Northern Sky Research

2015 Year in Review, 2016 Year Ahead

Jan 4th, 2016 by Christopher Baugh   More from this Analyst | Profile

2015 was a year of significant transition for the satellite market.  HTS endeavors gathered steam, constellations and smallsats were key themes, advances in mobility and manufacturing & launching all were positives for the industry.  However, satellite orders were down significantly, capacity oversupply and pricing remained troublesome, and Newsat’s fall were all reminders of the complex challenges this industry faces. One thing is clear: the satellite market is in the midst of a major inflection point that will shape the industry for at least the next decade, and significant change is certain. 

And as we turn the corner to 2016, the time is right to assess key developments that impacted the market in 2015 and those we anticipate will have a large impact in 2016.   The piece that follows includes input from 4 key members of NSR’s analyst team on these issues.

Happy New Year, we wish you the utmost business success in 2016 and look forward to our continued collaboration.

Best regards,


Christopher Baugh
President
NSR


Satellite Capacity

Blaine Curcio- Senior Analyst, NSR

2015 Year in Review

Oversupply in some regions, and the continued economies of scale brought on by GEO-HTS, saw pricing fall globally throughout the year. A highlight here was the deal struck by Facebook, Eutelsat, and Spacecom, which saw Facebook pay $95M for 18 Gbps of throughput over 5 years, with a quick back of the envelope calculation providing a price of less than $100 per Mbps per month. While this figure likely does not include any kind of cost for management of these services, and while the operators themselves have not confirmed (nor denied) this number, it is nonetheless indicative that lower pricing is here to stay.

Constellations continued their march forward in 2015, with two companies specifically showing signs of progress:

  • After successfully deploying 12 satellites in 2014, 2015 saw O3b's momentum continue with new contracts signed, $460 million in new financing gained and 8 more satellites ordered from TAS, 4 of which to be launched in 2018. This will bring the company’s constellation up to 20—the upper threshold for increased bandwidth efficiencies per satellite due to improved look angles—and should provide an even more comprehensive view of the technical (and subsequent cost) efficiencies that can be gained through O3b.
  • OneWeb remains a very much unproven business; however, the company justifiably made headlines in mid-2015 with a $500M round of funding, including a $25M “insurance” bet by Intelsat into the company. The funding round signaled the largest round of funding ever for a wholly unproven satellite operator, and further, put several pieces into play that helped to address some—but certainly not all—of the myriad of challenges facing OneWeb. Examples include distribution network (with partners Bharti Airtel and Intelsat helping in this regard), technology (Qualcomm), and more. Challenges remain for sure, but there was a certain degree of “this is starting to seem real” in seeing Steve Spengler, Greg Wyler, Richard Branson, and Co. standing arm-in-arm at a press conference attended by Will.i.am.

NewSat sought bankruptcy protection, throwing the future of its Jabiru-1 spacecraft into uncertainty. At a more macro level, NewSat’s bankruptcy served as a “posterboy” for politicians in the United States in favor of restricting or outright closing the Import/Export Bank, an event that ultimately came to pass. Moving forward, the long-term implications here may be less governmental support for upstarts in way of low-cost loans, and more difficulty by U.S. manufacturers to sell satellites, launch vehicles, and related technology.

2016 Year Ahead

In 2016, we anticipate the launch and provision of services of Intelsat EpicNG, which will be a major factor in Intelsat’s future business plans. This will potentially allow Intelsat to limit future CAPEX by launching 1 EpicNG payload to replace multiple FSS satellites, reducing CAPEX and improving cash flow.

2016 will also see the NBN satellites come into initial service, which will serve as an interesting precedent for potential future USO connectivity projects that have already been announced in countries such as Brazil (SGDC-1).

Finally, 2016 will see a significant amount of capacity dumped onto Latin America, a region that is struggling mightily on all fronts economically at the moment. Eutelsat, Hispasat, Intelsat, SES, and Star One are all launching new payloads over the region, with several of these operators launching multiple payloads. Currency exchange fluctuations, with Brazil’s being well documented and Argentina’s looming due to a new government in place, will wreak havoc on an already volatile market. Oversupply is likely, at least in the short-term.

Satellite Manufacturing & Launching

Carolyn Belle- Senior Analyst, NSR

2015 Year in Review

2015 was a down year for commercial GEO communications manufacturing markets with 19 orders finalized: a decline of 32% compared to 2014 and 19% compared to the 5-year average. Plummeting capacity prices globally and the introduction of new technology and more diverse competitor business plans led operators to more thoroughly verify the design and corresponding market potential of each new satellite, lengthening the trade-off process and time between RFP and contract finalization. More than half of orders were finalized in the 4th quarter.

Even as the GEO market struggled, non-GEO engagement rose across the board with an 8 satellite order from O3b, a series of new Earth Observation and Situational Awareness small satellite constellation announcements, and continued development of LEO-HTS mega-constellations proposed at the close of 2014. These constellation plans demand a revolution in manufacturing practices, including an Airbus commitment to an up to four satellite-per-day construction rate for OneWeb at prices an order of magnitude lower than what is charged today.

The U.S. Air Force certified SpaceX’s Falcon 9 to launch national security payloads in May 2015, reintroducing competition in a market that has been a ULA monopoly since 2006. With U.S. government business now to be divided between the two players and a decline in government launch frequency towards the end of the decade, ULA will be driven to the commercial market. Armed with a lower cost Atlas V and the promise of Vulcan around the corner, ULA and partner Lockheed Martin CLS could win market share from commercial market mainstays Arianespace, SpaceX, and ILS.

Launch vehicle reusability came front and center during Q4, with successful ground landings for both Blue Origin’s suborbital New Shepard and SpaceX’s orbital Falcon 9. These demonstrations are a positive sign for reusability, facilitating the next steps in R&D to certify the stage for a 2nd launch and towards the ultimate goal of reducing cost of space access. Of more near term importance, as the return-to-flight mission following June’s Falcon 9 failure SpaceX’s successful launch and recovery will encourage industry confidence moving into 2016.

2016 Year Ahead

The heightened rate of technology advancement will take another step forward in 2016 with the first launch of second-generation HTS satellites. ViaSat-2 promises ~300 Gbps of capacity, and will set the stage for even more capable HTS payloads to be ordered as operator competition intensifies and risk profiles become receptive to innovative technology that enhances a business case.

SpaceX’s Falcon Heavy vehicle is expected to make its long-awaited debut in May, followed by up to three commercial missions. The greater upmass capability will extend SpaceX’s addressable market and increase global competition for launch contracts of more massive satellites.

More than a dozen start-ups are in the race to bring a dedicated small satellite launch vehicle to market. Rocket Lab Ltd will be the first to test such a vehicle in 2016 and plans commercial flights on the Electron before the end of the year. The budding small satellite market is currently restricted by rideshare-only launch opportunities, meaning a successful Electron flight could open a new launch market and facilitate the growth of small satellite constellations.

Satellite Mobility

Brad Grady- Senior Analyst, NSR

2015 Year in Review

The launch of the 3rd satellite in the Global Xpress Inmarsat fleet to offer the first worldwide coverage signals the start of the HTS mobility market worldwide.  Inmarsat also made headlines in the company’s deal with Lufthansa. The deal represented a long-term contract for mobility in helping to develop a significant ATG infrastructure in Europe, but the more important takeaway was that Inmarsat will be footing the bill for a large percentage (some suspect all of it) of the ground infrastructure required. This is an indication of the bargaining power held by big mobility clients as a plethora of mobility-related supply comes online; however, long-term, it could be a big win for Inmarsat as the deal includes potential to expand to other members of Lufthansa’s alliance.

Meanwhile, in MEO O3b has already placed orders for its next batch of 8 satellites to not only provide coverage for backhaul, but expand their ability to tap into high-growth mobility providers.  Additionally, they announced their first set of contracts providing capacity to offshore oil rigs in the Gulf of Mexico.

The OneWeb – Honeywell MoU to tap into the aeronautical market is a sign that global low-latency broadband to aircraft may be headed in a totally new direction.

Panasonic’s acquisition of ITC Global and EMC’s acquisition of MTN marked the start of what is likely to become a larger trend of mobility-centric market acquisitions as service providers look to capture growth in both aero and maritime market segments.

2016 Year Ahead

The long-awaited launch of the first Iridium NEXT satellite is sure to be followed by hundreds of thousands of its subscribers who will gain extra capacity incrementally over an 18-24 month launch period.

As the early adopter-trials of Inmarsat’s Global Xpress wind-down, we expect to see stronger adoption rates through 2016 and into 2017 for the service across maritime segments.  Lower oil prices will continue to help merchant maritime (a traditionally strong market for Inmarsat), while still putting pressures on Oil & Gas end-users and their service providers.

GMDSS/ACARS for Iridium?  A “likely approval” for Iridium to offer GMDSS-certified services in mid/late 2016 could reinvigorate an often-neglected narrowband segment of the maritime industry and provide further competition in the ‘not quite broadband’-demand segment of the commercial maritime industry.  Additionally, we can expect a shake-up amongst which MSS company service providers select when configuring ‘all-in-one’ communications offerings for end-users.

As planning cycles for next-gen MILSATCOM enter high-gear, expect the infamous “COMSAT vs. MILSAT” debate to reach new levels as each side attempts to win-over key decision makers.  With a major U.S. presidential election occurring at the same time, it is highly likely 2016 will begin a ramp-up of military and government satcom activity… but bets are still off if that means better revenue for service providers.