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The Curious Case Of OneWeb - In View Of Elon Musk's Latest "X" SpaceX & Tesla Holding Dreams

Dec. 30, 2020 7:49 PM ETSpaceX (SPACE)SPCE, TSLA, VSAT12 Comments
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Summary

  • OneWeb (freshly out of Chapter 11) is the first competitor to any future satellite services ("Starlink") by SpaceX, even if OneWeb markets these services differently (B2B vs Starlink's B2C approach).
  • OneWeb's low valuation (measured in Chapter11 bids) coupled with modest cap-ex <$5bn to complete its first satellite constellation indicate that the sector may not be a gold mine after all.
  • By the end of this decade (2030) "Project Kuiper" by juggernaut Amazon may undercut all other competitors thanks to AMZN's cross-subsidies and very deep pockets.
  • Space Travel and Space Internet may well become the new bubble frontier (once we pass the current SPAC and related electric vehicle/battery valuation craze).

I wanted to discuss the latest broadband satellite/space broadband ROI fever dreams for some time. More and more articles like this one appeared over the past months:

An investor’s guide to space, Wall Street’s next trillion-dollar industry (Source)

This recent speculative tweet from Tesla CEO Elon Musk is a good opportunity (since it once again fuels dreams that "Internet from Space" is a giant revenue opportunity with high margins in a SpaceX IPO or a later merger with Tesla) to finally do that:

Let's focus on just SpaceX and Tesla - and mores specifically the Starlink unit within SpaceX, since that is the most likely portion to IPO one day.

(The other parts of SpaceX, launch services and space travel, also have several listed competitors such as Virgin Galactic (SPCE) or Amazon's Blue Origin, I will focus on Starlink).

OneWeb - the current pioneer (all prior efforts around the turn of the millienium such as Iridium offered less bandwidth and were relegated to niche use cases since then) in the "Internet from Space" sector - is a very good market comparable for Starlink in terms of entry costs to get such a system up and running:

...the cost of getting OneWeb’s initial constellation of about 650 satellites into orbit, and establishing the other infrastructure needed for the network, at between $5.5 billion and $7 billion. “Thankfully, OneWeb spent a lot of money in the first phase, and that’s where a lot of money goes booking the launches, building satellites,” he said.

He estimated OneWeb will need to raise $2.5 billion to complete the constellation. Half of that, he said, has been arranged between Bharti Enterprises and the U.K. government, who combined own about 85% of the post-bankruptcy company. “I don’t see raising capital for this wonderful project for the balance amount to be any issue,” he said, noting that Bharti Enterprises had raised more than $12 billion in the last 18–24 months for other projects.

(Source, emphasis mine)

Thanks to its most recent launch (the first after the company emerged from Chapter11) the company now (December 2020) has over 100 satellites in place and "just" needs to launch the other 550 (OneWeb can launch 34-36 satellites at a time using proven work-horse Russian rockets, so ≈16-17 launches) and a few spares to complete its network within 24 months or so.

How much did the two main investors have to inject to win the OneWeb bid in the summer of 2020? Astonishingly little considering the revenue and ROI dreams attached to Space Broadband Internet recently:

OneWeb said it has secured $1 billion in new funding — $500 million from the British government to “deliver first UK sovereign space capability,” and another $500 million from Indian mobile network operator Bharti Global — to recapitalize its constellation effort.

(Source, emphasis mine)

A quick back-of-the-napkin estimate (even adding a safety cushion of $1-2 billion) thus indicates that it will take the new owners less than $5 billion to complete the entire OneWeb constellation including ground/control stations and even build or launch a few spare and replacement satellites.

Without getting into details, OneWeb had a lot of advantages going for it in Chapter 11 bids:

  • Priority spectrum rights, an important concept over later constellations in the more and more crowded satellite space. Even SpaceX was later to file, as explained here: “It’s not crippling [to SpaceX] but it’s a hindrance to the performance of their system,” Quilty said. “Elon Musk is not only challenging OneWeb for a LEO broadband business, he’s also challenging them for the exact same spectrum in the Ku-band — and he filed second. The fact that OneWeb has been revived means they’re still stuck in this sort of junior position.” (Source). It's no wonder that OneWeb has applied for up to 48k (no typo!) satellites earlier this year: "Bankrupt OneWeb files with FCC to put 48,000 broadband satellites in orbit" (Source).
  • Established US-based satellite factory capable of making two satellites per day (which is a lot compared to the very slow historical manufacturing capabilities for satellites).
  • A working proof of concept (over 70 satellites were in orbit before OneWeb had to declare Chapter 11) and a clear roadmap (18-24 months) to finish the entire constellation, a first-mover compared to most projects.
  • B2B business model makes it less costly to get revenue going (OneWeb at least in the past claimed that it would rather resell services to other providers and telecom companies instead of engaging directly with end-consumers in a B2C model)

Yet, despite all of the above, it only took a little over $1 billion to get control over OneWeb and it will take less than $5 billion in total to get it running at promised speeds around 400mbit/s and latency goals similar to those of its future competitors:

OneWeb's LEO Satellites Clock 400 Mbit/s, Latency of 32 MS in Initial Tests (Source)

Either everyone skipping the OneWeb bid was wrong (underestimating the potential for satellite broadband) or the sector's ROI potential isn't that interesting after all.

We will see how operating margins evolve once the true third gorilla in the sector (Amazon with its "Project Kuiper") launches its giant satellite constellation in the latter half of this decade:

Last spring [2019], we [Amazon] announced Project Kuiper, an initiative to build a low earth orbit (-LEO-) satellite constellation capable of providing reliable, affordable broadband service to unserved and underserved communities around the world.

Today [July 30, 2020] marked a key milestone for the project, with the Federal Communications Commission (FCC) granting Amazon approval by a 5-0 vote to deploy and operate our constellation of 3,236 satellites. The authorization allows Project Kuiper to deliver satellite-based broadband services in the United States, helping expand internet access to households and communities across the country.

(Source)

Summary: Whenever SpaceX announces a Starlink IPO (or some sort of combination/merger attempt with Tesla) we can be sure that Elon's bullish shareholders and associated analysts will come up with very dreamy valuations - as they did (and continue to do) with Tesla above a market cap of half a trillion USD.

The low bids for OneWeb during Chapter11 (while OneWeb was the premier fast-track ticket to a front seat in the sector within just 1-2 years for any new sector entrant, as discussed above) and Amazon's entry into the sector in full force and sheer unlimited means by 2023-2030 indicate that such lofty valuations may not be warranted.

More generally, I don't see a large business case for mass-market "space satellite". There's no adoption rush among end consumers given the rapid progress in 5G network coverage in populated areas around the globe as well as the need for separate gear and clunky end-user devices to access these satellite LEO networks.

It looks like "Space" may become the new bubble frontier (once we get beyond the current SPAC and electric vehicle/battery craze) in the 2020s.

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