The space segment has been undergoing a major transformation for a number of years now. Earth observation is moving towards a constellation approach, populating new orbit inclinations and altitudes and diversifying sensors. Connectivity-focused space systems are now invading the Low-Earth Orbit (LEO) orbit with broadband constellations and payloads in all orbits are offering more capacity and higher flexibility.
Right in the middle of the equation transmitting, collecting, and distributing data, the ground segment is also going through its own revolution. New value creation and CapEx efficiency are at the heart of this journey, which shall see a transformation of the solutions and of the ecosystem at large.
This is the second part of a Euroconsult series reviewing the dynamics and prospects for the ground segment for different vertical segments. This piece covers the ground segment market for the connectivity segment. Read the first part — Ground Segment Manufacturers Face Changes to Leverage Constellation Potential — in the May edition.
Euroconsult estimates that approximately 650 sites are currently managed by satellite operators, teleport operators and service providers to manage data traffic and the distribution of video content worldwide. We estimate that these currently host more than 15,500 antennas that connect with satellite systems offering commercial capacity.
The first major change in the ground segment industry came with the deployment of an increasing number of first and second generation Geostationary (GEO) High Throughput Satellite (HTS) systems and the launch of the first broadband Non-Geostationary (NGSO) constellation O3b. These systems have a larger number of gateways per satellite. At the same time, they have reinforced the position of satellite operators as premium clients for ground segment equipment.
A second major trend is the advent of new NGSO broadband constellations. Each of the LEO constellations shall typically deploy several dozens of gateways, and each of these carry from a few to dozens of antennas. This obviously represents a major ground segment investment, noting that many gateways will be hosted in existing teleport facilities, as well as potentially in data centers. Beyond the initial deployment, we anticipate that a combination of traffic increase and of regulatory requirement will result in a progressive increase in the number of gateways and equipment. In addition, the shorter lifetime of the satellite networks, and their modernization, should lead to refresh cycles of the ground segment as or more frequent than for GEO systems.
Digital payloads, and dynamic management of traffic and services should progressively impact the ground segment design, and progressively favor the development of virtualized functions of the ground segment. This being said, this transition shall be particularly relevant for large to global systems, where the functioning of particular gateways and equipment shall fluctuate over time and shall be more progressive when considering regional systems.
Transition to new frequency bands comes with most recent broadband systems (either in GEO orbit or NGSO). Most recent GEO broadband satellite systems as well as NGSO constellations under development have opted for the Ka-band for their gateway links. Several systems targeting very high capacity and under development are now turning to the Q/V band in order to enable more data traffic through their gateways. We consider that the Q/V band should represent the frequency band of choice for new VHTS systems being procured in the next five years, and likely for future NGSO constellations.
The model of teleport owners has been increasingly transformed, with a combination of proprietary systems and hosting, and the diversification of their missions, with for example the support of certain government programs, either for operational or even scientific and exploration activities.
The user terminal segment is also on the verge of a major shift. It would be a major overstatement to suggest that the industry had not been innovating at a rapid pace in the last decade. Major emphasis was on the baseband part, with major improvement in the performance of hubs and user terminals and an increasing flexibility in deployment.
In the meantime, pioneers in the development of flat panel antennas like Kymeta and ThinKom have released their first generation of products and new generations of their solution. In parallel, over a dozen companies have reportedly been working on new flat panel antenna solutions, with most of them corresponding to active or passive phased array antennas.
The focus on new antenna systems comes along with the development of new broadband satellite constellations, of flexible satellite payloads in general and of the mobility markets such as for aircraft, ships and potentially trains, trucks, and other vehicles.
While most of the new antenna solutions’ owners have announced a commercial availability around 2022 or 2023, their technical performance and their costs will be of a critical importance to support a market take up in both satellite capacity usage and growth in antenna deployment.
We anticipate that the shipment of user terminals should almost triple for commercial segments over our forecast period, already reaching close to 2.3 million VSAT units by 2030. While shipments for consumer broadband access should remain dominant, we anticipate a growth in shipments in all the user segments. The only segment that shall remain stable would be enterprise, where certain legacy low data rate networks should continue to decrease, while the number of higher capacity sites should continue to increase.
