Analyst Watch List: Constellations and Consolidation

SATELLITE 2022 is expected to spark many talking points as the satellite industry gets together in force to debate the future of the industry.

In this analyst roundtable, Via Satellite talks to Brad Grady, president and COO of NSR; Pacome Revillon, CEO of Euroconsult; Daniel Welch, co-founder and senior consultant for Valour Consultancy; and Siddharth Shihora, senior associate for PwC to get their major talking points for the show.

VIA SATELLITE: What do you think will be the biggest talking points for SATELLITE 2022?

Grady: SPACs [special purpose acquisition companies] and the road ahead for public companies built on a shaky business model and a downward trending valuation. SpaceX’s Starship launch, orbital debris, and constellations (specifically E-Space). Starship is one of the most ambitious commercial launch vehicles devised and stands to potentially serve a wide portion of the satellite industry; from high-volume lower-costing rideshare, to much larger GEO and beyond, Starship’s timeline and potential may significantly disrupt the launch service industry and will be much discussed among players across the supply chain. Ground segment virtualization — it’s a key enabling technology for evolving ground segment to meet the scale and flexibility of constellations, VHTS [very high throughput satellites] and SDS [software-defined satellites] and to truly make satcom part of the 5G ecosystem.

Revillon: Three topics that we see of importance would likely turn around constellations and changes in the ecosystem. The start of service of new broadband constellations; sustainability of space operations; and mergers and acquisitions, with the trend likely to continue this year, including after the massive fundraising in the industry.

Welch: The lack of space in space because of satellite overcrowding. Every additional satellite brings benefits but also causes disruption. For example, solar storms taking out satellites, satellites disrupting space missions and limited parking spots for telecom satellites. The consequences of satellite launches need to be discussed more and how to mitigate the risks. Also multi-orbit networks because there’s an acceptance that the immediate future has a place for GEO [Geostationary Orbit], MEO [Medium-Earth Orbit], and LEO [Low-Earth Orbit], but how can the transition process for existing users reliant on GEO be managed in the least disruptive way possible? Also user terminals – we appear to be moving closer to the arrival of a new generation of terminals, electronically steered antennas [ESAs]. But I’d like to see discussion on building the business case for customer adoption over existing solutions.

VIA SATELLITE: If you could name one company that you have your eye on in 2022, what company would you name and why?

Grady: We choose a few key companies to watch: AST SpaceMobile, Lynk, and Omnispace. The potential for direct satellite to device is extraordinary. Even if performance levels are very basic, the addressable market is huge. And Swarm Technologies — the acquisition by SpaceX has propelled the company into the leading position for satcom IoT.

Revillon: It is always hard to pick a single company. We will certainly keep an eye on Intelsat following its exit from Chapter 11. It would be interesting to see what’s next in terms of strategy and the ability to execute on the plan.

Welch: We couldn’t pick one, so take your pick: OneWeb – We’ve seen disruption on the Ka-band side of the fence and I’m keen to see how Ku-band vendors react in the mobility space. As we await the long-promised entry into service of new ESAs, ThinKom could hold the key to bringing high-speed satellite capacity onto smaller aircraft like regional and business jets.

VIA SATELLITE: What did you think was the biggest news story in satellite in 2021?

Grady: Viasat buying Inmarsat was the biggest space news story of 2021. While it was a busy year, including the launch of the James Webb telescope, several crew missions to orbit, and much funding in several key sectors, this acquisition will significantly impact the direction of satellite manufacturing, launch, and HTS revenues going forward. Considering the strategy of both companies, NSR believes Viasat will pause development of the Viasat-4 missions, continuing the launch of the Inmarsat 6 and 7 fleet, while continuing to develop Orchestra as a means of supporting its GEO line and providing global coverage and resiliency via LEO. The industrial pivot to occur from this acquisition cannot be overlooked, as it significantly changes the expected GEO satellite manufacturing revenue direction, while also shifting the global HTS supply timeline.

Revillon: The massive fundraising by the industry, with the advent of SPAC merger transactions was a major event. The influx of cash and high valuation of startup businesses is definitely a game-changer, with expected snowballing effect in the ecosystem.

Welch: Given our focus on in-flight connectivity (IFC), it’s difficult to look beyond the Inmarsat/Viasat acquisition because of the potential disruption it will cause to the competitive environment, if approved. Another notable story was SpaceX valued at an apparent $100 billion, and thus becoming the second-most valuable private company in the world, if that is true. Significant in its benefits e.g., revolutionizing private space entrepreneurship and opening new space markets, but a valuation of that size poses concerns that the space economy is facing a speculative bubble.

