Battle of the Billionaires

If things go according to plan with SpaceX’s Starlink and Amazon’s Project Kuiper, the satellite industry could soon see the era of constellations made up of tens of thousands of satellites. Having changed the face of the launch industry, these constellations could change the face of the industry full stop. But, are the billionaires a good thing for our industry? Via Satellite spoke to a number of well-known industry figures, including two previous Satellite Executive of the Year (SEOTY) winners about the impact of the billionaires.

Dan Berkenstock, entrepreneur and founder of Skybox Imaging and a former Satellite Executive of the Year told Via Satellite he believes that both the visions and financial commitments of Musk, Bezos, and Branson have been an extraordinary catalyst to the development of the next generation space sector. He says that as a result of their investment, venture capital firms, which have now funded hundreds of space startups, would have been much more reticent to get in the space game without SpaceX, in particular, as a trailblazer.

Berkenstock adds, “Less obviously, an enormous amount of talent was developed through folks working at companies run by these three entrepreneurs. Veterans of those companies have fanned out across the entire NewSpace ecosystem and are providing a tremendous labor pool to help a generation of entrepreneurs get their ideas executed.”

Berkenstock says that an industry with more than 10,000 satellites in space “means we have to think about satellites as disposable, commoditized computers in space, instead of large, handmade swiss watches.” He cautions that as projects end up costing more and taking longer than planned, we will have to wait and see which mega-projects ultimately come to fruition.

New World Order

Ronald van den Breggen, the ex-CCO of LeoSat, is uniquely positioned to talk about the impact of new satellite constellations. He admits there is a new world order already. “The industry as we know it has already changed for good. While a new equilibrium is still to be set, changes are irreversible,” van den Breggen adds.

He thinks traditional players won’t fall by the wayside because of the billionaires’ club, but rather by becoming irrelevant. “The billionaire investments will force everybody’s hand in this industry as there is no hiding anymore behind reputations, settled markets and fixed technology. It’s cards on the table for everyone – and they better be good,” he says.

Tom Choi, another ex SEOTY winner, ex-CEO of ABS and now Executive Chairman of Airspace Internet Exchange says, “Our [Fixed-Satellite Service] FSS industry is over $10 billion per year. Including the [Direct-to-Home] DTH business and other services, the [Geostationary Orbit] GEO industry is about $50 billion. The annual CapEx in our industry is more than $5 billion per year. Our industry is already run by multi-billion dollar companies with billions of dollars of revenue. The billionaires with their lower-cost launches will help grow the industry as more companies and other entrepreneurs so I believe this will be a net positive. The outcome of their riskier [Low-Earth Orbit] LEO communications investments will be visible in a few year’s time. It’s an exciting time for the industry so the traditional FSS operators have to adapt to meet and address the competitive threat.”

NSR Research Director Jose del Rosario believes the industry is changing and ultimately, we will get to a point where the satellite industry can take a larger share of the telecom pie. “Existing prices and cost structures have relegated us to niche markets. We’re not saying that we will become mainstream; however, the niche we have been serving will increase dramatically. Two, there are more options available and that’s always good for the value chain and ultimately to end users. Three, it has become imperative that one’s financial house has to be kept in order to be able to compete effectively in this new era. Financial discipline will be key to the new paradigm going forward. Four, the industry will be stronger after a shakeout, or should a shakeout occur. There will be pain but after the storm has passed, the industry will be in a better position to offer services,” del Rosario says.

He says the bottom line is that these billionaires are investing heavily in innovation and turning traditional business models on their head. From a market and industry perspective, this is good because these billionaires are taking the industry to a new level of efficiency and competitiveness. However, del Rosario adds a note of caution. “Billionaire programs will have to close the business case for all these positive benefits to materialize. In short, they need to succeed in launching their constellations and more importantly, succeed in achieving healthy, sustainable ROI over time,” he says.

Del Rosario believes that the success of traditional players will boil down to how they adapt. “We’re beginning to see some of that now. SES for instance with mPOWER will be competing aggressively and they have a head start with O3b. Small [High-Throughput Satellites] HTS at 50 gigabits per second are also on the table now, which improves costs on both the satellite and launch areas. Traditional players also have some of the key elements we’ve outlined before, such as landing rights and distribution channels, as well as ground systems that work. These are advantages traditional players can leverage in order to remain competitive. So, it’s not the end of the road for traditional players but being financially strong will be key on what lies ahead,” del Rosario says.

Berkenstock adds, “I suspect that, as with any major industrial disruption, there will be those who adapt and those who fade away. Luckily, new developments take a long time in the space sector and a number of traditional operators are beginning to embrace new technology and business models.”

Will Constellations be Successful?

