With LeoSat gone, OneWeb in Chapter 11, two of the major Low-Earth Orbit (LEO) players that had ambitious plans — barring a miraculous phoenix-like rise from the flames — won’t see the light of day. Ironically, all eyes will now be on Canadian operator Telesat which out of all the big traditional Geostationary (GEO) operators has the greatest LEO ambitions with plans for a constellation of around 300 satellites.
Dan Goldberg, Telesat’s CEO, said despite the bankruptcy, OneWeb's accomplishments as a startup were "impressive," as it hired a team of professionals, secured significant financing, built a high-volume manufacturing facility, and successfully launched 74 satellites.
Goldberg says he believes OneWeb’s initial premise was right: that a LEO constellation has certain inherent advantages – such as low latency, full pole-to-pole coverage, and greater resiliency – over other space-based architectures to provide global broadband connectivity. However, he questioned other parts of OneWeb’s strategy, “If we had any question about OneWeb’s approach, it had more to do with our view that, first, its constellation design was not optimized to deliver sufficient capacity to where users needed it and, second, that the cost-per-unit of useful capacity was too high to be really competitive in the market.”
Goldberg says Telesat remains convinced that a LEO constellation optimized to deliver high capacity, low latency, low cost, secure broadband connectivity exactly to where users need it, whenever they need it, represents both a compelling value proposition for customers and a compelling business proposition for investors. He says the Telesat LEO network has been designed to serve the key verticals the company has always been focused on: backhaul connectivity for telcos and Mobile Network Operators (MNOs); broadband connectivity for the aeronautical and maritime segments and other enterprise users; and high-capacity links to address government requirements.
Goldberg said that Telesat's use of technology including digitally processed payloads, electronically steered phased array antennas, and high capacity optical inter-satellite links, deployed in a hybrid orbital architecture will bring success. "We estimate that our constellation, compared to OneWeb’s for example, will deliver approximately 100 times more capacity to any spot on the Earth with vastly more total useable system capacity at a dramatically lower cost-per-unit of useable capacity," he said.
Mark Dankberg Says OneWeb is a Cautionary Tale
Mark Dankberg, Viasat’s CEO, has long been seen as one of the most visionary executives in the industry. He believes that one of the most important principles of Silicon Valley-style venture capital innovation is that individual companies can end up bankrupt without it being considered a failure of the investors, individuals involved, the industry at large, or even the idea behind the venture.
“Failures happen for a variety of reasons – some meaningful and some random. There is a lot to be learned from OneWeb – some positive and some negative. The most important point is that the industry, and capital markets, consider the OneWeb story carefully when evaluating both new startups as well as existing players – and take a balanced view of the advantages and disadvantages of broadband at LEO in the context of alternative solutions,” he says.
Dankberg also says we should not also link NGSO with “connecting” the world as this is perhaps too simple a way to look at it.
He says, “If the main advantage of LEO is lower latency, then emerging markets are going to be the least interested in paying a premium for LEO bandwidth. Low latency is a first world desire, not an emerging market necessity. To the extent that GSO satellites, such as ViaSat-3 and subsequent generations, offer substantially lower cost bandwidth, they are much more likely to solve that problem. The mission to connect billions of people around the world is not sad – it’s still a huge opportunity.”
OneWeb is the first major space casualty of the COVID-19 pandemic, and some within OneWeb believe if the pandemic had not happened, it would not be in bankruptcy right now. On this issue, Dankberg says, “Accessing capital is obviously much more difficult, especially in the short-term. It’s not clear how long that will last. Organizations that are dependent on outside capital will likely have to adjust to that in whatever way they can. However, what the COVID-19 crisis has shown us, is that the global demand for connectivity is essential and presents a huge market opportunity. Satellite remains the best way to connect the hardest-to-reach areas and end markets.”
Ex-COO Suzi McBride Calls it a 'Perfect Storm'
Suzi McBride is in a unique position to talk about OneWeb’s situation. The Iridium COO was also COO of OneWeb for just under three years between 2016 and 2019. McBride said that when she joined OneWeb in 2016, it was the biggest player in the market and she saw a lot of potential for OneWeb to capture broadband business.
However, as the landscape changed, McBride believes things got more difficult. She said, “Companies with deeper pockets have now started to enter and change the landscape with more supply, so honestly I wasn’t surprised, but I was shocked at the seeming finality of the announcement. Funding a LEO network and business is a large endeavor. When you factor that into the current impact the COVID-19 is having on the market, it was unfortunately the perfect storm in terms of timing.”
McBride admits she was “sad” to hear the news about OneWeb. “It’s a great group of people who had a common vision to provide affordable access to information across the globe with the heart and soul to make it happen. I am also sad for the industry as I was impressed with the innovation toward mass satellite production, the excitement back into the space community and U.S. Government, and the goal of providing affordable information access across the globe,” she says.
McBride still believes there is a strong desire for global broadband. She thinks OneWeb’s bankruptcy may provide an opportunity for other players. “SpaceX is making significant strides in launching Starlink and others are still on the hunt. Time will tell on whether these other businesses will emerge as planned, or if there will be any other impacts with current uncertainty in the economy,” she says.
History Lessons from Iridium
McBride is now at Iridium, one company that defies the negative LEO trend — even though it had to go through a painful rebirth to get through to the other side of today. Matt Desch, Iridium’s CEO, admits he was “not surprised” to hear of the OneWeb bankruptcy, as he admits that creating communications constellations is extremely challenging, requiring patient investors and perfect execution.
