The lessons of satellite bankruptcies


Shannon Fisher
Contributor

The recent flurry of satellite internet companies seeking bankruptcy protection (OneWeb, Intelsat, Speedcast) should act as a timely warning for the industry: the market has changed and now more than ever companies that own their own satellites and carry little or no debt or debt financing are best positioned to thrive.

In late March, OneWeb, a startup that aimed to deploy 720 Low Earth Orbit (LEO) satellites to provide global broadband services, filed for Chapter 11 protection with only 74 satellites deployed.

OneWeb entered Chapter 11 after an anticipated investment from SoftBank fell through. The company is now seeking a UK Government bailout. Analysts believe the increased risk from COVID-19 was the final straw for SoftBank.

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Satellites: It’s a tough business for satellite broadband

LEO satellites as a delivery vehicle for broadband compared with traditional geostationary satellites (GEO) have been hailed as the future of non-terrestrial comms. Advocates cite their ability to bring internet connectivity to remote areas (OneWeb had even targeted the Arctic), boost data backhaul for mobile network operators, and enable cloud and edge-based services, as LEOs strengths.

Further, their low altitude reduces launch costs and improves downlink speeds and latency for customers. However, costs back on Earth have proved a problem. Satellite dishes must be steerable and managing the network is cost-intensive compared with one using a fixed GEO antenna and a single satellite.

LEO operators have some challenges remaining, such as the high costs for the LEO earth stations, which require a large quantity of tracking antennas to connect to the satellites as they circle the Earth – creating “antenna farms”. Plus, there are high customer equipment costs. These remaining challenges and their costs are currently prohibitive.

The failure of OneWeb has called into question the future of the other three main LEO satellite constellation projects: SpaceX, Amazon’s Project Kuiper, and Telesat.

However, there is one major difference between OneWeb and the other three. They can rely on revenues from related or, in the case of Amazon, unrelated businesses.

Around the same time that OneWeb went wobbly, Luxembourg-based Intelsat sought bankruptcy financing, weighed down by a massive US$14 billion of debt.

Intelsat is banking on selling its C-band satellite spectrum, which could net the company up to US$4.8bn. However, Intelsat needs to spend up to $2.5 billion just to prepare its spectrum for the auction.

And even after a successful sale, Bloomberg Intelligence analyst Stephen Flynn noted recently that Intelsat’s debt starts coming due in June 2021, and its leverage would still remain crushingly high – around eight times debt to earnings next year. The company had just $US180 million in cash reserves at the end of last year.

Intelsat is now seeking a debtor-in-possession loan to keep the wolves at bay. And there lies the rub: Intelsat’s over-reliance on debt finance left them vulnerable.

Last week the ASX-listed Speedcast filed for bankruptcy protection. The company has been hit hard by its exposure to the cruise ship industry and offshore oil rigs, two customers decimated by the COVID-19 pandemic.

However, Speedcast was already heavily geared even before the term COVID-19 had been invented, a victim of a debt-driven acquisition strategy and ongoing integration issues leading to unrealised cost benefits.

A major weakness of Speedcast is that it does not own any satellites. It is a go-between. It is at the mercy of satellite owners and more recently a low Australian dollar.

So, what can we learn from these three case studies?

Firstly, the market is changing and changing rapidly.

Improvements in terrestrial-based internet delivery – particularly fixed wireless – continues to shrink the satellite broadband market.

Companies that own their own satellite hardware, like IPSTAR, Orion, and our parent company Thaicom, are free from conflicting priorities that plague companies like Speedcast.

Satellite internet companies that are heavily geared and/or who have a business model solely focussed on one delivery method are vulnerable to external shocks like COVID-19.

For customers – be they governments, telcos, businesses, or households – it is important to seek advice or research the financial viability of their satellite provider and to judge them against OneWeb, Intelsat, and Speedcast to ensure that you have a sustainable and reliable satellite partner.

Personally I am excited about the satellite industry’s future as the next five years look to promise some technological advancements that have the potential to deliver some fantastic outcomes to people that live and work in regional, rural and remote parts of the world.

Shannon Fisher is the managing director of IPSTAR Australia and New Zealand

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