'Challenging' FSS Industry Probably Means Change in Satellite Operators' Business Models

Satellite operators increasingly are struggling with a data price war, as prices have dropped precipitously in some parts of the world over the past 12-18 months, Christopher Baugh, president of satellite market research firm Northern Sky Research, said Thursday during the annual Hosted Payload and Smallsat Summit. "It's bargain basement pricing," Baugh said. "The yield on a per-megahertz basis is particularly low. [And] these lower prices are here to stay."

With more satellite data capacity coming online, the major fixed satellite service (FSS) operators such as Eutelsat, Intelsat and SES are almost surely going to change their business models in coming years to focus on various satellite-related services such as data analytics that are down the value chain -- and with slimmer profit margins, Baugh said. "It's a challenging business right now," he said, adding those FSS operators "are going to look very different in five, 10 years time." Which is why many are moving into low earth orbit satellite space, Baugh said, citing SES investing in O3b, Eutelsat partnering with Facebook and Spacecom on a broadband initiative targeting Africa (see 1510050037) and Intelsat being one of the investors in OneWeb (see 1506250023). “They're all planning their next-generation strategies,” Baugh said.

David Hartshorn, secretary-general of the Global VSAT Forum, said there's "a big fight" coming at next month's World Radiocommunications Conference between satellite and wireless companies over spectrum. "It's a finite resource, it's increasingly crowded," and the fight over spectrum is shifting from technical to political, Hartshorn said, saying numerous satellite company CEOs will attend WRC to help lobby.

Financing is far more readily available for satellite companies than it has been, speakers said, due to technology innovations allowing cheaper, smaller satellites. But that money isn't necessarily spread equally around, because much of the investment has been directed at the growing Earth observation and remote sensing fields, said Sima Fishman, managing director-Euroconsult USA. Meanwhile, the barriers to entry for communications are higher, Baugh said.

What had been a pace of one or two space companies starting annually has, in the past couple of years, accelerated to one a month, said Carissa Christensen, managing partner at space industry consulting firm Tauri Group. "We've finally hit the right time for the small satellite business," said John Butler, PlanetiQ chief financial officer. "You're starting to see the Silicon Valley guys in the room ... determining the math finally works." While PlanetiQ's satellite constellation plans involve satellites weighing about 10.5 kg (23 pounds), coming soon in the industry are satellites even smaller and lighter than that, he said. At that weight, he said, "the economics change dramatically. A single launch failure won't bankrupt someone like us."

Launch technology also is changing, said Chris Kunstadter, global underwriting manager-space for insurer XL Catlin. "In the next five years, virtually every launch vehicle will be replaced," he said. However, while a number of small- and large-vehicle launch companies are coming on line, the economics of the very small launch vehicle market, sending up small satellites one or two at a time, is questionable, he said.