‘Black swan’ of maritime communication market
It can be exceptionally challenging for Russian ship owners to ensure high quality internet and communication on civil ships - the crisis caused by the coronavirus pandemic is aggravated by equipment imports restrictions imposed by the Ministry for Digital Development, Communications and Mass Media.
No longer are people ready to sail without the internet. Broadband access to the global net and availability of high quality voice communication on board a ship has become a normal and a reasonable requirement from passengers of cruise liners, yacht owners and crews. Staying online is no less important for real-time and effective operation of fleet.
Digitalization is becoming an integral part of water transport business processes with dynamic introduction of electronic charts, electronic fishing logs, e-navigation and FOS (Fleet Operation Solution). State-of-the-art communication lets ships cover long distances being supported by a reliable communication based on big data exchange under ship-to-shore, ship-to-ship and ship-to-office regimes within the unified information environment. This requirement of the maritime industry ensures, in its turn, dynamic development of mobile satellite communication and the growth of demand for it.
The sea is contactable from the orbit
According to Satnews Daily, the research of Euroconsult titled “Prospects for Maritime Satellite Communications” shows that the year of 2019 saw a growth of maritime connectivity market.
In 2019, the maritime satellite VSAT communications market experienced high growth with the total number of terminals increasing by 17.5 percent year over year, and VSAT services revenue growing by 11 percent to approach $1.3 billion. Maritime VSAT connectivity reached an all-time high of 28,200 connected vessels at the end of 2019.
As Denis Kuskov, head of IAA Telecom Daily, told IAA PortNews, in Russia, the most common systems in this segment are INMARSAT, IRIDIUM and VSAT. The demand for telematics solutions and for mobile communication in extreme conditions is on the rise which makes this segment highly competitive both between the states and between domestic operators licensed for mobile satellite services. There is a competition between manufacturers and distributors of equipment offering a variety of tariff plans and service packages.
INMARSAT is the oldest internationally adopted satellite system for maritime application. Inmarsat-C equipment approved for use under the Global Maritime Distress and Safety System (GMDSS) is compliant with international requirements. It should be installed on all ships of international navigation. The system has been long used by the fleet. Although it does not provide for the internet connection, it cannot be overestimated – if INMARSAT-С is out of order the ship will not be let out of the port.
Well developed and widespread are IRIDIUM systems which, according to some reports, are to become mandatory for the civil fleet soon. Due to location of its orbit group, IRIDIUM is virtually the only maritime system ensuring coverage of polar latitudes.
It should be noted that VSAT technology is getting increasingly widespread in the global shipping market as the only one providing broadband access. According to Russian Satellite Communication Company (RSCC), Very Small Aperture Terminals (VSAT) were initially intended for onshore facilities. Now, special motorized stabilized satellite dishes can be installed on vessels.
According to Satnews Daily referring to Northern Sky Research, the maritime satellite VSAT communications market saw installation of VSAT systems on 24,000 ships in 2019.
Prior to this year, domestic market of mobile satellite communication was developing in line with global trends. Russian owners of commercial ships had an opportunity to use efficient up-to-date technologies available in this segment of satellite communication market and optimal for their business. For example, Irina Seryogina, head of Dobroflot IT Department, told IAA PortNews that 100% of Dobroflot fleet are provided with satellite communication and a broadband Internet access. When selecting a communication technology the company studied the solutions available in the market. “We opted for VSAT due to the following reasons: all INMARSAT and IRIDIUM tariff plans are based on traffic, separately voice traffic and data transfer one. As soon as the ceiling is reached, the service price multiplies. To prevent the company from paying astronomical sums of money, traffic should be constantly monitored with conversation and Internet traffic limited when approaching the threshold. With VSAT it is possible to obtain an unlimited satellite channel of given capacity and work normally without any risk of overlimit as if we are in an onshore office. Besides, VSAT lets use rouble tariffs which is exceedingly profitable and comfortable for planning and budgeting of Dobroflot, like any other Russian company”, explained Irina Seryogina.
Access to state-of-the-art communication solutions in the Russian market was provided by several dozens of companies offering comprehensive fitting out and maintenance of ships including imports, distribution, onshore servicing and repair of vessels’ satellite equipment. This sphere used to feature high competition which facilitated development of attractive packages of equipment, tariff plans and services.