Van den Breggen admits he’s not an engineer or a debris expert, but the size of the potential constellations seems too much. “From my LeoSat days I know how it is perfectly possible to provide meaningful and global services with 100 to 150 satellites in LEO. Adding more doesn’t add advantages for the type of services that business to business are interested in buying. I can’t speak for business to consumer, but should there be any advantages, it still would be a great big bet, given the low [Average Revenue Per User] ARPUs, low margins, and price erosion on top, which are so typical for that customer segment.”

He has doubts in terms of how successful these new constellations will be. “Money goes a long way towards success. I don’t think their first generations will be as successful as they portray it to be. Don’t forget that their ambitions are absolutely wild — SpaceX’s business plan is to surpass the revenues of British Telecom within their first year of being fully operational – a target that took BT over 50 years to reach. [My] doubts regarding their architecture, and lack of intersatellite links and the regulatory aspects are also far from solved,” van den Breggen says.

However, despite the era of mega-constellations being upon us, the future of GEO could still be positive. Choi says LEO communications systems are very complex and challenging from regulatory issues, technical challenges and most importantly, difficulties of making low-cost consumer devices that do not require much power and can see most of the sky, which current phased array antennas cannot do today. Choi believes GEO satellites and operators will have many more decades of operations. He believes the economics of TV broadcasting and providing high speed services to small low-cost consumer terminals to rural areas from GEO satellites will not be matched by LEO systems. “LEO systems will find their niche but I strongly feel that the roll out of terrestrial wireless networks will be the biggest threat to LEO systems because no matter how many thousands of satellites you put into Low-Earth Orbit, you won’t have sufficient capacity that people need for it to matter. Where people are, they will get wireless access and fairly soon,” he says.

Choi believes technically there should be no issues for SpaceX and Amazon to deploy thousands of LEO satellites into space and get them to work. “They will have market access in the USA and many countries. However, these LEO systems will not get access to places like China, Russia, India and other major countries whose regulators will not look kindly to giving up precious wireless spectrum to foreign satellite operators when they can use those frequencies on locally installed towers operated by tax paying local operators,” he says. “Terrestrial wireless technologies including 5G will rapidly deploy into suburban and rural areas. I believe these systems will find their niche such as aero mobility but they may not find a large market they are expecting to find.”

History offers lessons that the industry takes such success for granted. Choi cites the fact that billions of dollars went into LEO investments in the past only to result in billions of losses at companies like Iridium, Globalstar, and Teledesic. “Perhaps this time around it will be different only time will tell. One hundred and fifty years ago, the most valuable companies in the New York Stock Exchange were railroad companies. This was the case till Rockefeller built pipelines to move his oil, breaking the monopoly that the rail companies held. Most of them went bankrupt. If that history’s lesson teaches us anything at all, money doesn’t guarantee success nor longevity for that matter,” Choi says.

Space Tourism

But Musk, Bezos and Branson are not only making a difference in terms of launching and operating satellites. Del Rosario points to the examples of space tourism, going back to the moon, and occupying Mars. He says these are initiatives more akin to government programs that are now being done at a faster pace by commercial industry. “They are basically changing, improving, and providing much-needed stimulus to key segments of the marketplace that will make the space economy a highly promising proposition, which will also become more accessible to a greater number of companies and individuals. … When we look at investments in new space over the past five years, there’s a lot of funding and risk-taking going on out there and the billionaires partly deserve the credit for making space attractive for investments.”

Investment perspective

Will Porteous, founder of investment company RRE Ventures, believes the Musk, Bezos, and Branson have been “an enormously positive force” in moving the industry forward. “They all have tremendous operating judgment and recognize that there is a massively profitable future for the industry – but it is a future that requires considerable capital with long-term vision. Their commitment to the sector is enormously important in maintaining overall investor in market confidence in that future. Without their leadership, a lot of other secondary activity would not be happening at all,” he says.

Porteous thinks both SpaceX and Amazon are bringing a level of innovation and competitive pressure to some historic incumbents. “It is only natural that both companies would extend their innovative capabilities into other, adjacent markets, and profit sanctuaries. This industry has always been somewhat vertically integrated, but we are entering a new level,” he says.

However, while Porteous thinks these companies and billionaires are great for our industry, he says others should not be counted out just yet. He adds, “Let’s not count traditional players out yet. Satellite manufacturing, launch, and operations are still incredibly sophisticated capabilities and hard to do well.

A Force for Good

Ultimately, Berkenstock thinks the billionaires have been great for the space industry. He says, “John F. Kennedy set a radical vision for space exploration and had the ability to marshall the extraordinary resources needed to set it in motion. For the next 40 years, this industry rode that wave, making progress but with a lot of back and forth in overall strategic direction. I think that the industrialists driving the new generation of space development are picking up his batton, to challenge us all to reach beyond what we thought possible. Fifteen years ago I would have never dreamed that a private company could set a vision to colonize Mars, marshall billions of dollars to advance that vision, and have a realistic chance of accomplishing it in my lifetime. That’s an incredible development. I, for one, think they’ve been great for our industry.” VS