It is not easy to build a
successful LEO satellite constellation. If there
weren’t already enough technical and regulatory
challenges, there are many business and
financing issues as well. These issues already
caused LeoSat to fold, OneWeb to go into Chapter
11 and Telesat to be in ‘announcement mode’ for
over three years now. Let’s dig deeper into
these issues and find out how some operators are
trying to manage through them.
Customer or
Investor – the impossible choice
One would think that a rock
solid business case with ROIs that exceed those
of GEO-DTH and backed by over 2 Billion in
customer commitments – something that LeoSat
announced in the summer of 2019 – would get
investors enthusiastic to a point they
comfortably put their money behind the project.
Wrong. As much as the ROIs may be incredibly
attractive, if the time investors have to part
with their money exceeds the ten to twelve year
mark, you have a problem. It blocks access to a
large portion of investors that would rather
accept half the ROI for projects lasting half as
long. This ultimately yields the same results
with less risk.
An effective remedy to this
problem is to play the philanthropy card.
Attracting investors with a plan to launch
satellites that target rural and underprivileged
communities with a promise to bring them online
and provide equal access and opportunities, is a
strategy that worked well for O3b and OneWeb.
The business cases for these type satellite
constellations are however far from solid.
Making your revenues dependent on the purchasing
power of rural and underprivileged communities,
is asking for problems. Both companies dodged
the bullet though. O3b was absorbed by SES,
safely cushioned in a steady DTH revenue stream
and OneWeb has been bought out of bankruptcy by
the UK Government. As lifesaving as that may
have been, additional revenue streams still need
to be developed to ensure even basic viability.
So, it seems that either
you have a great business case but no access to
money, or you have access to money with a flawed
business case. Neither will work. While marrying
the two variants into a profitable business case
with philanthropic aspects seems to be the
obvious way out, the industry is trying other
alternatives.
LEO as an App
During his address to
employees to celebrate the opening of SpaceX’
new office in Seattle, now some five years ago,
Elon Musk said he expected more than half of his
constellation’s traffic to be long distance
traffic and he gave an example of how routing
data from Seattle to South Africa would be much
faster using his satellites than when using
fiber. This clearly suggested the use of
intersatellite links (ISLs), but as we know:
these have not been installed. In fairness, Elon
also said he expected to launch new versions of
his constellation every 5 years, so it may well
be that on his next batch of 4000+ satellites
for 2025 (wow!), the required ISLs will be
available. He also compared his constellation to
PCs as they are easy to replace, making it
possible to test less and launch quicker. So,
while he delivered on his promise to launch in
the 2019-2020 timeframe, it seems that less
testing and concessions to the design have been
instrumental in achieving that goal. That is an
unconventional approach but as one can see on
the YouTube video, Elon seemed to be quite
comfortable with that.
Launching a constellation
this way reminds me of how App developers launch
new products. They try to get version 1.0 out
quickly, such to start building a customer base
ahead of the competition and use the momentum
and customer feedback to put out bug-fixes and
new releases, while further increasing their
installed base. It is all about timing and
building momentum. With many satellites still to
launch, Starlink/SpaceX have additional
financing requirements in the future and
building momentum and customer enthusiasm is an
important ingredient to success. After all, when
it is about raising money, taxi company Uber has
already successfully demonstrated that in lieu
of revenues and profits, the capital markets are
perfectly fine accepting customer enthusiasm and
market momentum as alternatives. Similar
enthusiasm and momentum around StarLink’s
launches will go a long way towards raising the
additional funds they need and Elon Musk has
already hinted on doing an IPO for Starlink in
the near future.
Another company who seems
to warm up to the ‘Leo as an App’ approach is
OneWeb. They are clearly trying to build
momentum by speculating about offering new GPS
type services (GNSS) and announcing the
continuation of their launches in December. It
is also clear that the 1 Billion USD that got
them out of Chapter 11 will only keep them going
for so long, and new funding is required during
the course of next year.
Raising money after the
initial launch seems somewhat of an upside-down
business model. Some may find that a little
unsettling, reckless even, but many will argue
that it is nothing but a smart, calculated risk.
With enthusiasm for space clearly building, it
makes good business sense to get in early, such
to best position oneself for the upcoming
opportunities.
LEO as a tool
Using satellites as a means
to an end, as a tool towards a higher goal, is
the bedrock of our industry. As a follow up, a
new, steroid version has been introduced where
the higher goal is all about the money.
When the first satellites
were launched in the 1960s, it was however not
about money, it was about pushing the boundaries
of technology. When Intelsat – the first
satellite operator – was set up as an
intergovernmental organization in 1964, its
primary focus was not on making money either, it
was to be the vehicle through which
participating countries could grow their
economies and increase their GDP. Also today
there are many national and military satellite
systems where it is not about the profits, but
solely about the data and information produced
by these satellites.
Now enter Amazon who
reported 280 Billion dollars in revenues for
2019. While ‘normal’ satellite companies are
struggling to raise capital, Amazon can simply
use a week’s revenues to build and launch an
entire LEO constellation. This is exactly what
they plan to do with Project Kuiper. When ready,
they will own a network through which literally
everybody on earth has access to Amazon’s
webshop and through which global businesses can
send their data to AWS’ datacenters safely and
securely. If the resulting increase in revenues
is only as little as a few percent, their
investment will be paid for within matter of
months. Starlink recently announced to develop
monthly plans for their internet access service,
starting at 99 USD/m. Something tells me that
Amazon is not going to even bother with that.
They may well offer their services as part of a
packaged deal for free. When that happens, it’s
back to the drawing board for all other LEO
operators to rewrite their business plans.
LEO as a
patience tester
Canadian Telesat put in
their application for LEO spectrum early
February 2015. Their first early bird was
ordered well over a year later in May 2016 and
launched in November of 2017, again well over a
year later. Those are big brackets of time, and
since then three years have passed without any
further launches, satellite orders or vendor
announcements. Clearly our patience is being
tested. Further examples can be found among
startups: LaserLight announced their
constellation as early as 2012, despite several
press releases on partnerships and a patent, no
launches have been scheduled as of yet. The same
is true for Kleoconnect out of Germany and
various Chinese LEO ventures that – while they
may have launched one or two early birds – are
yet (to announce) the launch of their
constellation’s first satellite.
For those that now want to
dismiss these companies as ‘failing’ because
they can’t execute their plans... Not so fast!
There is another perfectly acceptable
explanation. For that to understand we need to
take a look at ViaSat. Known for being a GEO
shop and on the record for downplaying the
advantages of LEO, they recently announced to
venture into LEO after all. Reason for this
announcement is the 20 Billion-dollar RDOF fund
announced by the US Government. In a letter to
their shareholders, ViaSat announced their LEO
constellation to be “optimized for RDOF”. To the
trained ear this will very much sound like the
whole thing is conditioned upon getting the
required funds out of RDOF. No funds? No LEO!
Announcing plans to launch
a constellation early and to then prepare the
organization for immediate execution when the
right funds are available, is not a bad
strategy. Particularly in the context of the
recent failures in the industry, it pays off to
be prudent. Successful positioning and carefully
timing activities is important and will go a
long way towards achieving success.
In conclusion
With the Billions of
dollars going around, we can all agree that LEO
is happening. Traditional approaches to
launching a LEO business have however failed and
new strategies are now in play. Speaking in
casino terms: Starlink and OneWeb are rolling
the dice on future money becoming available.
Amazon with its deep pockets is feeling lucky
and placing big bets on the big boys’ table,
while Telesat, ViaSat and others are holding on
to their chips, ready to play when the
opportunity is right.