Satellite capacity prices down 60 percent in some cases and still dropping
WASHINGTON — The downward trend of satellite capacity pricing, brought about largely by the increase in more powerful high-throughput satellites, has prices trending between 35 and 60 percent lower than where they were two years ago, according to Northern Sky Research.
Those sliding prices will continue into 2019, judging by contracts extending into the next 12 months, Christopher Baugh, NSR’s president and founder, said March 13 during a presentation at the Satellite 2018 conference here. And a rebound back to previous pricing norms is nowhere to be seen.
“To say that it’s bottoming out and we are going to get back to $4,000 a MHz, that’s not going to happen,” Baugh said. “This market has completely changed. The cat’s out of the bag.”
Multiple factors in addition to HTS are contributing to the pricing decline, according to NSR. Baugh said lagging demand from customer groups like militaries, changes in spectral efficiency, and financially distressed satellite operators dumping capacity at clearance prices are all contributing. But the factor driving the sharpest pricing declines is satellite operators that have perhaps been too willing to go low for large connectivity deals in markets like inflight connectivity and maritime.
“Bulk capacity deals which affect a lot of the mobility contract offerings in the last couple of years have seen some bargain basement prices, which set the trend,” Baugh said. “When we talk to end users they reference [these deals].”
Inflight connectivity providers, namely Panasonic Avionics, Global Eagle Entertainment and Gogo have been buying large sums of HTS capacity, often becoming “anchor” customers that affirm the business case behind entire satellites. By NSR numbers, mobility capacity deals show the steepest pricing declines since 2016, some by slightly over 60 percent. HTS consumer broadband and cellular backhaul are close behind, in the high 50 percentiles.
Television broadcast capacity is down by around 35 percent, being largely immune to HTS — which is broadband-centric — but not oversupply, NSR said.
Baugh said the rate of price erosion is slowing, but still continuing. Some operators are shifting strategies from selling solely raw capacity to complete satellite networks and managed services. That trend is causing friction with satellite network operators that also buy capacity from satellite operators, as both parties start to compete for the same end user customers.
Baugh said the capacity trend is not all bad, as the lower prices do draw in customers normally warded off by satellite’s expensive reputation.
NSR’s study looked only at geostationary satellite systems, not SES’s medium Earth orbit O3b constellation or the upcoming low Earth orbit (LEO) mega-constellations.
Jose del Rosario, NSR research director, said NSR counts OneWeb, SpaceX, Telesat and LeoSat as the top new LEO contenders.
NSR expects only one or two mega-constellations will ultimately be successful. The sheer cost of creating multiple constellations requires appreciably more money than investors are likely to commit, del Rosario said.
The capital expenditure required for the systems proposed in the 11 constellation filings submitted to the U.S. Federal Communications Commission in 2016 for market access tallies around $15 billion for a collective 18,000 satellites, del Rosario said. While not all of those constellations are huge — Space Norway’s is two satellites while SpaceX’s accounts for 12,000 — del Rosario said collectively they are likely too much for investors to support.
“To fund $15 billion in the next 10 years probably won’t happen,” he said.