of Conduct for responsible fishing with articles on Fisheries Management and Fishing Operations. The implementation of the Code of Conduct identifies satellite tracking as an important instrument for fisheries monitoring and control. In response, vessel monitoring systems (VMS) are being mandated by the fishery agencies throughout the world to monitor and control fishing activity. VMS relies upon terminals aboard the vessels which transmit position information at regular intervals via satellite networks.
An integrated mission architecture has been designed enabling a variety of services that meet the needs of the market. The architecture consists of three major parts (Fig. 1): 1. user segment, 2. space segment, and 3. ground segment. A user segment consists of all user terminals onboard vessels. The space segment is made up of Inmarsat spacecraft and two dedicated micro-satellites equipped with a communication payload. Finally, the ground segment includes a Service Center as well as interfaces to the provider of Inmarsat D+ services. An analysis of the environment for competition on the one hand side suggested the use of existing spacebased communication and navigation services to reduce
1. provides truly global coverage including polar regions, 2. allows to shift message traffic from Inmarsat satellites to micro-satellites, and 3. supports the enforcement of national and international regulations. Messages are sent from vessels through the space segment to the Service Center, where the messages are processed and provided to external users. When distress messages are received, the Service Center informs the responsible Rescue Center and sends a message acknowledgement to the vessel in distress so the crew knows that rescue procedures have been initiated. Since the distressed may send messages with specific information about their particular situation, rescue missions can be tailored to their specific needs. In addition to the Service Center, the ground segment includes ground stations and a Mission Control Center for communication and control of the micro-satellites. An interface to Inmarsat’s Land Earth Stations (LES) and Communication Centers is used when the communication relies on Inmarsat satellites. 3. Market and business 3.1. Market sector characteristics
E. Gill et al. / Acta Astronautica 59 (2006) 100 – 106
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An analysis of the communication and navigation market related to fishing revealed that a combination of positioning capability with simple and reliable message communication is a key requirement. A number of applications in this market have both substantial size and promising growth rates. Of these, “fishing activities monitoring” was identified as the most commercially attractive. This particular market was further assessed in a conjoint analysis to forecast the market size and geographic distribution for the period 2005 to 2020.
The world market for fishery is highly segmented and may be structured according to geographical regions. The available market is defined by GNSS-equipped fishing vessels and represents a subset of the addressable market consisting of all fishing vessels. The penetration of this addressable market has been simulated by penetration factors indicating the ratio of available to addressable market size (ranging from 0.1 for Africa to 0.9 for Europe in 2010). The market analysis considered fishing vessels longer than 10 m and resulted in more than 500,000 vessels during this period. Of those, some 300,000 will be equipped with a GNSS receiver [1–3], constituting the available market. In 2015, a regional breakdown of the available market shows more than 100,000 vessels in Central Asia and more than 50,000 vessels in the Pacific Rim. In 2015, the fastest growing markets are the comparatively small fleets of Africa and India with annual growth rates of 17% and 11%, respectively. 3.3. Competition and market share Companies already active in the maritime navigation and monitoring market were identified and characterized as part of a SWOT analysis (strengths, weaknesses, opportunities and threats). Most of them are well-established and have developed strategic partnerships with terminal or space segment providers. As a comparative competitive advantage, a start-up company should provide real-time two-way communication [4] between vessels and remote users on a truly global scale. Keys to a successful business development are therefore compliance with the safety of life at sea (SOLAS) convention, competitive pricing, quality customer service and easy-to-use terminals. Simulations of a start-up company, founded in 2005 with a targeted service roll-out in 2008 have been conducted. A key challenge is to penetrate an existing mar-
Fig. 3. Expected market share of a start-up company in selected regions providing fishing and monitoring services from 2008 onwards.
350 Fishing vessels (Thousands)
3.2. Market size and growth
Available Market
318
Acquired Market
300
268 244
250 200
177
174
150 82
100
57 38
50
14
0 0 2005
2008
2010
2015
2020
Year
Fig. 4. Estimates of available and acquired market size for fishing monitoring applications in the timeframe 2005–2020 (market share of 26% in 2020).
ket against currently operating competitors. The proposed business strategy identifies strategic geographic regions with large fishing industries where pilot projects will provide free user terminals and services to selected fleet operators and fishing companies. In this respect, the Central Asian fishing market is promising, since it provides the largest market in size with an increasing number of vessels equipped with GNSS (20% in 2008, 40% in 2020). The fastest growing market is in polar regions, where excellent coverage is provided from 2010 onwards through proprietary microsatellites. A market share of 26% worldwide is expected in 2020 (cf. Fig. 3). As depicted in Fig. 4, the available market reaches about 320,000 vessels in 2020 while the acquired market is represented by 82,000 vessels. 3.4. Pricing and sales strategy In the past, customers of space-based services have usually been either public entities or commercial
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Revenue Projection [MEUR]
180 150
Annual fees Messages Central Asia Total
120 90 60 30 0 2005
2008
2011
2014
2017
2020
Year
Fig. 5. Revenue projection from fishing monitoring applications.
