New Economic Realities Will Impact Constellation Buildout

Rising opportunities in the Low Earth Orbit (LEO) have created a lot of excitement in the satellite industry over the past few years. Yet, while the market for residential and commercial broadband continues to soar, concerns surrounding the costs of deploying new technologies threaten to dampen some of the industry’s enthusiasm.

That was the general consensus among five panelists who spoke during Monday morning’s session, “The New Economics and Costs of Building Constellations” at the SATELLITE 2018 Conference & Exhibition.

As technology — and the definition of what it means to support broadband services — has evolved, the economics and growth opportunities have shifted.

When moderator Dave Davis, managing partner with InMotion Holdings, asked about the biggest challenges facing legacy satcoms, such as falling bandwidth prices, panelists cited a number of drivers for this turmoil.

“People have overbuilt and capacity has become a commodity,” said Mark Rigolle, CEO of LeoSat Enterprises, which is currently in the midst of its Series A funding round as it plans to launch a laser-connected constellation of up to 108 LEO communications satellites between 2019 and 2022. “What needs to happen is people need to stop overbuilding similar stuff, or the same stuff. But people who are building LEO systems are building something different, something else.”

Erwin Hudson, vice president of Telesat LEO, said organizations need to “dig a little deeper to see what is happening in the telecommunications market in general” as they plan their business development. “Speeds have increased dramatically and … as speeds go up, latency becomes critical,” said Hudson, suggesting organizations may have overbuilt in GEO. “Now you’ve got this huge increase in bandwidth, a big demand for low-latency communications.”

Audience members seemed to agree. During the first of three of the session’s interactive polls — whereupon audience members could use their mobile devices to weigh in on multiple-choice questions — literally everyone said that bandwidth pricing over the next five years would continue to fall (the most popular answer, with 47 percent of the votes, was “fall between 25 percent and 75 percent”). The answers echo industry sentiments: In its recent satellite industry report on lower bandwidth pricing, NSR noted that while the satellite industry has benefited from lower bandwidth pricing, some vendors may struggle with proving ROI as bandwidth prices plummet.

Yet while most everyone agrees the economics are shifting, panelists said the success of new satellite constellations is hard to predict because of so many variables at play, such as the sophistication of other technologies (e.g., antennas) and applications, as well as the ever-changing demands of multiple markets.

Lisa Callahan, vice president and general manager of commercial civil space for Lockheed Martin Space Systems, said her organization is seeing the market demanding more flexibility and more agility “so we can move the bandwidth to where we need it during high-capacity times.”

“My friends to the left here are building LEO constellations,” said Callahan, as she gestured toward Hudson and Rigolle. “I think that’s wonderful; but there isn’t a single panacea for this market. I don’t think GEO’s going away.”

Debra Facktor, vice president and general manager of strategic operations at Ball Aerospace, agreed with Callahan that there are still opportunities in GEO, but emphasized the importance of focusing on bigger picture — the development of more sophisticated architecture to create blanket coverage for multiple applications.

“I agree that it’s an ‘and’ when you are talking about LEO or GEO … putting them all together in an overall architecture is taking advantage of the astrodynamics and orbital mechanics of what you can get from each orbit,” she said.

Andreas Lindenthal, a member of the management board for OHB System AG, echoed Facktor’s broad vision. “We will see GEO, LEO and MEO satellites in the future — they all have their purpose,” he said. “But the satellites will be much more efficient.”

Rigolle said he is hopeful that as the ability to produce higher volumes goes up, costs will naturally fall — which will, in turn, drive innovation. “One thing that struck me when I joined LeoSat was the effect of volume on unit cost,” he noted, while reminiscing about his days at O3b.

When asked during a second interactive poll, “what are the apps for new constellations with the best returns in the future?” audience members were split on personal/corporate communication (31 percent) and M2M/IOT (40 percent).

Facktor, whose organization provides data analytics for multiple markets, said consumer buying behavior could have the biggest impact on demand — although the challenge of making satellites that can scale the marketplace could slow innovation. “It takes a long time to change behavior, but when something becomes affordable and practical, you’ll do it,” she said. “We’re seeing huge demand for the use of antennas for satcom, for 5G and that’s a huge enabler. The ability to connect while you’re mobile will be a game changer.”

Another critical element is partnerships — not just between satcoms, but terrestrial service providers as well. Or, as Facktor puts it, “Our role is [figuring out], how do you bring the best innovation and capabilities together at the best price?”

However, when Davis asked panelists about the “robustness” of some of the new companies in this market, Rigolle said the high number of start-ups hopping on the constellation bandwagon raises some concerns.

“I’m a bit worried about the starting point of many of these business cases,” he said. “[LeoSat] started with a problem and found a solution. Many other companies I see start out with a goal and then say, ‘how can I do that at a reasonable price point?’” VS