This should turn into revenues reaching $2.7 billion by 2030, with a double-digit growth in the five-year period. The recovery of the most impacted segments by the pandemic, such as the In-Flight Connectivity (IFC) segment, should result in accelerated growth from 2023. The reduction of user terminal shipments resulted in an estimated loss of $400 million for the overall market compared to 2019. In aggregate, the user terminal segment for commercial satellite connectivity represents a $24 billion opportunity over the next decade, and over $7 billion should correspond to user terminals including flat panel antennas.
The satellite broadcast segment, understood here as the distribution of linear video channels, is a largely mature market, including from the standpoint of the ground segment. Demand is essentially driven by retrofit requirement, with a progressive erosion over the next ten years.
Moving forward, the C-band relocation process should give a boost to this segment in the next two years. In the United States, the regulator FCC confirmed the process to repurpose C-band spectrum for 5G in February 2020. While the procurement of new satellite systems to support video, distribution was largely publicized in the United States, this event was also the starting point of an adaptation of the ground segment. This has meant the reorganization of the teleport network for several satellite operators, as well as a combination of adding filters and replacing antennas among others in the sites of service providers, cable operators and broadcasters.
For the ground segment industry, and outside of the replacement costs, the main opportunities lie in the supply of new antennas and of Radio Frequency (RF) equipment, with far more limited opportunities for baseband suppliers.
We estimate that the defense and intelligence market for ground segments related to connectivity, including the monitoring/receiving function for intelligence agencies, represented over $1.2 billion last year, led by user terminals representing two-third of these revenues. Following the peak observed from 2007 to the first part of the last decade, the recent years have seen relatively low global spending. This has been largely in line with the lower military presence in the external theaters of U.S. forces, and to a relative transition period between military satellite systems.
While the synchronization of the satellite system deployment and of user terminals is often a sensitive issue, it is noteworthy that the launch of new military satellites is often the trigger for a modernization of both the core stations and of the user terminals. The most recent example is the recent ground segment contracts signed in France with the Thales group and Airbus groups ahead of the launch of the new Syracuse IV system. As such, the launch of new military satellites tends to correspond to peaks in ground segment investment, in particular outside the United States.
Considering the opening period, four drivers will be key for defense spending, with a potential doubling of the spending in the next peak period that is expected from the middle to the end of this decade:
The launch of new military satellite systems, but also the willingness to leverage new capabilities such as NGSO commercial capacity will represent a driver for investment. Overall, the two trends of highly secured relatively “narrowband” communications and of broadband communications, with in particular more “military” Ka-band capacity, will continue to apply.
Major modernization programs will be required for equipment reaching the end of their lifecycles. Considering land U.S. forces, around 16,000 terminals of different kinds are currently in the inventory, with most of these at least seven years old or over.
Mobility and communications on the move at large will be important drivers. While all subsegments should expand (for navies, land vehicles, UAVs etc.), the manned aero segment, including transport aircraft but also air fighters and attack aircraft or even helicopters should open as a growth segment. While concept of operations did not favor the use of satcom in the past, we expect equipment to increase through the current decade, with a set of programs and contracts already announced.
So far, the focus has been very much on intersatellite links. However, the use of optical links between the ground and space segment could see a boost in the coming year. In Europe, the project of European LEO satellite constellation taking part in the quantum communications infrastructure, if confirmed, should result in a boost in development budgets for optical solutions.
While we do not anticipate any extensive use of optical connectivity in the commercial segments during this decade, increasing R&D and first prototypes could prepare for future hybrid architectures involving RF and optical connectivity.
The ground segment industry has been subject to an almost unprecedented stream of transactions in the last three years, with acquisitions reported in the different parts of the ecosystem.
Companies are looking to take position in growth segments, to reach a critical size and manage economies of scale. Companies highly exposed to the IFC market have been faced with particular challenges. So far, companies have been able to navigate through the crisis, which represents a remarkable achievement. We observe that this has had the tendency to accelerate initiatives in developing new solutions and address other industry segments, either in the aero market or in other government and commercial segments.
For startups, the two challenges will be to demonstrate the performance of their solutions and their cost efficiency with their time to market being key as the new satellite systems are being deployed. Achieving economies of scale through large procurement and delivery is one of the critical stakes for the economic model of most market players, in a market that should see a high competition intensity. VS
Alexandre Corral is the editor of the “Ground Segment Market Prospects” report and a consultant at Euroconsult.