LEO Constellation Announcements: The Industry Reacts

Earlier this year, the satellite industry was catapulted onto the front pages of the business press with SpaceX and OneWeb announcing separate ambitious plans to build hundreds and thousands of new satellites in Low Earth Orbit (LEO). OneWeb, led by O3b Networks Founder Greg Wyler and backed by Qualcomm and the Virgin Group, plans to build a constellation of around 650 micro satellites. Following this announcement SpaceX revealed plans to build thousands of micro satellites to bring Internet connectivity all over the world also. We discuss these announcements with top satellite executives to get their take on the industry landscape going forward.

Tom Choi, CEO, Asia Broadcast Satellite (ABS)

Tom Choi, ABS’s CEO, does not see these announcements meaning we are at the cusp of a new era. He says the idea of launching hundreds of LEO satellites to provide broadband communications “isn’t Greg Wyler’s idea” and that it is a “rehash of a story more than 20 years old.”

“Is the industry having collective amnesia? Teledesic and Skybridge tried to do similar projects funded initially by well-known backers but they failed to generate enough investor backing because the soundness of their business plans were at question. In fact, the more you examine the concept of providing broadband services from LEO networks the more it doesn’t make sense simply because the demand for capacity isn’t uniformly spread throughout the surface area of the Earth,” he says. “I don’t think a press release about some rehashed 20 year old tried and failed idea will mean the new era for satellite communications. These announcements that were made, what are the details? I didn’t see any information on what is the satellite platform, who is the manufacturer, who is the launch provider, who is funding the entire project, who is building the terminals and most importantly who has signed up to use the services?”

Choi is in a good position to talk about this. He worked at Hughes Electronics, which evaluated the viability of a LEO broadband network. He says they concluded that the LEO network was just not financially practical to implement for commercial broadband services. Choi says that, while it could be done, it was reasoned that “it simply would not make money.”

“FSS operators today are working on HTS platforms to drive down costs of capacity by one if not two orders of magnitude. There are innovations in our industry which are based on sound economics and proven technology,” he says.

The threat to the FSS industry does not come from these “hype orientated” announcements, according to Choi. He believes the threat is the fast emerging mobile industry, which he sees as wanting to take away practically every part of the satellite industry’s spectrum. He says the wireless industry is now over $1 trillion dollars in global revenue and that the satellite industry is not even 2 percent of their scale.

“Not only is C band at risk, but if you see what is being done at 5G, people are looking at much higher part of the spectrum in the 10, 20 and 30GHz,” he says. “Practically every satellite operator is launching Ka-band HTS systems but have they thought about what happens when mobile operators start using the Ka-band for delivering 1Gbps to mobile base stations or even consumer terminals? This is the real fight we will have and this fight is coming around the corner.”

Mark Dankberg, Chairman and CEO, ViaSat

There is little doubt that ViaSat has been one of the key innovators in the satellite industry in recent years. Mark Dankberg, chairman and CEO of ViaSat and a previous winner of Via Satellite’s Satellite Executive of the Year Award, admits he is curious to what the technical approaches are and the resulting economics of the OneWeb and SpaceX systems will be. He believes that these companies perceive significant global opportunities in broadband.

“We haven’t seen the traditional operators target broadband with innovative systems yet. I think ViaSat has been innovative, but not one of the traditional operators,” he adds.

However, Dankberg says these announcements do not mean we are at the start of a new era for satellite. He thinks the way people use the Internet and get video entertainment is what creates the opportunity for a new era.

“These systems … will help raise the profile of satellite in general and hopefully spark some meaningful analysis of what makes broadband successful (it’s not just a single dimension of value!). It could mean new spectrum wars, too. I think ViaSat 1, and ViaSat 2 are smaller in scale, but may be more representative of how a new era may unfold,” he says.

When asked if the traditional FSS operator could ultimately be viewed as some kind of “dinosaur” in this new world, Dankberg says, “I do see potential that traditional FSS operators can be viewed as dinosaurs. That could be true to the extent that market demand shifts from broadcast to broadband for satellite networks. It is a reflection on the satellite industry that must be addressed. There is also a significant technical/economic discussion needed about the relative merits of different types of orbital constellations for broadband.”

However, while Dankberg believes we may well see more ambitious satellite projects start to unfold, he thinks GEO satellites have much more potential to be effective in global broadband than is currently perceived. “It will take fairly radically different technology — and that is what we are working on,” he adds.

Dankberg also cautions that making these projects a success is easier said than done. “Satellite constellations are extremely capital intensive. That’s a big barrier for entrepreneurs in the space segment. There are also substantial regulatory hurdles. There may be opportunities in other elements of the value chain,” he adds.

William Wade, CEO, AsiaSat

William Wade, AsiaSat’s CEO admits his initial reaction when he heard about the SpaceX and OneWeb announcements, is that while they were “very ambitious,” they sounded a bit naive. Wade believes such projects have been contemplated before and the sheer capital cost made them prohibitive. However, he admits markets are changing and SpaceX has already accomplished some very impressive things. “You would be a fool to discount them right off hand,” he adds.

In terms of what message this sends out to the traditional FSS operator, Wade says the message is that others are also looking at satellites as the future to deliver high throughput for fixed and mobile applications. “I don’t think either of the above entities has shown any real new innovation other than a recycled concept that was explored and scrapped some years ago. Innovation will be when they determine how to make it technically and economically viable,” he says. “FSS operators are certainly becoming more innovative and I believe these types of initiatives will encourage greater and more forward thinking innovation from traditional operators.”

