In my last post, I discussed how the year 2021 would witness the start of a new satellite revolution, courtesy of the advent of space technology companies such as SpaceX and OneWeb. The arrival of such new space ventures is bringing about a disruption of sorts in the telecommunications sector, specifically the broadband internet market. That’s because the International Telecommunication Union (ITU) estimates that just over a half (51.4%) of the world’s total population has access to the internet. Adding to the digital divide is the urban-rural inequality. Globally, about 72% of households in urban areas had access to the internet at home in 2019, almost twice as much as in rural areas (37%).
While one aim is to bridge this gap, it is not the only goal of satellite broadband operators given the heavy capex investments involved in building equipment and related infrastructure. For the time being, operators will focus on rapid customer acquisition and cross-selling opportunities, but they will expect benefits arising from their respective space pursuits to trickle down into earnings in the long run.
Starlink gets the ball rolling
In recent years, more than 10 low earth orbit (LEO) satellite projects have surfaced, among which SpaceX’s Starlink has a clear first-mover advantage. With 1,500+ active satellites, Starlink is by far the largest network in the orbit. Elon Musk most recently tweeted that Starlink has now shipped 100,000 terminals to users in 14 countries, with license applications pending in several other countries. That’s significant given that a full commercial service has not yet begun.
Despite service downtimes during the initial beta-testing phase, Starlink’s satellite broadband service managed to provide a comparable experience to fixed-based internet service. A recent post by broadband network intelligence firm Ookla noted Starlink as the only satellite broadband service provider in the U.S. to offer fixed-broadband-like latency figures of 45 ms and median download speeds at 97.23 Mbps (vs. fixed broadband’s 14 ms and 115 Mbps) in 2Q21. Elsewhere, Starlink managed to beat the average download speeds of fixed broadband in markets like Canada (Starlink’s 86.92 Mbps vs. fixed broadband’s 84.24 Mbps), Germany (107.98 Mbps vs. 58.17 Mbps), New Zealand (127.02 Mbps vs. 78.85 Mbps), and the UK (108.30 Mbps vs. 50.14 Mbps).
All these stats point to Starlink emerging as a strong alternative for broadband service. As more Starlink satellites join the orbit, the occasional downtimes will reduce significantly, also improving the latency and speed. And if Elon Musk is to be believed, Starlink’s speed will double to 300 Mbps by the end of this year, from the current promised speeds of 50-150 Mbps range.
Rivals make progress but lag Starlink’s pace of growth
Several other players are prepping to launch new constellation projects. Three of the most promising LEO satellite projects (other than SpaceX’s Starlink) include OneWeb, Amazon’s Kuiper, and Telesat’s Lightspeed. Starlink’s direct competitor in terms of scale, goal, and target market is Amazon’s Kuiper which plans to operate a fleet of 3,236 LEO satellites. Though Amazon is yet to deploy any satellites, it received U.S. Federal Communications Commission (FCC) approval mid last year to deploy half of the satellites by mid-2026 and the rest by mid-2029. Despite signing a contract for nine launches of its Project Kuiper internet satellites on United Launch Alliance’s Atlas V rockets, Amazon did not reveal any timeline for those launches. This is in stark contrast to Starlink’s satellite internet service, which will be up and running commercially by September this year.
Bharti Group-backed OneWeb, which currently has 288 LEO satellites in orbit, plans to have a total of 648 satellites delivering global service by the end of next year. It recently raked in massive investments, including $550 million from Eutelsat; additional $500 million from Bharti Global; and most recently, $300 million from Hanwha Systems, securing a total equity investment of $2.7 billion since November 2020. It also announced several key partnerships, including most recently with Northwestel in Canada and BT in the UK.
Likewise, Telesat entered into a $462 million deal with the Canadian government late last year. The Canadian satellite operator is also in talks with Tata Group’s Nelco to offer satellite broadband in India — a market also on the radar screen of Starlink, Kuiper, and OneWeb. Then there are players such as Iridium, Globalstar, Inmarsat, and Eutalsat who are either operating or planning to launch relatively small LEO satellite constellations.
While all the above projects are steadily joining the satellite broadband rush, Starlink has outpaced them by getting off to the fastest end-user start in the direct-to-consumer market, and also bringing Amazon’s closest rivals, Microsoft and Google, onboard to connect their respective cloud services to Starlink’s satellite internet.
What trends will likely shape the satellite broadband market in the near term?
Production cost cuts to increase affordability: One of the biggest impediments for satellite operators currently, and more so for Starlink, is the high production costs associated with ground equipment (user terminals), which also has a huge bearing on the final pricing of broadband service. SpaceX is reportedly producing each Starlink terminal for ~$1,500, but charging $499 per terminal to keep its service affordable. Although this subsidy helps target the rural population in developed markets, a $499 price is certainly too steep for rural markets in a developing nation such as India. To enable wider reach in price-sensitive consumer markets, SpaceX is aiming to bring down the user terminal costs by 2022 to $250 – $300. The coming months will see satellite broadband operators making significant headway in redesigning terminals to cut these costs significantly.
Satellite-based voice telephony services to disrupt telecom: As more satellite constellations become part of orbit, the role of satellite operators will expand beyond being high-speed internet service providers. Starlink, for one, is endeavoring to do exactly that. In one of its filings with the FCC, Starlink requested designation as an “Eligible Telecommunications Carrier (ETC)” that will offer among other things, a voice-based telephony service – a major threat for telcos.
To make matters worse for telcos, leading smartphone vendor Apple is rumored to bring an “LEO satellite connectivity” support feature to its upcoming iPhone model that would allow users to make calls without cell signal, via satellites. Such a feature would be significant for satellite operators as other leading handset makers would be compelled to bring this feature into their flagship smartphones. Though, the connectivity feature roll-out this year from Apple is uncertain, it appears to be a matter of time before satellite operators disrupt the already struggling telco market.
Starlink’s emergence to fuel potential consolidation and partnerships among rivals: With its biggest direct rival, Amazon’s Kuiper service, not in the fray for at least a year or two, deep-pocketed Starlink will continue to dominate the satellite broadband market for the time being. And let’s not forget the FCC’s $886 million subsidy awarded to Starlink to provide rural satellite broadband service in the U.S.
Starlink’s emergence as a dominant player will force rival satellite operators to either merge or join hands with each other. In a recent interview about satellite merger activity, SES’s CEO along with Viasat’s chairman agreed that there are discussions happening in the industry about mergers. On the partnership front, OneWeb has collaborated with satellite operators such as Hughes, and Eutelsat, while talks are underway between Telesat and Tata Group’s Nelco. Mergers and partnerships are ways to ensure constant access to capital — one of the key factors for sustaining the operator business model in the satellite broadband industry.
Arun Menon is Lead Analyst at MTN Consulting, with 13 years of experience in strategy and research. He primarily tracks the webscale sector, including the big tech firms (FAMGA), to assess their network infrastructure-related strategy, key investments, and spending pursuits. He is also involved in providing critical insights and analysis in areas such as strategic, financial, competitive, and market assessments. Prior to joining MTN Consulting, he worked in research and consulting roles at Deloitte and Datamonitor. He can be reached via firstname.lastname@example.org and LinkedIn.
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