The recent high-profile surge of private investment in the satellite industry has tended to reinforce an image of space activities as large government-funded programs that have only recently converted to private funding. This is presented in contrast to new launch, space tourism and related ventures such as Space Exploration Technologies (SpaceX), Virgin Galactic and Bigelow Aerospace, which are starting out with funding by wealthy individuals with a dream.
But commercial investment in space activities is almost as old as space activity itself — starting with the creation of Comsat in 1962 as a commercial entity whose ownership was divided between a small set of large corporate investors and a wide base of shareholders investing through a highly touted initial public offering . And as for the initial funding of an innovative player by a single wealthy individual: this was the way PanAmSat began .
So why the perception that private investment is new to the equation? Largely this is a result of the internationalization of satellite communications, and the fact that, outside of the United States , most telecommunications companies were government entities. S o when Intelsat was created it had an intergovernmental structure to accommodate those other entities. And Inmarsat followed the same model, as did Eutelsat, Arabsat, etc. All along, however, there were private satellite companies operating in the United States and evolving in Europe. These included the core components of what is now SES, which, like others as diverse as Hughes and Globalstar, now have a structure similar to that pioneered by Comsat: a set of key institutional partners along with broad-based public shareholders.
As telecommunications and broadcasting businesses around the world have matured and privatized, they have opened up to a wide array of strategic and financial investors. As a result, we now take for granted news of another IPO or another refinancing deal for a satellite company.
This leads to two sets of questions. First: What made satellite companies, especially communication satellites, attractive for such a range of investment options? And second: Are newer private projects in launch and space tourism likely to evolve to a similar investment structure? If so, what steps are needed by industry, government and investors to make these changes happen and take hold?
The answer to the first question is that these businesses are essentially part of a much broader infrastructure that is securely grounded on Earth and key to the global knowledge economy. As communications companies of all kinds converge across market lines (triple plays, quadruple plays, wireless mobile, etc.), satellites — including those for remote sensing and GPS as well as communications — play an important role, but are not generally driving the business overall. It is content, rather than the delivery mechanism, that is the primary industry driver. As a result, partnerships throughout the distribution channel are needed to increase the degree of investor involvement in the business, while at the same time lessen the role of government, except as a regulator.
The response to the second set of questions is more complex, because the commercial space projects now evolving involve a mix of mature and emerging markets with varying degrees of government investment or other participation. On the one hand are the enabling programs such as launch and exploration vehicles, along with ground-based infrastructure projects such as spaceports. On the other hand are a range of programs for private space activities such as space tourism, whose implementation will depend on the developments in launch and ground infrastructure, as well as on regulatory actions which, if delayed, could negatively impact the successful timing of system deployment.
While many of these commercial space activities have the potential to evolve and attract broad-based private investment, the critical factor will be whether their level of investment maturity is timed to match appropriate cycles of the financial markets. Key to this will be the steps taken by industry, government and investors to overcome the initial technical, regulatory and market hurdles. Perhaps the biggest hurdle is that these are largely space-based businesses, without something analogous to the underlying terrestrial telecommunications infrastructure and consumer base that built the case for the satellite industry.
In the space tourism market one approach to developing these hooks into a broader, more established market is being pursued by Virgin Galactic along two tracks: first looking to build space travel as one component of a larger tourist experience including resort and other leisure travel activities; the other approach aims to leverage space travel as an ancillary market to supersonic and hypersonic point-to-point travel. In the latter case, a decision also might be made to follow a traditional commercial aviation model, which would have different financial implications.
In the launch/exploration vehicle market the primary hook will be leveraging connections with government programs, whether in NASA or the U.S. Defense Department, to provide both initial research and development, as well as a core customer/revenue base moving forward. Added to this would be the provision of similar services for commercial operations in support of government programs, space tourism or other evolving space-based businesses.
Clearly technology is only the first step; market timing is vital . Opening either of these markets in a timely manner will require some action by government regulators at various levels. For space tourism, these regulatory issues will not be severe, especially in light of the clarification given in the Commercial Space Launch Amendments Act of 2004. Nonetheless, licensing structures will be important: if licensing procedures are not established at the right time, this market could be severely constrained at a key point in its development. And while entrepreneurial investors do not like over-regulation, they are conscious of the safety risks and the damage a single high-profile failure can have on future market interest.
Another differentiator is that, beyond the key licensing and safety provisions, the space tourism arena will not be reliant on much other government involvement going forward, since their businesses are consumer-oriented. While consumer markets can be hard to predict, they are not dependent on government budget cycles. This, however, is the concern facing launch and exploration projects that are likely to depend on government customers for a large part of their business.
While both these emerging markets are especially attractive to entrepreneurial investors in their early stages, since the markets are open and large corporate players are less willing to put their shareholders’ money at risk for such projects, in the longer term the launch and exploration businesses become attractive takeover targets for such large companies. Those companies have legacy structures that make them more cumbersome competitors, however, whereas the greater efficiency and agility of the entrepreneurial start-ups can provide a compelling story for investors. Defining an independent business plan that will attract broad-based private investment to compete with the large players will require careful crafting, a solid understanding of the market and very good timing.
Andrea Maleter is technical director of Futron Corp.
