Northern Sky Research

LEO: The Space Industry’s New Playground

Mar 11th, 2015 by Carolyn Belle   More from this Analyst | Profile

Despite outside general perception of the space industry as high-tech and rapidly developing, those enveloped in its daily activities are familiar with the risk aversion, stringent regulations, and lengthy implementation time that characterize most projects. Yet in light of the four new LEO constellations formally announced over the past 10 weeks, and many more over the last two years, could an influx of fresh interest and new investors develop the industry into a vibrant playground of new operators, untapped customers, and innovative applications?

Given current trends, NSR believes the answer is a resounding yes. The LEO market in particular is experiencing a combination of technological and financial advances that are lowering barriers to entry and driving market growth. Of the 40 commercial non-GEO satellite orders in 2014, only two originated from an “established” market player. NSR’s Satellite Manufacturing and Launch Services, 5th Edition identified an ongoing proliferation of LEO operators across all application markets. From a 2010 – 2013 average of 5.5 active operators per year (defined as launching at least one satellite within the year), 2014’s surge to 11 active operators signaled a turning point. The emergence of additional operators is anticipated through the end of the decade and beyond, correlating to more than 2,000 LEO satellites to be launched between 2015 – 2024 (without taking into account SpaceX/Google).

Global demand for data transport and products is driving interest in entering the market, but vastly improved economics and the engineering of putting a capable satellite into LEO are the real factors facilitating market growth.

Uniquely-LEO manufacturing methods and options are becoming more favorable. Increasing acceptance of COTS materials is bringing down unit manufacturing cost, as is a trend towards single-string subsystems for constellations. Technology miniaturization has broadened the range of capabilities, enabling operators to provide better value with a smaller and cheaper platform. The feasibility of in-house satellite production (as OneWeb and SpaceX both plan to do) can achieve an even lower per unit cost while providing greater control over design revisions and platform optimization.

Finally, LEO satellites’ low cost and rapid development time facilitate the consideration of new ideas; testing a new technique or technology on a 3-year construction + 15-year operations GEO satellite is a far more intensive proposition than on a 1-year construction + 5-year operations LEO satellite that is a fraction of the cost. This makes the LEO market inherently more responsive to technological advances.

As emerging players leverage this reduced per satellite CAPEX and new technology to operate at a lower price point, the addressable market for space services will expand to untapped industries and companies. Further, new operators with a “Silicon Valley” approach might be better positioned to cater to potential customers in industries not traditionally associated with space services. Whether in competition, collaboration, or addressing disparate markets, more operators and customers means a healthier market as a whole and additional opportunities for manufacturers and launch service providers.

But, what about GEO?

Admittedly, the population of operators in GEO is already nearly double that of LEO or MEO, and the value proposition of GEO-based services is proven. However, GEO does not offer the same growth potential or key enablers notable in non-GEO. NSR calculated that the proportion of “nascent” and “emerging” operators active in GEO satellite procurements has been a stable 20% over the past five years, within an even more stable 20-25 satellite annual market size. GEO is a well-developed market, with limited orbital slots and spectrum rights that effectively pace potential activity. Further, significantly higher GEO CAPEX can prevent or strain a business case – a familiar phenomenon already filling the news in 2015.

Bottom Line

While expansive projects such as LeoSat, OneWeb and the SpaceX/Google-backed constellation might be reminiscent of the late 1990s surge in LEO broadband endeavors, the current interest in LEO transcends a cyclic repeat of what we have seen before. It is driven by an improved ratio of CAPEX to capabilities onboard, as well as a more data-driven world that values constant connectivity and coverage. Experimentation with new technologies and applications, the exploration of partnerships, and many new enterprises ready to jump in mean the LEO market is truly becoming a vibrant playground for development. But with any new playground comes the reality of failure and lessons learned – an element that will certainly persist in the budding LEO industry.