Business Models for a GEO Bandwidth Bonanza
The industry is entering the Satcom 3.0 era and capacity addition is consistently on the rise. Several ambitious projects in VHTS are being undertaken by Viasat, Hughes, SES and Eutelsat, while players such as OneWeb, Telesat and SpaceX are planning LEO constellations. Total capacity addition by GEOs is estimated at more than 5 Tbps in the next 3 years, while non-GEOs are expected to rake in anywhere between 1-3 Tbps in the similar timeframe depending on the manufacturing/launch timelines.
So, is there a demand for this massive capacity? Certainly, NSR estimates fill rates at 44% for Ka-band HTS for 2020, dropping in 2021 and regaining to 50% by 2024. Meanwhile the supply is expected to increase by 3.3x in 2024 compared to 2019. Any industry showcasing 50% take up rate on a net increase of 3.3x supply should be considered as doing well and – with satcom in growth phase – the expectations certainly back the operators.
How would this influx of capacity impact pricing?
The Global Mean Index Price as predicted in NSR’s annual Satellite Capacity Pricing Index report sharply falls over the period of 5 years from 2016-2020, with a slower decline expected post 2022, once the market settles down with $25-$70/Mbps/Month wholesale economics across several segments.
Changing market addressability via underlying change in satellite economics
Both Viasat and Hughes are targeting a $12/Mbps/Mo break-even floor pricing that translates to $25-$45/Mbps/Mo wholesale pricing for applications like consumer BB, backhaul, aero and Gov/Mil – which translates to 2-3x better economics as compared to 100 Gbps payloads. This economics is expected to be better than LEO or MEO constellations as well. VHTS at these price points unlocks new addressable markets across geographies and demographics – a play required to fill in the massive satellites. Targeting supply, building flexibility, selling volumes of wholesale capacity and building a retail distribution network are all key challenges that integrated operators are best suited to do. Thus, not surprisingly, the industry has seen operators like SES play more downstream in the past 2-3 years in order to un-commoditize capacity and reach the end-user for predicting the bandwidth growth curve. More regional and global operators are expected to follow suit.
LEO-HTS: Fallibilities and long-term impact?
LEO has maintained its charm for some time now, with major contenders in OneWeb, SpaceX, Telesat and possibly Amazon vying to launch in 2021 and beyond. High-capacity, global-coverage, potentially low-latency and low-profile platforms are the key value proposition of LEO connectivity. With increasing GEO pressure, LEOs basically lose all but the last two value points, with low-profile platforms expected to remain expensive with low performance at low scale for a long time (5+ years). Thus, they face a litmus test not only in getting the ground segment ready for mobility and consumer broadband applications, but also for getting landing rights in critical countries that are expected to exponentially increase bandwidth demand in the next 3-5 years.
As such, LEOs are expected to be under more pressure in terms of pricing, given the competition from VHTS (Viasat/Hughes), as well as pressure in service footprint/capacity, with challenges in returning on investment or establishing customers/business cases. NSR expects that LEOs would still have a place in remote/niche applications, and drive the development of next gen (GEO & LEO, or multi-band) terminals and new applications, but at a much more limited global market opportunity.
The Bottom Line:
Will satellite operators be able to increase top line and create captive markets?
- All operators will look to ride the wave of bandwidth consumption and make satellite ubiquitous – though under intense margin pressure and regional competition. EBITDA has improved in 2019 on the back of declining top-line, but this is expected to reverse from 2021 after the launch of new capacity. Companies like Hughes, SES, Viasat and, to an extent, Eutelsat are expected to create competitive markets by planning fleets more efficiently, while others should plan now or plan the M&A route.
Will LEO constellations be successful, and will they impact GEO adversely?
- It’s too early to determine the success of LEO with ground terminals and landing rights conundrums, though companies like OneWeb and Telesat clearly look to bet on it. SpaceX and Amazon have both in-house capabilities and the finance to back them up at a time when highly leveraged operators won’t be able to go truly global with their constellations. With latency and low-profile platforms as the only clear winning attributes for LEO as of now, with expectations for wholesale pricing lagging behind VHTS and with planning/manufacturing delays, the impact on VHTS can be considered minimal in the 2020-2024 timeframe.