Like others, Wade believes the barriers to enter the industry are significant with the capital requirements for satellites and in particular these constellations are prohibitively high for entrepreneurs unless they have large corporate backing. “Additionally, the scarcity of frequencies is also a barrier to entry for startup companies. However, once the infrastructure is in place, I believe it will spawn a host of business and consumer applications,” he says. “This has been the case with FSS satellites historically and I expect the trend to continue with any new satellite developments. I think this will help boost the industry overall and has a very positive effect on the market.”

However, Wade believes that, while these LEO satellite constellations are technically different than GEO satellites, they could ultimately have a positive impact in reducing time cycles for FSS operators looking to get new satellite projects done quicker. “Presently satellite manufacturers are moving toward reducing production cycles with the use of channelizers and reconfigurable antennas,” he says. “They are still in the early stages but I expect this will eventually become common in the industry. As for launches, SpaceX has already helped to push down launch costs and if these projects become reality, they would lower launch costs further while opening the doors to additional competition in the launch sector.”

Khalid Balkheyour, President & CEO, Arabsat

Khalid Balkheyour, Arabsat’s CEO and winner of our 2013 Satellite Executive of the Year Award, says the recent announcements will have a “positive effect” on the industry and that we will see more ambitious satellite projects than we have seen previously in this area. However, like Dankberg, he is not necessarily sure this means we are on the cusp of a new era for satellite communications. He says this will depend on the business model and the service offerings, as well as legal and regulatory issues that could result of such plans.

“SpaceX has announced its intention to become a satellite manufacturer. Gauging on its current offering and technology in launching satellites, they will probably come with cost-effective and technologically superior products,” he says. “Google is used to controlling its distribution and supply networks — evident from buying competition, applications and technology enablers — but the current investment of Google in O3b doesn’t provide such control.

Matt Desch, CEO, Iridium Communications

Matt Desch, CEO of Iridium Communications and another former Satellite Executive of the Year Award winner, says both announcements promise “some very interesting innovation” for the satellite industry — but he offers a word of caution.

“Being someone who has been around communications for a long time, and knowing there are at least another four or five other big constellation ideas looking for funding, you can’t help but feel these announcements are symptoms of another brewing satellite ‘bubble’ similar to the one that created Iridium and many other networks in the 1990s,” he says.

Desch says it is still unproven that building and launching thousands of cheap satellites every three to five years is a more competitive way to serve these markets than a few expensive satellites every 15 to 20 years. He also expects that the network costs may even be higher, so the real innovations will be about customer terminals, and whether they can be significantly lower cost.

Ironically, Desch believes OneWeb and SpaceX have somewhat validated Iridium’s approach to building a new constellation. “A side benefit for Iridium is how ‘mainstream’ they’ve made us look. When we introduced our plans for building 81 satellites seven years ago, I’m sure many thought we were crazy for being so ambitious. These new networks validate our approach and show we’re not the crazy ones,” he says.

However, Desch, like others, cautions as to whether we are at the start of a new era for satellite communications. “I’ve been around the venture capital world in my past and have found that when capital senses an opportunity, a gold rush mentality ensues where nine out of 10 ideas fail and the strongest succeeds. This is the world these current projects come from, but instead of spending tens of millions at most with an Internet software startup, billions will likely be spent and potentially lost. While it’s exciting to be a part of boom times like these, there is a lot of historical precedent for what the world looks like when a few start to fail,” he adds.

Desch says he sees the value in microsatellites for many smaller satellite projects, but that the real challenge in building satellite companies is the high capital cost required over many years before first revenue. “Microsatellites seem to make sense to break that model for some applications – particularly imaging, climate study and some other science problems where you can spend a little and make a little,” he says. “I’m not sure the technology works as well for communications satellites yet, where a global capability and scale is required and the costs (and risks) are very high before you can effectively compete. Few companies (besides perhaps a Google) can survive the extended losses before cash flows turn positive.”

Thierry Guillemin, Chief Technology Officer, Intelsat

Thierry Guillemin, Intelsat’s chief technology officer, says the satellite industry is undergoing a “major transformation” right now and that these announcements, coupled with other innovations happening throughout the broader communications landscape, “are signaling a new era not only for satellite, but for communications in general,” he says.

Intelsat, which celebrated its 50th anniversary recently, could be seen as one of the “old guard” as Guillemin puts it. He says, however, that people should beware of drawing conclusions about the role operators like Intelsat can play in this new landscape.

“The challenge for all in the industry is to innovate in a way that is flexible, adaptable and fast to market. This raises a legitimate question for whoever thinks about LEO constellations: systems that need hundreds of satellites deployed before any real service can begin, and cannot introduce modifications without having to apply them to the entire system, do not necessarily strike me as a model of adaptability to meet fast changing customer needs,” he says.

Guillemin believes software-defined satellites that are fully reconfigurable in orbit and can be pre-produced by manufacturers would be the game changers, and that Intelsat is seriously looking at this next step for its own systems. In this way, Intelsat could deliver a new service to a new region in a matter of months after the inception of the project, rather than years.

“If somehow an existing or new constellation brings this type of satellite design and production innovation as a by-product to market, then the industry as a whole might benefit. This would be a positive outcome for customers,” Guillemin adds.

In terms of whether we will see more entrepreneurs look to build businesses in satellite, he is optimistic. “Innovation generally attracts more business initiatives and more talent to the industry. Some of the initiatives that I find particularly interesting will come from the ecosystem of ground vendors and distributors of services who leverage space capacity to develop communications solutions for end customers,” says Guillemin. “This is why Intelsat made the choice of an open architecture. We believe in the broad-based innovation that comes from cooperation and cross-fertilization between industry sectors and ecosystems. I am convinced that satellites are currently under-utilized with regard to their potential, because they are not necessarily seen as easy to use. More awareness of their capabilities will certainly motivate more entrepreneurs to bridge this perception gap and bring to the world the satellite-based solutions that are currently in development and being primed to go to market.” VS