enterprises. In contrast, the considered application serves likewise National Coast Guards and National Fishing Agencies as well as fishing companies and fleet management operators. This mixed customer scenario challenges classical revenue generating concepts. A solution is given by modular service packages allowing customer-tailored prices. A basic maritime package combines vessel monitoring, limited two-way messaging and distress messaging. Basic annual fees for this package range from 250.1200 ¥. In addition to the annual fee, a trafficdependent price is charged. Two messages of 100 Bytes length per day cost between 2.8 and 4.8 ¥. As part of the pricing strategy, the user terminals can be provided to the customers free of charge. To further enhance market penetration, government agencies shall not be charged for value-added services. Revenues will be generated by selling service products to non-governmental customers. All revenues will stem from annual license fees and traffic-related services used by fishing vessels, fleet operators and leisure boats. About 30% of these revenues will be annual fees while 70% will stem from two-way communication services. More than 40% of the expected revenues will be generated in the Central Asian market (Fig. 5). 3.5. Procurement and cost The satellites will be procured from a prime contractor as in-orbit delivery (IOD) contract. The ground stations, the Mission Control Center and the Service Center will be procured as well. Finally, a communication hardware manufacturer will supply the user terminals. The cost of the space segment is estimated 40 M¥ for a total of four micro-satellites; the initial two-satellite constellation and two spares for replenishment. Launch cost is about 1 M¥ per satellite. Since the business case
is viable even without micro-satellites, the satellites will not be insured. The required ground segment composes the Mission Control Center, the Service Center and the two ground stations with total procurement cost [5] of 8 M¥. Inmarsat D+ services will be purchased from a service provider. This allows optimization of the use of the Inmarsat versus the proprietary space assets. The cost of goods sold (COGS) for using Inmarsat only is assumed 30% of the annual revenues, decreasing to 18% when maximum use is made of a traffic shift to the own microsatellites. Development and production of the user terminals will be outsourced to a communication hardware provider. A total of 140,000 terminals will have been produced by 2020 with production cost of 480 ¥ per terminal. A worldwide reseller network will distribute the product in return for commission of 10% of revenues generated. Cost for personnel is directly linked with the business development phases. The staffing considers 70 employees at service roll-out in 2008 and 180 employees in 2020 with individual build up in functions and regions. 4. Finance 4.1. Financing strategy A long-term strategic partnership with the supplier of the user terminal is planned to be established two years before service roll-out. The terminal supplier will benefit from such partnership through terminal orders guaranteed over 10 years, access to a new market and an upside potential in a rapidly growing company. Equity financing will commence with start-up capital from the company founders. One year later, the terminal manufacturer contributes to equity financing as part of his long-term strategic interest. Finally, one year later, a venture capitalist, typically looking at three to five years time frame, will invest. With a total of 23 M¥ in equity and 15 M¥ in debt, the business is fully financed at final operational capability (FOC) in 2011. 4.2. Financial performance To assess the commercial potential of newly emerging space-based business concepts, a generic and flexible business tool has been developed. This allowed the evaluation of alternative business models and their profitability, sustainability and feasibility taking into account major commercial drivers of the system.