At the same time, communication services were offered by several providers. So, the domestic market saw the development of two profiles: some companies supply and service equipment, others provide communication. Each segment is focused on certain activities with development of specific competence and resources and obtaining of the required authorization documents.
All of a sudden
However, in 2020, Russian market of mobile satellite communication found itself in a challenging situation. At the end of the previous year, the Ministry of Digital Development, Communications and Mass Media of the Russian Federation introduced a ban on imports of satellite equipment for all companies excluding operators licensed for mobile satellite services. Some supposed this decision was to prevent the access of Russian users to satellite technologies of British company OneWeb. Earlier, in February 2018, Russia’s State Commission for Radio Frequencies (SCRF) denied allocation of frequencies for the international network of satellite-delivered internet being developed by OneWeb. According to CNews, it was the security service which considered this system as a threat to national security.
By the way, in March, OneWeb filed a bankruptcy petition with an intention to sell its business. The development of this story is vague.
Meanwhile, the Ministry does not seem to have foreseen the implications of its radical decision or its impact on the domestic market of maritime communications. The consequences were evident almost immediately. The system of distributing satellite equipment for vessels that was developing in the Russian market throughout many years is now out. The right to distribute satellite equipment has been retained by only two companies licensed for mobile satellite services: FSUE Morsviazsputnik, which represents the interests of INMARSAT in the territory of Russia and operates its own satellites of INMARSAT (Great Britain), and Iridium Communications LLC, a subsidiary of IRIDIUM (USA), an operator of its own satellite network.
All players of this market segment have faced the problems. First of all, outside the legal environment are almost all distributors operating in Russia since none of them have their own communication satellites and were never engaged in such activities. Consequently, companies involved in supplying equipment to the fleet have to leave the domestic market. Thus, they cannot fulfill their contract obligations that entails fines, lawsuits, failure to meet ships construction deadlines. In the result, the market will see numerous cases of bankruptcy and closure of branches and representative offices.
Market players which have remained legitimate (FSUE Morsviazsputnik and Iridium Communications LLC) now should focus their attention and resources on their noncore function - development of supplies, logistics and services, etc. rather than providing communication services. It is obvious that two companies are not capable of covering such an enormous market.
In fact, VSAT systems approved by the Ministry of Communications have been pushed outside the legal environment by above mentioned decision. With the current legal regime, Russia has no companies allowed to import the required equipment. In other words, VSAT technologies are under a total ban and the internet will be virtually unavailable for seafarers.
It looks like the restrictions are to entail a real mess and disruption of the developed and running structure as well as technological supply chains in the market of satellite communication.
Reportedly, domestic shipyards have already encountered problems under the current shipbuilding projects with satellite communication equipment included into designs before it was banned.
At one of the recent meeting of SCRF, it was decided to allow imports of equipment for ships being built under state contracts. Unfortunately, the relief does not apply to the commercial fleet. This decision creates an uneven playing field for the customers and, perhaps, violates the anti-monopoly law.
In the opinion of Yury Bryukvin, General Director of Rustelecom, “such exclusions just underline the rule according to which restrictions can be lifted if the interested companies have a high lobbying power”. He explained that such “surprises” can lead to disruption of deadlines under state shipbuilding contracts. That means problems for both the customers and the shipyards. As for non-commercial contracts, such bans can force ship owners enter the grey market for procurement of equipment or have it installed outside Russia to escape SCRF restrictions.
Yury Bryukvin believes that the following point is crucial: “The fewer players, the less the competition in the market. Any restriction reduces the proposal of equipment, contraction of tariff plans and service packages. Finally, satellite communication will become more expensive for the shipping business”.
“Federal Antimonopoly Service of Russia is currently considering applications in respect of the issue. The decision will be made with respect of all circumstances within the term defined by the competition protection law”, FAS deputy chief Anatoly Golomolzin told IAA PortNews. Yet, the antimonopoly body has not disclosed who had filed the applications and when the decision would be made.
Delayed settlement of this issue can have a negative impact on digitalization of domestic maritime industry and, consequently, technological inferiority in the global market of commercial shipping.