Execution and meeting customer needs are critical to making the business case for new satellite Low-Earth Orbit (LEO) companies, major satellite operators said Tuesday at the opening of the SATELLITE 2021 conference.

Executives from LEO upstarts SpaceX and OneWeb, as well as Iridium Communications and Arabsat, provided highlights of their current businesses and weighed in on the financial outlook for the space industry, which has seen dramatic valuations of new space companies. Their insights underscored both the excitement and industry confusion surrounding the sector, as operators seek a future where they can bring broadband connectivity affordably to enterprises and consumers.

Kicking off the panel, OneWeb CEO Neil Masterson said his firm has spent the last 10 months focusing on execution. OneWeb’s $2.7 billion capital raised more than covers completing its LEO constellation, which is now 44 percent built out. Masterson said by the end of November, it will begin servicing customers 50 degrees North to the North Pole and will provide global coverage by the end of next year.

He emphasized that competition matters because it provides resiliency and choice to customers, which is why collaboration is so critical.

Bret Johnsen, CFO of SpaceX, highlighted SpaceX’s success both on the launch and operator side, with 21 launches this year and 1,700 Starlink satellites now deployed in Low-Earth Orbit – enough to turn on global service except over the poles.

“It’s clear that we are delivering a product that people want,” said Johnsen, noting that SpaceX has more than a half million deposits and orders on the books and over 100,000 customers.

SpaceX’s finance chief emphasized that while SpaceX started on the consumer side, it is also focused on enterprise users, and is now working with two telecom providers pursuing the backhaul side of the business.

As the sole Geostationary Orbit (GEO) operator on the panel, Hadi Alhassani, Arabsat’s vice president and chief strategy officer, applauded the positive attention the space sector is getting from new entrants, calling it good for the industry, but was bullish on the relevance of GEOs. He said his firm is profitable and cash flow positive with over 65 percent EBIDTA margin, but admitted there is an oversupply of GEO capacity in Asia, the Middle East, and the Americas.

Iridium Communications, the first to operate in LEO, is now benefiting from its fully deployed Iridium NEXT constellation and record total revenue in 2020.

“Investors appreciate that we’ve been very focused strategically on a specific segment (mobile satellite services),” said the panel’s elder statesman, Matt Desch, Iridium CEO for the last 15 years, who noted that his company has grown faster than other satellite firms over the last 18 months.

Looking back over his time at Iridium, he recalled being told at his first satellite show that his company “couldn’t possibly succeed because we were in LEO; that we were crazy to have inter-satellite links."

The Space Investment Boon

The satellite sector is seeing record investor interest, especially from public “blank check” companies, or SPACs, that can quickly merge with a company, bypassing the typical IPO process. Several panelists, including Desch (whose own company was the first space SPAC in 2009), predicted that SPACs are not likely to continue long term.

Desch called Iridium’s Aireon system, which enables global air traffic surveillance, the “most SPACable” of all the company’s operations, being cashflow positive. However, he has no plans to take it public. “It’s a very expensive thing to do. You lose a lot of value of your company. You pay a lot of fees,” he said. The excitement for SPACs is “more a reflection of the exuberance of the market, than it is a strategy or investor approach we would take.”

The industry has come full circle with the current rise of LEOs, where investors now are going after startups, which are going public before they start offering services, while mature satellite operators are going private, Desch said. “It’s a very weird industry right now – it’s an interesting and exciting time to be part of it because you have to execute your way through that.”

Panel moderator Christopher Baugh, president of analyst firm, NSR, noted, “The big question we get all the time is that the industry doesn’t have a supply problem; it has a demand problem.”

The investment community is struggling to agree on a revenue forecast for many of these new companies where valuations are sky high.

“Investors jumped into this industry early on and have focused on hype and excitement – so it’s really hard to compare all these models one-to-one because everyone is in a different state,” Desch said.

In the near term, valuations will be a challenge since “we’re not using the same benchmarks, or the same timeframes,” he added.

OneWeb’s Masterson agreed, adding that it will ultimately come down to meeting customer needs “at a price point that makes sense to them.”

OneWeb has found that the market varies depending on the part of the world the customer operates in, or the industry being served. “The customers will decide who will be successful on the basis of the quality of service that we provide,” Masterson said.

Arabsat’s chief strategist said there is a lot of confusion among customers, noting how aviation customers have come to him asking about GEO versus LEO services. This confusion, he explained, translates to not committing to any service because they don’t want to bet wrong and end up with a defunct operator.

GEOs Place in the New World

GEOs definitely have a place in the satellite landscape now being dominated by LEO investment, said several panelists.

“GEO is here to stay,” said Alhassani, who noted that his company looked at a couple of LEO investments a few years ago but that none offered a compelling business case.

Masterson firmly believe that interoperability with GEO satellites must happen and is common sense. “The industry has deployed large amounts of money into [these networks]. People don’t switch technology that rapidly.” He cited an example that airlines might use multiple connectivity suppliers.

Lower Terminal Costs and Strong Cashflow are King

SpaceX’s Johnsen said that the world has insatiable demand for high-speed, low-latency broadband. “It’s then about getting the cost point to delivering the service to be compelling,” he said.

Johnsen agreed that it’s all about cash flow. He said SpaceX has taken a different approach by being fully vertically integrated. “We’re building the satellites ourselves; we’re launching ourselves; we’re building the network ourselves, and critically, we’re building the terminal and dish ourselves.”

Key to hitting an attractive price target is getting the user terminal costs down. “If we get the terminal cost down that is the holy grail for the consumer business case,” he said.

Asked about the profitability question, Masterson argued that EBIDTA isn’t the right metric for measuring a satcom business’s value, cash flow is. “You have to have enough cash flow to continue innovating the next generation of technology,” he said.

With its $3 billion constellation paid off, Iridium has become more valuable to investors. Desch questioned the sustainability of some of the expensive networks that will have to replenish themselves in five years.

“That’s the real challenge – it’s not a challenge in the short run because there’s lot of money to throw at them,” he said, noting eventually investors will expect to be paid back and get a return on their investment.

On a positive note, Desch said that all the innovation being poured into LEO networks will benefit the entire industry. “It’s making stuff cheaper and making stuff better. My next satellites are going to cost a lot less to build than [my current ones].” VS