Get to know us. Our unbiased credit research and global market insights help the world’s financial decision makers to better manage risk.
Starlink Surge: Deep Dive on Industry Impact
Davis Hebert, CFA - Head of Telecom / Media
Joshua Kramer - Senior Analyst, Special Situations
Savannah Buzzeo - Associate Analyst, Telecom / Media
EXECUTIVE SUMMARY
- Starlink’s surge. Starlink’s rise has been incredible, considering the Elon Musk-controlled company launched its first satellites in 2019, in an industry that has struggled through anomalies and pandemic-related delays. The company’s LEO satellite count is approaching 6,000, allowing it to offer a superior product (faster speeds, lower latency) that is easy to install at reasonable prices. Starlink also has incredibly deep financial resources, with its parent company SpaceX now valued at $180 billion, and is vertically-integrated from design to launch all the way to being a service provider.
- “Starlink is everywhere” says Telesat CEO. Starlink’s emergence has caused significant disruption in the satellite industry – Telesat CEO Dan Goldberg says he is seeing the company “everywhere” and its rise was the headlining topic at the annual Satellite conference last month. Meanwhile, Starlink has taken substantial share in consumer broadband from Viasat and Hughes. We think Starlink will continue to be an aggressive competitor as Musk is depending on satellite cash flows to fund his wider space exploration ambitions.
- Raising everyone’s game. Competitors in the industry, including Intelsat and Eutelsat, have praised Starlink for “raising everyone’s game”, reducing prices and encouraging innovation. Satellite customers are increasingly looking for multi-orbit solutions; to combat Starlink’s rise, we expect continued consolidation (e.g., Eutelsat buying OneWeb) and greenfield builds (e.g., Telesat Lightspeed, SES’ O3b mPOWER and perhaps Intelsat’s own LEO), as well as partnerships.
- Starlink has most impact on broadband, slower (but growing) impact on maritime, IFC and government. In this report, we assess Starlink’s impact on a number of traditional satellite revenue verticals. We see the most immediate impact on the unserved/underserved broadband segment, where Starlink is beginning to encroach on maritime (primarily cruise and smaller watercraft) and in-flight connectivity. We do not see direct impact on the video cash cow business but, indirectly, wider broadband connectivity could push more customers to streaming.
- We would underweight satellite exposure with too many unanswerable questions. Since our 2022 satellite primer, we think the LEO focus has become more intense and has increased the pressure on traditional players to invest in non-GEO constellations (LEO or MEO). However, the industry continues to deal with many open questions: how will pricing react to the significant amount of new LEO capacity? Can satellite operators find enough opportunities to achieve an attractive return on investment? Will the GEO industry fall back to being just a coverage layer? With the GAO estimating there may be 58,000 LEO satellites circling the planet by 2030, these are frankly unanswerable questions at this time and we would underweight the sector, preferring to remain in secured paper over unsecured debt, while we are currently neutral on the European players.
RELATIVE VALUE
Satellite sector suffers sell-off with Starlink impact weighing. Starlink has been a surging presence in the satellite sector, which had already been dealing with overcapacity issues, several anomalies and unclear demand for GEO services longer-term. Our USD HY satellite index (excludes SES, which is IG and Eutelsat with only Euro paper issued) is down 7% YTD, yielding 15%, more than 200 bp wider than our Communications index (13% YTW).
Would you like access to the full report?
Receive a complimentary copy of Starlink Surge: Deep Dive on Industry Impact.
Our Products
We’re proud to be the trusted resource for these credit research consumers:
Research
The independent research and actionable ideas you need to help guide investment and risk management decisions.
Risk Products
From BondScore to Credit Quality Score and Fallen Angel Score, these products give you an analytial edge.
Covenant Review
In-depth analysis and impact assessment on current and future leveraged finance deals from the market’s trusted authority on bond and loan covenants.
LevFin Insights
News and analysis covering the debt capital markets including leveraged loans, high yield, secondary trading, CLOs, middle market and BDCs.
Markets Served
We’re proud to be the trusted resource for these credit research consumers: