The Economics of Constellations

To promise to build something is one thing; to find the money for it is quite another, however. So how will these constellations be financed? Are the new LEO constellations simply going to go the same way as their over-ambitious 1990s forerunners?

The widely-respected and equally widely-read space commentator Jeff Foust turned his journalistic attention to the re-emergence of constellations in a comprehensive article in early 2015. Drawing the inevitable comparison between these new constellations and those of the 1990s, Foust questioned the leading CEOs of the existing GEO satellite operators for their views on the LEO upstarts.

Back in 2015, a relaxed Daniel Goldberg, then – as now – CEO of Telesat, referencing the over commitment of doomed projects such as Globalstar and Teledesic, claimed that history appeared to be repeating itself and did not express any hint of concern at the plans of OneWeb and SpaceX.

Foust explained that Goldberg saw lack of technological improvement and reduced costs in building and launching satellites as indications that they could not be established any time soon. “Today, I don’t believe there’s a viable plan where these satellites can be cranked out in sufficient numbers at low enough cost,” concluded Goldberg.

Off the back of this comment, we can take former British Prime Minister Harold Wilson’s most famous epithet and reformulate its sentiment for a telecommunications audience: if a week is a long time in politics, then three years is an eon in New Space development.

Suffice to say, Telesat announced soon after that it was pursuing its own LEO constellation.

Last year, Telesat’s vice-president Erwin Hudson, stated at the Satellite 2018 conference that “speeds have increased dramatically and…as speeds go up, latency becomes critical”. The clear takeaway from this is that the future lies at LEO not GEO.

The existing cost of data

Figures from 2017 from the International Telecommunication Union listed the average price of a mobile broadband connection as a percentage of Gross National Income (GNI) per capita between 2013 and 2016 for different regions of the world.

The datasets showed that while prices dropped by about 50% in developed and least developed countries (LDC) between 2013 and 2016, price decreases slowed in more recent years as terrestrial network infrastructure reaches its economic limits. This leaves mobile broadband prices a factor of 10 (for developing countries) or 20 (for LDCs) higher than in developed countries – prohibitively high for a wide adoption of interned-based services and products in these countries.

The Alliance for Affordable Internet has produced research (reproduced in the graph below) showing that in some of the world’s poorest countries the cost of broadband data (1GB mobile prepaid) as a percentage of Gross National Income per capita is nearly as high as 10 percent.

Alliance for Affordable Internet, 2017

Laser-powered networks in the air and in space promise to include rural and remote regions as well as developing countries and LDCs in a digital revolution which will potentially tap trillions of USD of economic development as internet-based services and products are adopted.

So the true commercial benefits of this approach of providing connectivity from LEO and the stratosphere match the humanitarian benefits: it is quite simply cheaper to connect a larger area from the sky or space than you could by terrestrial infrastructure.

To recoup the exorbitantly high implementation costs of a ground network connection you would have to charge some of the poorest people on the planet a near-unaffordable premium for access. It is much easier and cheaper (for both telecommunication provider and subscriber on the ground) to connect large areas from airborne and spaceborne platforms.

At the same 2018 satellite conference, Mark Rigolle, CEO of LeoSat Enterprises, admitted “one thing that struck me when I joined LeoSat was the effect of volume on unit cost”, articulating the simple economics that is driving the New Space disruption: serial production inevitably reducing costs for both manufacturers and purchasers.

As already mentioned, several New Space companies are already producing units in double-quick time and at greatly reduced prices and now the technology companies that will support, and supply integral services to, constellations have also seen the shape of things to come and are following suit.

2019 will be the year for space…

We at Mynaric, for example, have already started serially producing ground stations for both stratosphere and space applications and we are in the process of starting serial manufacture of the laser terminals which will future-proof the backbone connectivity needed by constellations and which will provide for the reach and wider bandwidths that will ensure the success of these new networks in the skies.

Indeed, we are so convinced of the direction that the telecommunications industry is taking that we underwent an IPO on the German Stock Exchange in 2017 just so we could raise the cash to move from a development company to a production company: so certain are we of both the inevitability of satellite constellations and laser communications’ role in stitching these high-speed, wide-reach networks together.

And we are not the only ones who are commercially putting our money where our mouth is.

Equity investments in space totaled $2.97bn in 2018, according to Space Angels, the global network of angel investors focused on the space sector.

The Financial Times – which recently produced a series on investment in New Space technologies – reported on the figures from Seraphim Capital and concluded: “A big growth area is using satellites to deliver broadband to commercial aircraft and high-speed terrestrial internet to the 4bn people globally who still do not have access.”

Mark Boggett, chief executive of Seraphim, added: “In the past few years, investor interest in space has gone crazy.”

And Morgan Stanley has stated, in a report from November last year, that 2019 could “be the year for space,” listing “key milestones and catalysts that we expect to develop.” Indeed, the financial services company estimates that the space economy in 2040 will be worth more than $1 trillion; it also expects SpaceX to “double, or even quintuple, its valuation” tied to developments related to satellite broadband.

So the take-away is that the need is there, the technology is there, the will is there and – most importantly – the money is there.

The future of communication is here!