The New LEO Trend and the Opportunity for Russia

By design, every global project brings opportunities and threats, even for strong aerospace players like Russia. The biggest opportunity lies in revenue increase across several aerospace segments:

Launch services and launch vehicle production. Nine Russian vehicles have already been contracted to launch the biggest part of the OneWeb constellation; more launches are waiting for official confirmation. Other constellations, such as Telesat’s, use Russian vehicles to launch their pilot satellites as a secondary payload. According to Agat’s forecast, the quantity of launching spacecraft will amount to 830 in 2020 and 1,400 in 2024. Most of them are small satellites under 500 kg. The number of launches is expected to go up to 140 to 160 in 2025. While rolling out mega constellations, operators will be limited in time and hence use every launch capacity available to them.

Distributors and service providers. Russian satellite operators or joint ventures could act as distributors or licensed service providers of satellite capacity in Russia and the former Soviet Union countries. Russia tallies three satellite operators with their own active fleet (12 LEO Gonets Constellation and 16 GEO commercial spacecraft) and numerous satellite distributors. Nearly a half of their revenue is generated abroad.

Foreign and joint investments into equipment purchase or satellite infrastructure construction. To have global satellite coverage, LEO projects will have to build ground gateways on the Russian territory — covering more than an eighth off the Earth's inhabited land area — to meet user expectations, especially in maritime and aero segments.

Job growth will be enabled for highly qualified workforce (engineers at gateway stations) and indirectly for supplementary workers.

However, the following destructive threats might affect the Russian aerospace industry:

Losing competition for launch services in terms of cost or quality. Low prices and high reliability of competitors' launch vehicles could drive fast competence gain and higher market confidence in new entrants. The risk is compensated by the upcoming Soyuz 5 launch vehicle based on the Russian spacecraft design, which is potentially priced at $55 million.

Successful implementation of global and operational in Russia satellite projects will increase their market share. Local players will face a drop of revenues with a lion's share of funds flowing outside the country to purchase capacities or pay out dividends.

In Organization Agat, we believe that the upcoming opportunities are more likely to positively influence the Russian aerospace industry and boost launch revenues. However, will the industry be able to take that chance seriously or let it fly away, yielding to some foreign launch service provider?

Now let us talk about the telecom industry accounting for the majority of announced LEO projects where we see some benefits and a possible harm for the Russian telecom sector. Here, it’s important to address two opposite viewpoints: businesses and end customers.

Benefits from LEO projects are as follows:

Leveraging LEO benefits, such as cheap user equipment or high-speed global coverage, telecom providers could reach rural and underserved areas. It will help them expand and diversify their customer base at a lower cost and enhance service availability and quality. Also, one of the most crucial government goals, i.e., to bridge the digital divide, can be solved through LEO projects.

End customers will definitely benefit from projects completion. In-demand services — e.g., always-on connectivity for social media and business necessities, connectivity on the move and en-route, streaming audio, video and other entertainment services, remote health and education programs — would be available for end users as soon as all promised solutions have been delivered.

Then let us indicate some key points that make implementation of LEO projects threatening for the Russian telecom industry:

Low purchasing power of Russian end customers and one of the lowest levels of Annual Rate Per User (ARPU) for telecom services. Russia has the cheapest ARPU for pay TV services among top-20 countries in terms of GDP. Prices for broadband and voice services are quite cheap, too. Investing in Russian telecoms is risky because of a long payback period or even unachievable breakeven.

Realization of LEO projects is planned using foreign technology solutions like Hughes for OneWeb and others. Hence, operators and providers are highly dependent on foreign equipment suppliers. It bears a great risk for the industry given the current complex geopolitical situation. Some different kind of sanctions could cut the supply of equipment and user terminals and consequently hinder selling services to Russian customers.

In our organization, we have a strong opinion that LEO projects are going to be a market changer and commence a new era of communications globally. End customers will definitely benefit from all these initiatives.

Nevertheless, the question remains: How will national telecom players and the aerospace industry react to this challenge? Make it happen and demonstrate flexibility to the new business environment and competitors? Or — on the contrary — approach it in a traditional, more conservative way and stay outside the global trend? VS