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Table 3 Financing rounds, valuation, shareholder structure and dilution Type
Fig. 6. Pro-forma profit and loss account for a company offering fishing monitoring services. Time-to-market is in 2008 based on the use of Inmarsat D+ services. A proprietary space segment is operated from 2010 onwards. Table 2 Financial performance of a company communication–navigation services
offering
maritime
2010
2015
2020
EBITDA [M¥] Cash flow (operat.) [M¥] Net present value [M¥] Revenue per capita [M¥] Total balance sheet [M¥]
13 12 3 0.5 30
50 38 58 0.7 148
81 58 80 0.8 371
EBITDA ratio [%] COGS [%] Personnel [%] Profit on revenues [%] Equity ratio [%]
21 51 18 15 55
47 32 13 33 100
52 32 10 36 100
2005
2006
2007
Founder [M¥] Strategic [M¥] Financial [M¥]
3
Valuation [M¥] Investor share Founder [%] Strategic [%] Financial [%]
3
21
65
100
67 33
53 27 20
7 13
investor, and a venture capitalist, acting as financial investor. The financing rounds, valuation, investor’s shares and their dilution are shown in Table 3. Starting with a financial investment of 13 M¥ in 2007, a venture capitalist could exit four years later via IPO with a divestment of 54 M¥ based on a valuation of 272 M¥ (price–earnings method: p/e=30, discount factor 40%). This translates into a capital gain of 41 M¥ and a multiple of 4.15 in four years, respectively generate a gross internal rate of return (IRR) of 44% p.a. Assuming a 50% exit of the founders at IPO, the founders would realize 71 M¥ at IPO and in addition receive accumulated dividend payments of 34 M¥ (from 2012–2020). After IPO, the founders will own 26% of the company while the public will hold 60% of the company’s shares. 4.4. Implementation options and risk management
The financial statements show time-to-market in 2008 and time-to-profit in 2009 (Fig. 6). The net income increases at an annual average growth rate of 30% from 2010 to 2020. In 2020, the net income amounts to 50 M¥. The COGS increase rapidly before 2010 and more gradually from 2011 onwards as message traffic is transferred from Inmarsat to proprietary microsatellites. The profit on revenues averages at 28% when dividends are paid to the shareholders starting in 2012 (dividends: 50% of net income). The net present value [6] (NPV, 10%) is 80 M¥ in 2020 after dividends (Table 2). The business is planned to be registered at Isle of Man for tax-sheltering purposes and to be floated at the stock market in 2012 (Initial Public Offering: IPO) as preferred exit for its investors. 4.3. Shareholder structure and return potential The shareholder structure until IPO involves the founders, the terminal manufacturer, acting as strategic
The described services provide a viable business case, as demonstrated by existing companies offering similar services. In this case, maximum use is made of existing space assets. It is instructive, to further compare and analyze implementation options using existing geostationary communication capabilities, versus a hybrid space segment, which employs Inmarsat plus two proprietary microsatellites for communication. In Table 4, the consequence of implementing a hybrid versus an existing geostationary space segment is shown based on fundamental business parameters. The revenues are not affected by an augmentation of the space segment since the Inmarsat spacecraft already cover about 98% of the available market. A quantitative trade-off between reduced COGS and increased depreciation from the implementation of an augmentation system is shown in Fig. 7. The (positive) COGS saved by shifting partial message traffic from Inmarsat to proprietary micro-satellites dominates increased (negative)
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Table 4 Basic business parameters affected by using a hybrid space segment instead of a segment of existing geostationary satellites Parameter
Consequence
Revenues COGS Investments Depreciation Financing
No effect Reduced Increased Increased Increased
Fig. 7. Comparison of business development based on Inmarsat and proprietary micro-satellites with a strategy using an Inmarsat-only space segment.
depreciations. Thus, the hybrid space segment increases profit as compared to a sole Inmarsat solution by about 10 M¥. p.a. Over a time span of 10 years, additional cumulated profits of almost 100 M¥ can be generated. The strategy to roll-out service using existing space assets and augment the space segment with microsatellites in a second step has the following benefits: • • • •
Reduced time-to-market. Lower COGS following the augmentation. Increased profitability. Reduced risk of micro-satellite deployment after proof of concept. • No need to insure micro-satellites. • Flexible extension of the augmentation by deploying more than two micro-satellites.
A viable business case is realized through existing space assets. Thus, risks associated with the deployment of micro-satellites are significantly mitigated through the staggered business strategy. 5. Summary and conclusions A viable business case combining communication and navigation for unique maritime services has been identified and analyzed. A thorough market analysis has revealed about 240,000 fishing vessels worldwide using GNSS receivers in 2010. An aggressive market penetration together with an attractive and flexible pricing strategy generates revenues of 63 M¥ in 2010 growing to more than 150 M¥ in 2020. An innovative business strategy has been developed which applies existing space assets for rapid service roll-out and augments the space segment by proprietary micro-satellites in a second step. While the revenues are not affected by this augmentation, message traffic can be transferred from rented to proprietary communication capacity thus reducing cost and increasing profit. The financing concept applies a phased approach based on realistic equity financing provided by the founders, strategic and financial investors. This business is characterized by a balanced risk–reward ratio and represents an attractive investment opportunity. References [1] Price Waterhouse Coopers, Inception study to support the development of a business plan for the GALILEO programme, TREN/B5/23-2001, Executive Summary, 2001. [2] European Space Agency, Market Research Methods and Overall Results, vol. 1, GALA-RACAL-DD-005, 2001. [3] Galileo Joint Undertaking, The Galileo support to the search and rescue programme (SAR/Galileo), Refinement of Maritime Users Needs, Brussels, 2002. [4] Galileo Joint Undertaking, Galileo research and development activities, second call, Galileo advanced concepts, Statement of Work, GJU/04/2418-SOW/RC/fk, 2004. [5] SpaceTech 7, A Communication–Navigation System for Worldwide Vessel Tracking, Executive Summary, Delft University of Technology, 2005. [6] J. Kreisel, SpaceTech Business Engineering Block, JKIC, 2005.
