Your browser is not supported. Please update it.

20 November 2018

Satellite industry at risk of its own dotcom bust

A couple of contradictory reports trickled out of the satellite industry this week, contributing further confusion to a fragile marketplace which craves clear direction. On one hand, there was a report putting a positive spin on things by shouting about a $284bn 10-year market outlook; while on the other, there was a well-regarded industry analyst damningly describing plans for low earth orbit (LEO) satellite launches as rife with holes.

To these supposed flaws first. Tim Farrar from telecoms and finance consulting firm TMF Associates reckons the new supersized satellite constellations set to launch in the next five years, comprising smaller and cheaper satellites, will trigger a repeat of the dotcom financial bubble.

With pay-TV subscriber bases in developed countries withering worldwide, bringing broadband services to underserved regions has become a growing opportunity for satellite players to find some financial stability. However, Farrar disputed the opportunities of satellite broadband, pointing to Softbank as a prime example, with rumors circulating that the Japanese giant wants to escape its deal with OneWeb, the 882-strong satellite constellation proposed for a 2019 launch, before the next check is due from its $1bn pledge – because of rising system costs and questions over the size of the market opportunity for satellite broadband.

“Certainly, Masayoshi Son’s attitude to the project appears to have changed dramatically in the last year, from touting satellite as an alternative to fiber, to not even mentioning satellite in a recent lengthy feature on the Vision Fund,” said Farrar.

He also threw Elon Musk under the bus, saying: “SpaceX’s attempts to find new sources of revenue are also proving deeply problematic because the broadband satellite constellation business now appears to be in even more dire straits than the launch business.”

SpaceX’s ambitious constellation project proposes 1,584 satellites positioned at an orbit of just 55 km, serving broadband connectivity toms of people. For context, geostationary (GEO) satellites orbit at over 36,000 km, while LEO satellites typically sit at 160 km. But while an initiative like Jeff Bezos-backed Blue Origin doesn’t need to make money, according to Farrar, in stark contrast SpaceX is undertaking “increasingly frantic attempts to raise money in the face of a rapid decline in launch demand and increasing competition from Blue Origin”.

In fact, the twenty-first edition of the ‘Satellites to be Built and Launched over the Next 10 Years’ report, published this week by French consulting firm Euroconsult, echoes some conclusions drawn from Rethink’s own satellite coverage, primarily around the rise of government contracts. Yet Euroconsult has brushed over one factor partly driving this growth, which is the spare capacity being freed up on transponders by the demise of DTH TV services. It shouts about this $284bn figure, but there are always two sides to a card and Euroconsult has concealed the flipside.

It projects 3,300 satellites over 50 kg to be launched over the 2018 to 2027 timeframe, representing a market of $284bn. This is incredibly light in weight. Again, for some quick background, the average satellite mass in 2018 is around 1,900 kg, according to a previous report from the same company, excluding microsatellites which can weigh in at sub-40kg and also this also excludes classified military satellites.

It does mention briefly that of the $70bn in commercial revenues expected over the next decade, communications and broadcasting satellites will account for around 50%, although it does not outline if this $35bn figure is higher or lower than today. Even without year by year guidance to go on, our gut instinct is that $35bn is a much lower number than anticipated.

Let’s end on another ominous note, with Farrar warning: “It now appears that there are several multi-billion dollar satellite projects that could suffer the same fate as the financial collapse of Iridium within the next year.”