Desch says the story is different this time around than when Iridium went bankrupt in the late 1990s. “History is a little different this time – investors are pulling the plug on networks before they are completed, or in the case of LeoSat, before they even got started,” he says. “I think the news speaks more to the situations at LeoSat and OneWeb than it does about the overall satellite industry, which remains healthy. These failures are to be expected with entrepreneurial activity – it’s just that failures in developing constellations are much more spectacular given the levels of capital that must be spent before you can tell if they are even minimally viable.”
One of the questions now is what happens next for OneWeb, and whether the system can be revived. Desch believes it is more likely more likely that buyers will covet the spectrum and initial build regulatory milestone. “Unlike Iridium, where the network was complete and likely to last at least 10 years (we were very fortunate to get more than 20 years out of our first-generation system), OneWeb still requires substantial capital, and will need to be replaced much more quickly. Unless [there is] another existing mega-constellation as a buyer, I think investors might be deterred by the other announced systems being funded by investors with deep pockets, with very low launch costs,” he says.
Iridium and OneWeb signed a Memorandum of Understanding (MOU) in September 2019 to develop a combined service, but Desch said that little work had progressed since the annoucement, as OneWeb was still focused on its basic service. "Iridium is a complementary service to these big Ka- and Ku-band mega-constellations, and we will be glad to work with whoever would like to provide a better service for their customers using our unique L-band technology," he says.
Desch believes OneWeb was a bold venture, and he says they deserve credit for inspiring other even bolder ventures, some that are still underway. “Like Iridium in its day, OneWeb may have been too early though. In particular, the key for these commodity broadband networks, going back to even Teledesic in the 1990s, is a very low cost and self-installable user terminal. Unfortunately, no one has cracked the physics on that problem yet, and until they do, it will be very difficult to make these ventures quickly successful, which is what their investors seem to expect, he says.
LeoSat Alum Recognized Serious Challenges
Ronald Van Der Breggen, the ex-CCO of LeoSat is also uniquely placed to talk on this issue, given his recent experiences at LeoSat. He says he was shocked when OneWeb declared bankruptcy, but its business model had serious challenges.
“Building your business around low Average Revenue Per User (APRU) customers is always a challenge, and doing so in areas where companies are building cable systems and 4G/5G infrastructure, is just adding to the problem,” Van Der Breggen says. “This is so bad for our industry and for the many customers who are looking to our industry for solutions they cannot get from the terrestrial industry. They will have to wait again. Finding out that $3 billion has been burned over the years makes me extremely uncomfortable as that is more than the total funding requirement that LeoSat had. It is so sad.”
Van Der Breggen says that communication satellites in GEO, MEO or LEO, should be looked to for filling the gaps that cables, microwave, and cell towers leave open in their expansion plans. He sees satellites filling the gap as a last resort solution for the unconnected, but that they enter into low ARPU business models with a high likelihood to being replaced by cables or 4G once the business becomes successful.
He believes being a “gap filler” only works for so long. “If you have capacity to spare, this may be fine. Building your entire business on it is quite different. There are early tell-tale signs: lack of customer take-up, constant back and forth with investors on costs and continuously changing business plans as a result of the world’s telecom infrastructure evolving. OneWeb – and Teledesic back in the day – fell victim to this. While for LeoSat the outcome was the same – investors pulled out and money ran dry – it wasn’t because of costs, changing business plans or lack of customers,” he says. “Quite the contrary: customers were lined up in the billions, which is what makes me so positive about the state of our industry. If the proposed services are not gap fillers, but the ones with sustainable advantages over what cables or wireless can offer, then our industry is headed for a great future. Constellations with these sustainable advantages can and will be built.”
NSR Analyst Saw Red Flags Ahead of COVID-19
Claude Rousseau, a senior analyst at NSR admits he was not surprised that OneWeb ended going into bankruptcy, but that the timing was sooner than expected. He said that although OneWeb cited funding issues related to the pandemic, there were earlier signs pointing to trouble. “Reports that their main investor, Softbank, through its Vision Fund, was pressured for several months by activist investors to reassess its money losing investments, including OneWeb, already raised red flags,” Rousseau says.
NSR had noted in the past that building LEO and High Throughput Satellite (HTS) constellations are CapEx-intensive with total expenses that are for the most part vastly underestimated. In addition, proponents have regularly presented overly optimistic revenue-generating businesses cases. “There is a déjà vu feeling in a sense. However, on the positive side, the large influx of capital that they brought has led to many technology advances both in the space and on the ground segment that the industry can leverage for future use,” he says.
In terms of what happens next with OneWeb, Rousseau speculates on one or two potential scenarios.
“We’ve seen the U.S. Department of Defense (DoD) contract with Iridium when it came out of bankruptcy back in 2003. So that may be an avenue, but it would require further capital expenditure,” he says. “Other than that, perhaps Amazon for the spectrum and production facility or any other [major tech company] like Google, Amazon, Facebook, Apple, or Microsoft that are willing to join the race. A last resort would be for Airbus to remain active in the high-pace constellation satellite manufacturing game.”
Rousseau does not believe that COVID-19 can be used as an excuse for the operator’s demise. “There is not really a direct relation between COVID-19 and the OneWeb bankruptcy, it has only accelerated their demise,” he says. “We may see the long-awaited satellite market horizontal and vertical integration via mergers and acquisitions pick up pace as a result.” VS