Northern Sky Research

They’re Heeeere! Are Constellations a Ghost from the Past?

Oct 8th, 2014 by Claude Rousseau   More from this Analyst | Profile

The flurry of announcements and many projects under the radar to build and launch communications satellite constellations is hitting a fever pitch.  This level of activity is unseen since the heydays of the late 1990s when dozens of projects with prefixes such as Sky-, Tele-, Astro-, or Star- were announced.  Today, most of them are dead, and those that survived went belly up before their re-birth.   Like in the famous movie, the phantoms of past constellations are here again and are creating some havoc in the market landscape. Is it getting too crowded for what remains a rather small global market?

To build, launch and operate dozens of satellites mostly in non-GEO orbits still remains a difficult puzzle to solve.  Add to offer a seamless, high quality user experience and return money to investors, thousands of pieces of the puzzle must fit neatly together.  It is a long and arduous process - just ask Iridium, Globalstar or OrbComm.  Space is unforgiving.  “De-risking” these high risk ventures seems like an oxymoron.  Already, Iridium hopes that its 16-year old satellites will last another two to three years.  It was recently granted a reprieve by the FCC to continue operating its satellite until early 2018.  Yet, seven of them will operate on fumes and will need to be de-orbited soon after replenishment.  If all satellites last until there are 72 new ones, they can avoid losing many subscribers.  The health of the whole constellation is a critical success factor in this business, a lesson Globalstar knows all too well.

Without recounting horror stories, the root cause of many previous constellation bankruptcies is the inadequacies of matching high CAPEX systems with poorly-defined target markets.  Constellation building and launching is indeed not an endeavour for the faint of heart.

Yet, work on orbital simulations has evolved tremendously, and refined market strategies are now part of current constellations and most new projects.  There are sophisticated satellite systems and ground infrastructure architecture today aimed at broadband capabilities in low-, medium- or even elliptical Earth orbit.  Some are stuck in regulatory maelstrom such as Sirion Global, others are in the ‘we have spectrum’ stages such as World/Vu, and then there are some operators that show an interest but have little details to share such as Thuraya. 

Does this mean multiple satellite constellations will flourish with lower capital and operational expenditures to recoup investment quicker?  We dare not go in that direction yet, but two lessons are highly useful for proponent of today’s new projects:

  • CAPEX has come down considerably on a per unit basis, by almost 50% in some cases. Globalstar’s 48 first generation satellite constellation totalled $4.3 B in equity when the most recent filings show they spent $1.1 B to build 24 Next-generation satellites and upgrade the ground infrastructure. It is safe to say that they have less recurring costs, but the unit prices of a satellite with more capacity have come down by a large percentage.  
  • Antenna, modem and RF technology has advanced by leaps and bounds with smaller multi-mode form factors, higher bits-per-hertz rates, and advanced coding and modulation techniques.

We should remind ourselves that voice is the core market for the ‘oldies’, namely Globalstar and Iridium.  However, data in all of its forms, brought about by IP-based services, represents their highest growth segment.  No wonder proponents of another planned system, Sirion Global, has stated their intention to target low-data rate M2M services for what they believe will be millions of subscribers.  But these generate comparably lower revenues per unit.

What about broadband, which has higher ARPU?  Iridium NEXT is slated to break the 1 Mbps barrier, and current constellations continue to increase throughput as they leverage new technologies.  A new player such as WorldVu/L5 has plans for a 360-LEO satellite constellation with 3 GHz of Ku-band supply for broadband services. And, they are not alone in the competition landscape.  Traditional GEO MSS markets are experiencing solid growth from their broadband offerings, and FSS operators are virtually all targeting broadband HTS mobility as the industry’s next pocket of growth.  And MEO-HTS is here but the jury is still out as to its success.  

In its most recent Commercial Mobility via Satellite, 10th Edition report, NSR forecasted an additional 200 transponders of Ku-band demand and more than 60 Gbps of HTS capacity demand across all platforms in the next ten years.

Thus, can this demand catch up to the steep slope in capacity supply coming? Can shareholders be put on waiting mode until operators get higher return with the new capacity demand?  And by rebound, can increasing bandwidth demand justify more constellations to address the gaps where there is nothing else? 

Bottom Line

Perhaps, the short-term answer is ‘no’.  But a lack of spectrum on terrestrial networks and the ‘bring-your-own-connected-device anywhere, everywhere’ paradigm will mean demand will hit a supply barrier at some point and constellations will have a role long-term to help meet the insatiable thirst for connectivity and tame the bandwidth-demand monster.