NSR Reviews 2019: The Year Ahead

OneWeb Finally Launches

Lluc Palerm, Senior Analyst, NSR

After years of heated debate over Low Earth Orbit (LEO) High Throughput Satellite (HTS) constellations, 2019 will see the launch of the first batch of satellites for OneWeb. While this is certainly a huge feat for the company, the clock is ticking for many other elements before the system enters service. Concrete progress on funding, solving ground segment challenges, drawing a clear roadmap for market entry and navigating the regulatory landscape preventing the system to be commercialized in key markets are all hurdles ahead. And despite a smaller planned constellation, mitigating delays and cost overruns are vital.

Satellite 5G Progress

Lluc Palerm, Senior Analyst, NSR

The first group of standards for 5G are now a reality with 3GPP Release 15. While the complete standard won’t be ready until 2020, this has triggered a race among Mobile Network Operators (MNOs), vendors, and adjacent industries to be first to market. It is unlikely to see early 5G deployments on satellite, as the initial focus will be on high-density areas. But in 2019, we will start seeing ground segment vendors tuning their platforms to meet 5G specs. Interestingly, unlike in past generations, satellite has been very active in the discussions around 5G standards, and the whole industry is making a huge effort in being more integrated with terrestrial networks, and unlocking new use cases in the new ecosystem.

C-Band Spectrum Decisions

Gagan Agrawal Senior Analyst, NSR

The first trench of C-band starts to expire from 2020, and 2019 would prove to be a crucial year in deciding the fate of the C-Band Alliance, on whether operators are able to convince the terrestrial 5G bidders and the Federal Communications Commission (FCC) for a cash deal to set a future precedent. While the valuations on a per MHz-PoP basis are expected to remain high, contention remains on the ability of operators to be able to cash out their proceeds from spectrum sale from the escrow, and pay off large debts, while simultaneously buying new satellites to serve the erstwhile C-band head-ends. With World Radiocommunication Conference (WRC) 19 coming up, the focus will also be on carrying this precedent internationally and on coordinating frequency interference issues with respect to the borders.

Pricing Freefall

Gagan Agrawal Senior Analyst, NSR

Capacity pricing remains the Achilles heel of the operator industry and a God-sent gift for the service businesses. Capacity freefall is expected to continue in its fourth straight year, with an increasing supply-demand gap, more Capital Expenditure (CAPEX) efficient Fixed Satellite Service (FSS) and HTS payloads, and stifling regional competition in parts of Middle East and Africa, Latin America, and in some parts of South East Asia. Watch out for C-band pricing as it goes below break-even levels in several regions, consistent HTS Ka-band pricing clocks in below $200/Mbps/month, and finally, Western European video pricing that is set to decline for the second straight year. Also expect service providers to scale their business on account of increasing demand elasticity as prices drop.

Financials in Focus

Gagan Agrawal Senior Analyst, NSR

Bipolar focus exists in 2019: Operators emphasizing top line growth and accelerating their service businesses, even at the expense of Earnings Before Interest, Taxation, Depreciation, and Amortization (EBITDA). Service providers will focus on strengthening EBITDA with the demand outlook looking strong for 2019. With multiple launches of HTS in the past two years, the onus will be to increase free cashflow and plan the next Mergers and Acquisitions (M&A) strategy, to aid in consolidation of regional leadership positions in the video, backhaul, mobility, government, and broadband verticals. Integrated operators hold the edge in optimizing capacity allocation in each vertical. Finally, operators will look for a higher degree of strategic partnerships to sell more Mbps directly to the consumer in a bid to increase revenues and fend off competition.

Smallsats Take Center Stage

Shagun Sachdeva, Senior Analyst, NSR

Smallsat growth is expected globally across all applications with constellations dominating deployments. The pace of technology development leads to smallsats with more capabilities that will generate new revenue streams. However, not all is rosy as there has been a notable funding decline overall and manufacturing delays due to increasing bottlenecks in the smallsat supply chain, which are major challenges moving forward. Business cases are also challenged for most smallsat constellations such that we expect consolidation and M&As to accelerate in 2019.

On the other hand, NSR expect new business models to extend smallsat applications to Middle Earth Orbit (MEO), Geostationary Orbit (GEO), and beyond, and interest in LEO/GEO hybrid missions will rise, with new players leveraging existing assets and established players likewise taking advantage of LEO system. Emerging data relay models and pay-per-use service should also lower the overall smallsat system CAPEX.

Falcon Heavy Enters the Scene

Shagun Sachdeva, Senior Analyst, NSR

After multiple years of delay, SpaceX successfully launched a Falcon Heavy in early 2018. This increased the upper mass limit of commercially competitive vehicles by six tons, a move that will strengthen the business case for large satellites. NSR expects that as Falcon Heavy increases cadence over time, restraints on large satellites launches will ease and raise orders for SpaceX. But with two back-to-back Falcon Heavy launches scheduled for Second Quarter (Q2) 2019, the probability of delay is quite high due to turnaround times (if reusing boosters) or production line pressures (if new boosters are used). Still, the $130 million military contract win for a 2020 classified mission launch provides confidence in Falcon Heavy and should result in commercial side orders, albeit with lower demand compared to initial expectations given the higher Falcon 9 capabilities.

Still Waiting for Flat Panel Antennas

Dallas Kasaboski, Senior Analyst, NSR

Generally, there are more players and a growing pool of Flat Panel Antenna (FPA) options as more Electronically-Steered Antennas (ESA) are coming to markets. However, delays continue, and the industry is waiting on LEO HTS constellations to launch and open new markets with FPA help. The Aeronautical satcom market still leads with strong demand, expensive terminals and a value chain expanding, offering both components and fully integrated terminals. For land mobile — mostly for buses and train — there is growing optimism, but it will be a delicate balance of demand, cost, and a supportive value chain in order to cater to this market. In fixed broadband markets, the value proposition is still too expensive for consumers and FPA performance is low for enterprise broadband. Finally, for government and military, the advent of multi-band and multi-orbit solutions will be key differentiation factors — size and form factor just gets you in the door. In the end, price is more important than ever.

Emerging Space Bubble —Will it Burst?

Sumanta Pal, Senior Analyst, NSR

Bubble is a word that needs to be used cautiously. When it comes to the emerging space market opportunity as a whole, there is no bubble now. Funding is still a big scarcity, and it is the single biggest problem emerging space faces. Some sectors within emerging space, like smallsats and launchers, might have a bubble-like situation, but it is too early to tell. Most investors who recently invested in space ventures only have a small portion of their entire capital dedicated to these endeavors. And unlike the dotcom bubble where Venture Capitalists (VCs) used to write checks, if one could show a little knowledge in computers and a vision, most investors are very cautious to invest not just in lofty ideas, but real business plans with market proof.

Failures are inevitable as within any VC portfolio and such failures cannot be attributed directly to a bubble. Some big companies failing might be bad news for the industry though (like Solyndra was bad news for renewable energy market). Although in comparison to other industries, emerging space has less unicorns for big failures. Consolidation is also expected soon, but that is a sign of the market slowly maturing. Unlike Crypto, where even the “average Joe” at one point in time spoke about crypto being lucrative, space ventures being profitable are still not talk of the town. Falling technology and hardware costs are aiding companies to achieve more with less funding, which makes it favorable for the whole industry. All in all, it is probably a bit early to project an emerging space bubble bursting in 2019. VS