How OneWeb plans to make sure its first satellites aren’t its last
This article, which originally appeared in the March 11, 2019 issue of SpaceNews magazine, was updated March 18.
OneWeb’s dream of blanketing the globe in affordable, abundant broadband took an important step toward reality Feb. 27 when a Russian rocket lifted off from South America to deliver six French-built satellites into low Earth orbit.
OneWeb was facing a November deadline to put up its first satellites or risk losing spectrum the International Telecommunication Union alloted several years ago for the ambitious broadband megaconstellation.
If all continues to go as planned, OneWeb’s first six spacecraft will finish on-orbit testing this spring, clearing the path for an initial system of 648 satellites — 600 operational and 48 spares — and setting the stage for a larger system that could eventually number 900 or more satellites.
Orbiting the initial 648-satellite constellation will entail the largest launch campaign in history. In late summer of early fall, OneWeb expects to start launching 30 or so satellites at a time on Soyuz rockets lifting off every three to four weeks. In addition these 20 Soyuz missions booked through European launch service provider Arianespace, OneWeb is also counting on one or more Ariane 6 launches plus a to-be-determined number of Virgin Orbit LauncherOne missions to complete its constellation by 2021.
OneWeb and its satellite manufacturing partner Airbus Defence and Space have crammed 10 gigabits per second of capacity into spacecraft the size of dishwashers. Tom Enders, Airbus Group’s outgoing CEO, said Feb. 14 that OneWeb satellites cost $1 million each to produce, and that the companies will be able to complete 350 to 400 satellites annually from their joint venture OneWeb Satellite’s $85 million Florida factory opening in April. The first batches of Florida-built satellites should be delivered to OneWeb toward the end of the third quarter, Airbus spokesman Guilhem Boltz said.
OneWeb’s satellites are a technological marvel. Traditional geostationary communications satellites are as big as trucks, take years to build, typically cost $100 million or more and still might generate less throughput than a few OneWeb satellites.
But the satellite industry has seen other technological marvels reach orbit while the business plans behind them fall back to the ground.
The most notorious failure was Teledesic. The Bill Gates-backed venture raised $1 billion in the 1990s to build an 840-satellite “internet in the sky” but flamed out a few years after launching a single demo satellite.
While Iridium and Globalstar had succeeded by 2000 in deploying relatively modest constellations that enabled the advent of handheld satellite phones, both ventures went bankrupt in the process. However, Iridium and Globalstar ultimately emerged from bankruptcy and went on to launch second-generation constellations.
OneWeb’s current risks are seen as primarily financial, not technical, according to Eric Anderson, a former Moog chief technologist and CSA Engineering executive involved in Teledesic and Iridium. He’s now a space consultant and investor.
“If their revenues are slow in growing, which I expect they will be, then they can’t plow anything significant back into capital expenditures like building new satellites and ground station infrastructure,” Anderson said.
OneWeb said on the eve of its inaugural launch that it had raised and spent more than $2 billion to date, a total that includes $1.7 billion spread over two high-profile equity rounds since 2015 and an undisclosed amount the company says it raised last year. The first $500 million came in 2015 from industry partners Airbus, Hughes Network Systems, Intelsat, Qualcomm and Virgin Group, plus Coca-Cola, Mexican telecom company Grupo Salinas and Indian telecom company Bharti Airtel. In 2016, Japanese tech conglomerate SoftBank supplied $1 billion of a $1.2 billion round that included previous investors.
In September, OneWeb replaced its CEO for the third time since 2015, replacing Airbus veteran Eric Béranger with OneWeb board member Adrian Steckel, who had been serving simultaneously as chief executive of Grupo Salinas Telecom and cryptocurrency startup Uphold.
Steckel, speaking to reporters in Kourou, French Guiana, before the Feb. 27 Soyuz launch of OneWeb’s first six satellites, predicted OneWeb will achieve profitability in 2022, or about six months after OneWeb expects the constellation to achieve full global service.
Steckel indicated OneWeb would soon raise more funds from previous investors. That proved true March 18 when the company announced a $1.25 billion round — its largest to date — led by SoftBank Group Corp., Grupo Salinas, Qualcomm Technologies, and the government of Rwanda.
The new round brings OneWeb’s total capital to $3.4 billion — a sizable sum, but one that’s significance can’t be fully gauged without a total cost estimate for the OneWeb system.
While early estimates ranged from $1.5 billion to $2.5 billion, OneWeb no longer shares projections for deploying the constellation. When Steckel was hired last fall, Uphold issued a news release (soon retracted) that described OneWeb as a “$6B global broadband effort.” OneWeb founder Greg Wyler described it in 2017 as a $4 billion venture when he testified before a U.S. congressional hearing on satellite connectivity.
Roger Rusch, president of the satellite consulting firm TelAstra, thinks both Wyler’s $4 billion estimate and Uphold’s dubious $6 billion figure are too low. He estimates OneWeb will ultimately need $7.5 billion to complete its system, and possibly more if it finances the user terminals.
“The realistic number is probably far beyond where they are right now,” said Rusch, who helped design several satellite systems with manufacturers. “It’s probably three times more than what they have.”
OneWeb’s individual spacecraft, while dramatically cheaper than traditional satellites, are still at least twice as expensive as the sub-$500,000 price point OneWeb envisioned when the program began. Rusch cautioned that less obvious costs, like gateway ground stations, real estate and regulatory licensing can further inflate costs beyond early estimates.
Other satellite operators have criticized OneWeb’s approach as unsound — one that will profit launch providers, satellite manufacturers and their suppliers while leaving investors high and dry.
OneWeb leadership insists that’s not the case.
From project to business
“We know that we will sell out [of capacity],” Steckel said. “When you give data at good speed with coverage that people haven’t had before and a device that works for them, you sell out.”
OneWeb still has a long way to go to sell out capacity of the envisioned initial system of 648 satellites.
The day of the launch, OneWeb announced its first two customers: UK-based satellite teleport and network operator Talia and Italian telecommunications company Intermatica.
OneWeb declined to provide contract values, but Steckel said the Talia deal “almost makes our year just with that one contract.”
It’s not clear how soon either announced contract will generate significant revenue for OneWeb. In a news release, OneWeb said its service “will come on stream for Talia starting in 2021, with virtually all of Talia’s markets activated by 2023.” Talia spokesman Elliot Banks declined to comment on the contract’s financial terms.
OneWeb’s announcement of the Talia and Intermatic contracts also revealed a significant change in its relationship with SoftBank, its largest investor.
SoftBank originally claimed full ownership of OneWeb’s capacity, but Wyler said Feb. 27 the two companies have backed away from that approach.
“That was something we had worked on, with them having all of the capacity for all the system and they were going to resell it, but we’ve changed that model together,” he said.
Wyler didn’t give an exact date for the change, saying it occurred “gradually over a number of months.”
With SoftBank no longer a guaranteed buyer for the constellation’s full capacity, OneWeb’s success as a business rests more squarely on its own shoulders.
Debt financing shelved
OneWeb’s March 2019 capital raise also marked a departure from a previous plan to rely on debt financing for the remainder of its funding needs.
“It changed,” Steckel said in explaining OneWeb’s plan to go back to shareholders rather than arranging debt financing through export-credit agencies, which often condition their support on proof of customer commitments.
“What we haven’t wanted to do is become dependent on outside financing,” Steckel said. “It was going to force us to sign commercial deals ahead of time and give too many discounts to customers.”
Steckel said early-bird discounts risked setting an expectation for OneWeb capacity prices at a rate lower than what the company wants, turning a sale price into the de facto norm.
“Our issue isn’t ‘will we sell out?’ Our issue is making sure that we sign the right deals so that we don’t sell out too soon and at the wrong price,” he said.
An initial public offering of OneWeb stock is also on the table for meeting the company’s future capital needs. Steckel said OneWeb “absolutely” plans to go public — just not for a while.
“Our mission is to bring connectivity everywhere … but to get there we need to build a viable business,” Steckel said. “It’s a premium product, it costs a lot of money to put it up, and we need to be able to monetize it.”
OneWeb predicts its initial system will be ready to provide 500 megabits-per-second connections with just 30 milliseconds of lag time by the time it reaches global coverage in 2021.
For now, OneWeb’s first six satellites (operational spacecraft, not prototypes) can collectively provide 18 minutes of service at a time — far too little for most customers OneWeb intends to serve. But each successive launch will increase that time, with polar regions becoming the first to get 24-hour coverage.
OneWeb anticipates launching around 150 satellites this year using four or five Soyuz rockets and potentially Virgin Orbit’s still-unflown LauncherOne, which can carry one to two satellites at a time. By 2020, the company should reach 300 satellites — enough that Canada and other regions close to the north and south poles will have 24-hour coverage, Wyler said. As the constellation scales to 648, the canopy of 24-hour coverage will reach the equator, providing global coverage, he said. Steckel said full service should start in 2021 or early 2022.
Steckel said OneWeb will be profitable in 2022, going so far as to project achieving profitability after the first six months of full, global service.
Outside observers caution that OneWeb appears likely to burn through a lot more cash before the constellation starts generating significant revenue.
“They need to get to this level of meaningful service, whether it’s 300 satellites or whatever, so that the full build out of the network is considered viable by other financiers,” Anderson said. “It seems really close, their ability to do that right now, but if revenues are only trickling in, or the margins are substantially lower than the high margins that traditional satellite operators can get, then I think they are not going to be able to get the additional billions.”
OneWeb was founded with the lofty goal of bringing fast, affordable internet to every corner of the globe. “We envision a world where all people have access and hold the power to create opportunity for themselves and others wherever they are,” is how OneWeb currently describes its mission. But bridging the world’s digital divide will require OneWeb to build a successful business around connecting customers with much deeper pockets than a remote village or typical school.
Mobile network operators using OneWeb’s satellites to backhaul communications traffic for cellular towers will account for a lot of the company’s early customers, Steckel said. He listed aviation, maritime and government customers as other anticipated early users — alongside schools. “There are many different methods or financial models to connect the schools in many different countries with different abilities to pay,” Wyler said.
Wyler said his primary job at OneWeb has been to make sure the company stays true to its more philanthropic objectives while balancing financial investments and reaching “rapid profitability” as a company.
“We have a good balance of investors today who are watching both sides,” he said.
Richard Branson, Virgin Galactic’s billionaire founder, is one such investor. At the launch, Branson described OneWeb as “space shattering” in the difference it can make.
“It is going to be enormous,” he said.
Wyler said the $2 billion-plus OneWeb has spent getting to the point where it is nearly ready to start launching satellites by the dozens was a “one-off” expense that went into securing launches, establishing manufacturing infrastructure and setting up a supply chain. Marginal costs to build and expand the system are low from this point, he said.
But questions about OneWeb’s ability to pull off its dream linger, nonetheless.