By Ronald van der Breggen
Our industry is sometimes difficult to understand. OneWeb recently filed for bankruptcy, letting go of most of its staff, but then only a couple of days later they filed for an expansion of their fleet to 48,000 satellites. Huh? They started in 2015 announcing 1,600 satellites but later brought that down to 650 to save CAPEX. They recently went bankrupt and now, while in bankruptcy, they are filing for 48,000 satellites “to enable long-term flexibility”. Insiders are already having a hard time getting their heads around that. Outsiders may likely just go: “WTF??!”
Here is another one for you: Intelsat. This icon of a satellite company, founded in 1964, also went into Chapter 11 last month and are now criticized for stifling their creditors and investors in pursuit of a cash-payout from the US government. In the hopes for a multi-billion dollar payday down the road, they need to spend US$1.6B dollar in the coming years to free up part of their spectrum, which is now designated for 5G operators. In Chapter 11 and planning to spend that kind of money? Wow!
Both companies seem to assume that bankruptcy is a stepping stone towards a brighter future. They are likely inspired by Iridium who in 2001 – as a result of a government bailout avant-la-lettre – came out of a 16month bankruptcy, relieved from US$4 billion dollars in debt and with a US$75M dollar government contract for services as a head start. Today Iridium is on their second generation of satellites, have well over a million customers, have launched new services and turned cash flow positive. I’m impressed with the Iridium story and how they now provide unique and relevant services, but it cannot serve as a blueprint for others. For that to understand we need to talk about budgets and customers.
While in Chapter 11 now, in its first 37 years Intelsat was an intergovernmental organization, created by politicians who also provided budgets for Intelsat’s engineers who in turn created meaningful solutions. A perfect fit and the bigger the budget the more could be done. This way of working created a culture. Not just within Intelsat but well beyond and basically defining an entire ecosystem. “Build it and they will come” dominated the industry for many years. With the burst of the internet bubble at the turn of the millennium, this credo quickly changed to Jerry McGuire’s “Show me the money!!”. When in 2001 Intelsat was privatized, a new culture of ‘profits and customers’ needed to quickly replace the old one of ‘budgets and subscribers’. Not just for Intelsat, but for the entire industry.
Fast forward 20 years and believe it or not, measuring success by the level of customer interest, stickiness and ultimately revenues is still not commonplace in our industry. Take OneWeb for example. They received wide attention and were believed to be a great potential for success. Why? Because they raised $US3 billion dollars. That is great for budget, hence the attention, but it does not say anything about paying customers. For the 4 years that followed, not one single customer contract was announced AFAIK. For those that worked with OneWeb’s MEO equivalent O3b, currently part of SES, this was no surprise as O3b still today is struggling to turn a profit. If they are struggling, then putting more satellites in a lower orbit will certainly not make things easier for anyone.
Now enter the FCC’s $16 billion FCC Rural Digital Opportunity Fund (RDOF). This is a fantastic new ‘budget’ with an application due date only last week and it has operators laser focused on it. Many believe that OneWeb’s filing for 48,000 satellites is in direct relation to making the RDOF deadline. Familiar picture, right? Politicians providing money for engineers to build stuff; we simply can’t help ourselves. If we keep running after budget dollars, be it from the equity market or from the government, without asking the seemingly normal, but in our industry apparently difficult question of “Who is going to buy the service and why will they continue to do so?”, then we’ll keep seeing big disappointments. No matter how big the budget, if customers stay away things will be over at some point. If OneWeb will somehow lay their hand on part of that money, will they do an Iridium type comeback? I doubt it. Unlike Iridium their constellation is nowhere near fully launched and their services will meet heavy competition. Most importantly though, customers are still absent. You’ve built a global constellation covering the entire earth as a solution for a local American problem limited to roughly 1% of the earth’s surface! Even if all rural Americans were to come aboard as customers, then good luck turning those limited revenues into profits. Planning to go beyond and offer broadband world-wide? Well you have then used US taxpayer dollars to offer broadband in Africa, China etc. Good luck with that in today’s political climate.
There are also those who think that OneWeb’s recent expansion of the filing is part of a grooming exercise for Amazon’s project Kuiper. With 3B$ spent by OneWeb so far, there are no blankets big enough to cover the entire fall-out of this company, but Amazon might just be the exception! Having missed out on the first round of FCC filings, they may in OneWeb have the solution to that big market access headache. There are however many things to calibrate: Satellites, orbits, altitudes, power densities etc. etc. With OneWeb’s amended filing they may have indeed calibrated one aspect: the number of satellites. Amazon has always claimed that for Project Kuiper their number of satellites would be in the 1,000s, so that might fit now. In that scenario Amazon would gobble up OneWeb like a giant PacMan and who knows what they’ll spit out when they’re done with it. It will not be an Iridium type come-back, that much is clear.
Back to Intelsat. Can they get out from under? Can they do an Iridium? Yes and no. They will most likely come out of Chapter 11. Restructuring debt while continuing to serve customers and getting a cash influx in exchange for returning valuable spectrum seems totally doable. While again an example of a budget focused business recovery, that will work. It will not be an Iridium type comeback though. There are no sticky customers who realize they’re buying an absolute unique service! Intelsat has customers that have been tough on them for a while now, asking for lower prices and threatening to leave. There is a reason Intelsat is in bad shape and a cash infusion will not change that. If however Intelsat uses their Chapter 11 period as a time to rethink customer service and come out the other end with better products and a new elan, they will have a shot at renewed success. Arguably something they should have done in 2001 when they privatized, but as they say.. it’s never too late!
Key message is however, whether you are using taxpayer’s money or money from your creditors by coming out of bankruptcy, now more than ever you have a fiduciary responsibility to spend it in places that bring real financial results. Rural broadband services using bent-pipe satellite in lower orbits, heavily limited by scarce spectrum and totally dependent on an elaborate network of ground systems, is not such opportunity. If it had been, O3b would have started printing money a long time ago. While a big budget for satellite broadband may get you started, over time the terrestrial guys will have you for lunch. You want to absolutely solve rural broadband aloft? (Re)consider HAPS. It’s local, much less expensive and highly effective – horses for courses.
If you want to build a global satellite constellation, then you better solve a global problem. Secure Communications for MNOs, Low Latency networking for Finance, Real-time Command & Control for Military, disaster relief and recovery for governments, global scalability for the Oil & Gas industry… there are a ton of opportunities out there that no other infrastructure other than a well-designed satellite constellation can successfully address. Focus on that if you start spending billions of dollars!
Ronald van der Breggen, Owner of Route206, has more than 20 years of experience in the telecom and satellite sectors. A native of the Netherlands, van der Breggen began his telecom career at Dutch Telecom incumbent KPN, rising to the position of VP IP Services. He then joined SES, one of the world’s leading satellite operators as Vice President Customer Account Management. From 2015 to 2019 he served as Chief Commercial Officer of LeoSat, where under his leadership the company secured $2 billion in pre-launch commitments. With Route206, Ronald continues to help companies with brilliant technology to achieve commercial success through his decades of experience, structured approach and large industry network. Ronald holds a Bachelor’s degree in Business Administration from Nijenrode University as well as a Masters in Business Telecommunications from the Technical University of Delft, both in the Netherlands.
This article was originally published on LinkedIn. You can read the original here.