Shirora: There is a lot of talk on Viasat’s acquisition of Inmarsat, and it is a major move. But for me, Viasat’s acquisition of RigNet is what rings the bell, as this acquisition was one of a kind where a satellite operator moves down the value chain and acquires a company that operates and specializes within a very niche market, i.e the energy market. It is also interesting because other satellite operators may undertake a similar approach leading to a new wave of targeted acquisitions.

VIA SATELLITE: Have you been surprised quickly how the pace of change has been in the satellite sector, and the impact these new constellations could have on our sector?

Grady: Yes and No. There is a lot of change within our industry such as the entrance and deployment of constellations, flexible satellites, and innovative business models. However, the satellite industry is still lagging [behind] terrestrial solutions in many other aspects, specifically virtualization and Open RAN-like approaches. All sectors that have gone through privatization and commercialization have changed progressively. The space industry will change even more rapidly because of the increasing pace of technological innovations. This growth is great, depending on which end of the value chain you are at. Customers and previously untapped markets will now benefit from better services at lower prices whereas service providers will face increased competition.

Revillon: The advent of a large number of corporate events in a short time frame is always quite difficult to predict, and can result in surprise. However, many of the underlying drivers, and of the companies involved in recent moves, have either been in business for five to 10 years now, and/or have been on an innovation path for quite some years.

Shirora: Overall, a fully operational LEO mega-constellation is yet to come, some planned constellations are yet to begin meaningful satellite deployments, and the ones that are partially operational are significantly behind their planned initial deployment/operations schedules. Considering these points, it seems that the pace is rather slow, and for some operators stagnant. On the other hand, the impact from partially operational constellations is commendable but not surprising, as it has been known that the main impact of LEO’s will be in the consumer broadband market, especially in developed countries.

VIA SATELLITE: Do you believe these new LEO constellations/operators are changing the game for the satellite sector?

Grady: Not fully yet, as we didn't see significant impact in 2021. Obviously, a lot of hype exists from Starlink and OneWeb, but Hughes and Viasat continued to do well in the U.S. where the challenge was unavailability of supply, not Starlink. Also, the OneWeb deal in Saudi Arabia shows that they won't disrupt the market with extremely aggressive pricing as price points were on par with what one can get from GEO today or even above. 2022-2023 might be the year when we really see the potential for LEOs. Even Elon Musk seems to have doubts about this first generation of LEOs. Constellation players are yet to prove their business model — which will be very important for long-term sustainability.

Revillon: No doubt that they represent game-changers for the industry. Consequences are already visible, from the advancement in new generation terminals, to the recent setup of ventures in India between local conglomerates and space companies. From the need to reinvent flexible GEO assets to the revisit of strategies by all market players, the impacts are already material, and will increase as the first broadband constellations fully start their services.

Welch: Yes, but LEO should be considered an innovative expansion to existing satellite infrastructure, bringing with it new opportunities for commercialization on the ground. Pretty much every major GEO operator now has some skin in the game, even if their current plans involve some vague indication of a plan to build out a NGSO network. Shirora: Yes, they have undoubtedly disrupted the entire satcom value chain, from satellite design to end user experience in terms of latency and throughput. They have also been able to change the way business is done, today LEO connectivity solutions are offered at exceptionally low-price points, with “leave when you want contracts,” as opposed to the traditional lock-in contracts. The question is how long can such contracts and price points be sustained.

VIA SATELLITE: Finally, are you confident that satellite technology can play more of an overall role in the communications ecosystem going forward?

Grady: Yes. 5G is great news for satcom given its network of networks ambition. In the past, satellite was very difficult to integrate for mainstream application service providers (CSPs), but 5G should make satellite transparent and very easy to adopt. It is the responsibility of the satellite industry to influence and adopt those protocols to make satellite an integral part of 5G. But one must also be aware, mainstream CSPs will now also be displacing some of the traditional satellite roles.

Revillon: The first strategic issue is to make satellite technology fully relevant in the cloud and 5G ecosystem. If the industry can further improve the end user experience, capture its share of the skyrocketing data being shared, and enable differentiated services, then the growth potential is there. One of the interesting developments is the stronger focus from technology giants on the industry.

Welch: I strongly believe that as no one connectivity service is perfect, satellite is likely to play a big role in connecting the hard to reach and supporting the growth of underserved populations and economies, supplementing cellular connectivity.

Shirora: Regardless of the direction the industry takes, the role of satellite technology is surely going to be critical within the overall communications landscape. Large volume production of equipment has already lowered costs and price and ground terminals will see further price declines, widening the addressable market. Today, there are many satellite options available to operators that enable them to adapt their solutions that best fit the downstream communications market. However, some operators currently have no response to the market disruption, and for them to remain relevant, it will be crucial to develop a strategy that ensures their place within the ecosystem. VS