European communications companies make bid for U.S. sales

Companies seek to increase U.S. government market share by touting videoconferencing and mobile satellite offerings

Two European communications companies are seeking to increase their share of the U.S. government market by touting their videoconferencing and mobile satellite offerings as ways to help federal agencies lower communications costs and reduce their carbon footprints.

Tandberg, of Oslo, Norway, and Inmarsat plc, of London, experienced double-digit revenue growth in 2008, and both companies recently made significant investments in their executive, sales, marketing and engineering resources to attract new federal customers in the United States.

Tandberg is a provider of high-definition videoconferencing and mobile video products and services, and it has seen its U.S. federal market share grow from less than 2 percent in 2000 to more than 50 percent in 2008. Most of that growth came in the form of Defense Department sales, said Joel Brunson, president of Tandberg Public Sector in Reston, Va.

Worldwide, Tandberg’s revenue jumped from about $140 million in 2000 to $810 million last year, for an annual growth rate of about 24 percent, he added.

Brunson declined to provide a precise revenue figure for the U.S. federal sector but said it is close to 20 percent of that $810 million.

Although Tandberg prefers to sell total solutions that include software, infrastructure and monitors of varying sizes, “we will sell pieces of that total solution,” he said.

Tandberg’s biggest federal client has been DOD, specifically the Army. The intelligence community, Navy and Air Force are also major customers, Brunson said, in part because of the security of Tandberg’s system.

“We were the first videoconferencing equipment to go through a [Joint Interoperability Test Command] certification,” he said. “They are responsible for ensuring that you meet interoperability and information assurance with other equipment that may be running in a DOD environment. We’re also IPv6-certified.”

Tandberg has been tapping DOD videoconferencing users to attract customers and display new products for the past three years.

The marketing tool appears to be working. The company’s first conference on the topic for DOD users drew about eight attendees. In March 2009, a similar conference attracted 112 representatives from 55 DOD offices, Brunson said.

Broadening the customer base

Tandberg is broadening its base of target customers. “The fastest growth is on the civilian side in the last two years,” Brunson said, citing NASA, the Federal Emergency Management Agency, and the Homeland Security and Veterans Affairs departments as major users of videoconferencing equipment.

For example, VA is using high-definition videoconferencing equipment to diagnose battlefield injuries remotely.

“With high definition, you can look at the wound, make sure it is healing nicely, [and] you can look at the range of motion, and if there is a problem, you can get that individual to a specialist center,” Brunson said.

The Army Medical Information Technology Center can diagnose brain injuries from thousands of miles away because the high-definition system allows physicians to read X-rays remotely and examine patients’ eyes for signs of brain trauma, he said.

“The technology is so clear now, with the big screens and the high definition, you can look right at the [patient’s] pupil and see if there’s an immediate problem or not,” Brunson said.

“I would expect to see Tandberg and others focus more on government,” said Andrew Davis, senior partner at Wainhouse Research, a firm in Duxbury, Mass., that tracks the unified communications and rich-media conferencing fields.

“Given the economy today, I think people are seeing government sales as one of the market areas, compared to the enterprise, that’s likely to do better than average over the next couple of years,” he added.

Davis said he expects Tandberg to be successful because its videoconferencing products are among the best, and it has always done well in the U.S. federal market.

Davis added that Tandberg’s main competitor is Polycom Inc., of Pleasanton, Calif. “It’s the Red Sox/Yankees [rivalry] of videoconferencing,” he said. “There’s quite a bit of friction between the two, and they duke it out deal by deal and quarter by quarter.”

Tandberg earns more revenue, but Polycom sells more units at a lower price. Davis said Tandberg and Polycom account for about 75 percent of the world market share, with No. 3 Sony a distant third.

He added that he does not expect that situation to change anytime soon.

Targeting satellite users

Inmarsat has been providing mobile satellite services for use on land, at sea and in the air for nearly 30 years.

“We actually began as an intergovernmental organization under the United Nations,” said Rebecca Cowen-Hirsch, vice president of global government services at Inmarsat. “Since then, [we’re] certainly targeted to supporting the government markets.”

“Our interest in the defense and civil government market is very significant as it does provide a high percentage of our revenues for the company at large,” she added.

The public company doesn’t break down its figures according to specific markets, but she said Inmarsat’s worldwide government services account for about 40 percent of its total revenue.

Inmarsat reported $996.7 million in revenue in 2008, up from $576.5 million in 2007. “Of that percentage, slightly more than half of it is specifically" U.S. government sales, she added.

Inmarsat has a wholly owned U.S. subsidiary for its DOD and other government work. Cowen-Hirsch, a former program executive officer for satellite communications at the Defense Information Systems Agency, said all Inmarsat employees have had experience in the military, State Department or Federal Communications Commission.

“We also maintain security clearances to be able to, when necessary, talk with users in a fashion that protects and maintains their trust and any particular operational concepts,” she said.

The federal market is certainly an area of prospective growth for Inmarsat “because of the significant utilization of commercial satcom for federal operations here within the U.S. — not just for the military but also for homeland security, disaster relief, border patrol and civil government applications,” Cowen-Hirsch said.

Despite the current recession and budgetary constraints, agencies depend on reliable communications and will continue to fund them, “though certainly not perhaps at the rate of change we have seen in years past,” Cowen-Hirsch said.

The company plans to introduce a secure, handheld global satellite phone service in 2010. It will be part of Inmarsat’s portfolio of mobile satellite services that provide global voice and low-data-rate transmission capabilities, she said.

“FEMA has expressed a high degree of interest as well, of course, as the military,” she added.

Local, state and federal disaster relief agencies rely on satellite communications when other systems are affected by hurricanes, earthquakes and other natural disasters or during times of extremely high demand.

“Just this past year, we had a very significant utilization in response to Hurricane Ike, and we were very prominent in support to [President Barack Obama’s] inauguration,” she said. The company maintained communications for Secret Service and Homeland Security Department officials throughout the inaugural period.

“We are also used across the military for command and control functions as well as for providing that situational awareness so you have a common operational picture of what is happening either on the battlefield or at another operational scenario,” Cowen-Hirsch said.

Inmarsat provides satellite communications support for Air Force One and the defense secretary’s aircraft, and the company supports high-speed data and video transmissions from unmanned aerial vehicles to intelligence agencies.

The company owns and operates all of its 11 orbiting satellites and the ground-based infrastructure that supports them.

Inmarsat’s financial position is very solid, Cowen-Hirsch said, adding, “We have a constellation of tomorrow’s IP capability on orbit today through 2020.”

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