Satellite Industry Primer: The New Space Race 

EXECUTIVE SUMMARY

• This primer provides investors a reference point for the satellite industry, including discussion and insight into the key players, satellite spectrum, satellite orbits, revenue verticals and more.
• Satellites aim to fill growing demand for worldwide broadband connectivity. DISH and EchoStar chairman Charlie Ergen said several years ago that the satellite industry is going through a paradigm shift and he is right. Consumers and businesses alike are now demanding high-speed broadband connectivity regardless of location, whether it be on a plane, on the high seas, in a mountain-top cabin or in a farmhouse. These use cases have led to a new breed of satellite that can handle the speed and latency demands, but still be able to connect any point on the globe. The prize? A slice of an addressable market that could exceed $400 billion by 2025 (per Telesat) or even $1 trillion by 2030 (per ViaSat). Of course, we are skeptical of such a robust number, but we do believe LEO constellations create new addressable markets for a sector facing secular pressure in legacy satellite markets.
• LEO is the new (billionaire) space race. The exciting opportunity to serve the unserved and underserved with a better broadband experience has brought about a new space race to launch tens of thousands of low-Earth orbit (LEO) satellites. Billionaires Elon Musk (Starlink) and Jeff Bezos (Amazon’s Project Kuiper) get headlines with every step they make, while OneWeb (planned merger with Eutelsat with the U.K. and French governments are stakeholders) and Telesat (Canada) are also front-and-center about their plans. In aggregate, the four plan to spend nearly $30 billion in capital to pursue the high-risk, high-reward LEO dream. Of course, this wouldn’t be the first LEO space race. In the 1990s, there was a similar drive to connect the planet with voice coverage; the addressable market proved to be much smaller than thought and the industry crashed and burned. The pressure will be on for these aspiring companies to prove that this time is different, but investors are (rightly) wary of such statements of grandeur.
• Some are still gung-ho on GEO. Geostationary-orbit (GEO) satellites have a long history and proof of concept, but capacity and latency limitations have created questions about their future viability in a data-oriented world. Historically, GEO operators dismissed LEO business plans as pipe dreams, logical on paper but extremely difficult to finance and execute. ViaSat has called the industry bluff and doubled-down on GEO with a $2 billion planned high-throughput constellation called ViaSat-3 launching next year and a $7 billion acquisition of GEO rival Inmarsat to attack similar broadband verticals as the LEOs. ViaSat’s bet on GEO is not only one way – it is also aiming to slow the LEO rollout through regulatory means, warning of high anomaly risk of collisions and interference with an already proven GEO industry.
• Multi-Orbit strategy helps hedge the bets. With Starlink fetching a valuation exceeding $125 billion in its last funding round, many GEO operators are now hedging their bets (e.g., Eutelsat/OneWeb merger). Major players are aiming to have both LEO (best for throughput and latency) and GEO (best for coverage) with software-driven interactivity between the two to provide the best experience for use hundreds and thousands miles below. Over time, we would not be surprised to see additional consolidation between GEO and LEO (e.g., Eutelsat/OneWeb and Intelsat/SES/O3b) and perhaps even LEO/LEO combinations to take advantage of scale and industry relationships. Even ViaSat believes a multi-orbit strategy is the right one, however, it believes it does not have to own one.
• Small industry filled with unanswerable questions makes investment a tough proposition, in our view. The setup here in late 2022 is that the GEO vs. LEO question will be a topic of debate throughout this decade. After all, the LEO constellations are still in the very early stages of deployment and GEO operators are aiming to grab a piece of the pie where they can (Telesat direct development of LEO, Eutelsat merging with OneWeb and ViaSat simply doubling down on GEO). Among the open questions: will new LEO and GEO capacity create the next leg down of pricing pressure? Can satellite operators find enough opportunities to achieve an attractive return on investment? Will LEO or GEO come to dominate rural broadband, aviation and maritime? These are frankly unanswerable questions here in 2022 and we will look to follow these questions over time as CreditSights expands coverage of the satellite sector