The past year has been one of the most eventful on record for the satcom industry. In the 12 months from October 2021 to September 2022, the industry saw multiple constellations make significant progress, M&A activity across the entire value chain, and major announcements related to direct-to-mobile communications. All of these happened while the satcom industry continued its post-pandemic recovery, with capacity usage increasing, and a return to revenue growth expected in 2022.
Post-Pandemic Recovery Continues
Satcom industry revenues have been on a downward trend since 2017, mainly due to decreasing bandwidth prices, the negative impact of video services, and the impact of COVID-19 on mobility markets in 2020-21. In 2022, industry revenues are expected to renew with growth. With pricing continuing to fall in 2022, revenue growth is driven by even faster growth in leased capacity, typically driven by either large government connectivity projects or mobility. Projects are routinely reaching the scale of gigabits per second (Gbps), and the largest service providers in the industry are now leasing tens of gigabits per second. Speedcast announced in May that it added 13 Gbps of capacity to its network to reach a total of 30 Gbps. This rapid growth is being driven by two main factors: the increasing demand for connectivity, and the changing economics of satellite.
The increasing demand for connectivity has accelerated since the pandemic, with governments spending more on universal access programs, businesses spending on increased digitization, and work from home leading to more people working in remote areas. Verticals such as in-flight connectivity (IFC) have recovered impressively. During the recent Asia-Pacific Satellite Communications Council (APSCC) conference in Seoul, a representative from Viasat noted that Australian airline Qantas has reached pre-COVID levels of IFC capacity usage, despite passenger levels only being about two-thirds of pre-COVID. In short, people are using more bandwidth, and this trend is likely to continue.
Supply-side economics is the second driver of this step-change in bandwidth usage, namely the fact that satellites continue to be more cost-effective, and the amount of capacity on orbit continues to increase. As we can see from recent GEO satellite orders summarized in the table below, this is not a passing trend, and indeed most future GEO satellites will have at least partly flexible, software-defined payloads.
In the long run, this may put further pressure on satcom pricing, but more flexible satellites will also go a long way toward solving one of the central challenges of high throughput satellites (HTS) — low utilization because it’s harder to fill spot beams than it is to fill a single widebeam. This will ultimately make GEO satellites more competitive with Non-Geostationary (NGSO) constellations, which benefit from economies of scale due to launching hundreds or thousands of satellites. And good thing that GEO satellites will have this trick up their sleeve, because 2022 saw some significant progress by potential disruptors from NGSO.
NGSO Constellations in 2022
Several constellation projects made significant progress in the past year. Starlink continued to expand in terms of constellation size, to more than 3,000 satellites in orbit. And its business model expanded to offer maritime and enterprise services in addition to its consumer-grade service. OneWeb resumed launches with a 36-satellite launch from India in October, with the constellation reaching 462 satellites out of 648. The company also made progress in several key markets, including India through an agreement with Hughes; Saudi Arabia through a joint venture agreement; and Indonesia, with progress with local service provider DTP on gateway and landing license.
As of press time, SES’s next-generation mPOWER constellation has not launched in 2022, but the company announced progress on their next-generation O3b mPOWER antennas, which reportedly have reached a level of simplicity as to where customers are installing them themselves. In 2022, customers in the Cook Islands self-installed the new terminals and demonstrated their backward-compatibility with original O3b.
Outside of the usual suspects, new constellations including Rivada Space Networks and Mangata emerged, aiming to serve niche markets under the assumption that “broadband from Low-Earth Orbit (LEO) is big enough for a few players.” Constellations have also become more strategically significant, with the European Union announcing in 2022 a 6 billion euro ($6.23 billion) plan for its own LEO communications constellation, while China passed further supportive legislation for private companies to build LEO communications satellites.
Looking at data from Euroconsult’s Satellite Connectivity and Video Market report, these constellations have represented an increasingly large percentage of total capacity, comprising some 95 percent of the of capacity launched between January and August 2022, with this a shift from 95 percent GEO and 5 percent NGSO in 2018. The dominance of NGSO in terms of total capacity is likely to continue moving forward, but GEO will begin to see a bigger share, about 15 to 30 percent as so-called VHTS GEOs (KONNECT VHTS, ViaSat-3, etc.) begin to launch.
Robust M&A Activity
Despite the industry volatility — or perhaps because of it — the industry has seen a wave of M&A activity over the past 12 months. The biggest transaction by far is at the operator level, with ViaSat’s $7.3 billion takeover of Inmarsat so significant that it remains under scrutiny from regulators. More recently but no less significantly, Eutelsat and OneWeb announced a merger valuing OneWeb at $3.4 billion and creating a formidable GEO/LEO offering.
Further downstream, the biggest move was SES’s $450 million acquisition of Leonardo DRS’s Global Enterprise Solutions Business in the first quarter, which gives SES a significant boost in the government/defense sector. Hispasat acquired Latin American VSAT service provider AXESS Networks for $96 million, expanding the Spanish satellite operators’ already impressive Latin American footprint. Intelsat announced the final integration of its Gogo acquisition, and finally despite rumors of an Intelsat/SES merger swirling around the industry in the second half of the year, the megamerger has not happened …. yet. While not M&A per se, the year also saw Avanti complete a financial recapitalization which lowered the firm’s debt by $550 million, while Intelsat emerged from bankruptcy in the midst of an unrelated cash windfall for C-band spectrum in the United States.
Moving forward into next year, despite financial market uncertainty and rising interest rates, satcom industry M&A may well continue. The recent APSCC conference discussed M&A as a distinct possibility, with APT Satellite noting that further declines in bandwidth pricing will put additional pressure on margins for both satellite operators and service providers, forcing further vertical consolidation.
Direct-to-Handset: One Step Closer to Reality?
Direct-to-handset communications — i.e. communicating between a standard, unmodified cellular phone and a satellite for broadband data services — has long been considered science fiction. “You can’t change the laws of physics.” This by and large remains the case — you still cannot use your unmodified phone to get broadband from space.
But over the past year, the satellite, telco, and smartphone industries have all taken big steps in the right direction. The biggest announcement was in September, when Apple announced during the iPhone 14 unveiling that the phone includes Globalstar satellite connectivity, initially for emergency messaging. SpaceX and T-Mobile also announced a direct-to-handheld partnership with limited details, while Chinese mobile phone maker Huawei announced that its Mate 50 smartphone would be able to send (but not receive) texts using China’s BeiDou satellite navigation, and that its Mate 60 would be able to send and receive SMS, and make short voice calls.
In addition to pushing the boundaries of satellite-to-mobile communication, these announcements have brought satcom into a broader context, creating a new buzz around the industry. This was perhaps best encapsulated in the event invite for the above-mentioned iPhone 14 release, in which Apple showed a company logo made out of stars. Even if we never reach the point of using unmodified smartphones to receive broadband from space, 2022 was a big step forward for the nascent technology, and we are sure to hear more about it in 2023 and beyond as satcom becomes part of the broader conversation.
The past 12 months have been some of the most eventful that the satcom industry has ever seen. With a pre-COVID recovery continuing to provide tailwinds for most of the sector, we’ve seen certain operators take some risks with M&A, and potential disruptors continue to invest heavily into constellation projects. The next several years will see another step-change in the amount of available satellite capacity, which will lead to even more disruption and industry change. What the satcom industry will look like in a few years remains uncertain, but if 2022 is any indication, it will be a bigger, more successful, and more mainstream industry. VS
Source for the table and the graph: Satellite Connectivity and Video Market, 2022
Blaine Curcio is an affiliate senior consultant for Euroconsult, based in Hong Kong. Since joining Euroconsult in 2018, he has contributed to a wide range of consulting missions and research reports, primarily covering the satcom sector globally, and broader space industry in China.