Major operator consolidation is a long time coming

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Satellite operator consolidation has been a perennial topic at industry conferences such as the annual World Satellite Business Week in Paris.

The potential for small and regional fixed satellite service (FSS) operators to consolidate was highlighted as a key trend to watch out for at WSBW back in 2006, recalls Maxime Puteaux, a principal adviser at Euroconsult, the conference’s organizer.

Observers had expected fierce competition would push some of the 33 operators in geostationary orbit (GEO) at that time to merge amid disappointing prospects in the broadcast market.

However, mergers between even small operators have been few and far between in an industry where nationalistic protectionism and unique regulations often inhibit deal-making.

The number of GEO operators has actually increased to 53 since Euroconsult’s 2006 tally, Puteaux said, fueled by the creation of national or small regional operators with strong government backing.

That momentum faded away around 2015 and, in recent years, a surge of non-geostationary orbit (NGSO) companies has changed the playing field for GEO operators of all sizes.

The rise of Starlink, OneWeb, and other NGSO broadband constellations has come amid a broader shift away from video broadcast revenues that have historically sustained the commercial satellite sector. Data is now widely seen as the growth engine for satellite operators.

The recent spate of sizable satellite operator mergers “reflects that a shift from video to data use-cases is well underway,” says Brad Grady, a space industry analyst at Northern Sky Research.

SES expects to bring its upgraded O3b mPower constellation into service in the second quarter of 2023. Credit: SES

It shows that the industry previously “wasn’t well positioned to capture those opportunities efficiently,” he says.

French GEO fleet operator Eutelsat and U.K.-based OneWeb pointed to a multi-orbit industry future when they announced plans in July to combine.

OneWeb’s low Earth orbit satellites can provide lower-latency broadband than satellites farther away from the Earth in GEO. The startup’s polar-orbiting network also aims to provide more global coverage than GEO satellites fixed along the equator.

Meanwhile, Eutelsat’s larger and more powerful GEO spacecraft can bring more capacity to densely populated areas.

These hybrid networks have only recently become viable through small-scale user terminals that can seamlessly switch from satellites in one orbit to another.

Before agreeing to merge with OneWeb, Eutelsat had already amassed a 23% stake in the startup to strengthen data services while its video business gradually declined.

A similar multi-orbit growth story was painted in November when U.S.-based GEO broadband operator Viasat said it would buy British satellite fleet operator Inmarsat.

However, unlike Eutelsat, Viasat has always been a pure-broadband operator.

Its deal for Inmarsat would also provide access to multiple spectrum bands and an international foothold as ViaSat-3, a group of three GEO satellites Boeing is building for the company, is set to expand its services globally for the first time.

As for SES and Intelsat, neither will say if they are discussing a merger that the Financial Times reported Aug. 4. was in active discussions.

But both have acknowledged paying close attention to the consolidation taking place in the industry.

The satellite industry “is transforming,” Intelsat spokesperson Clay McConnell said, “with new capabilities and technologies being brought to the market.”

Partnerships “bringing together complementary capabilities can drive competition” in the connectivity market, he added.

SES CEO Steve Collar made similar comments Aug. 4 when asked about the reported talks with Intelsat, saying “industry consolidation is a good thing” to help rationalize the market.

Intelsat operates a GEO constellation and is looking to start a new connectivity-focused growth chapter since emerging from bankruptcy in February, when the operator cut its debt mountain by more than half to $7 billion.

SES also has sights set on growing data markets with satellites in GEO and medium Earth orbit (MEO).

SES acquired its MEO business in 2016 when it combined with O3b Networks — a deal with similarities to Eutelsat and OneWeb’s proposed tie-up, Grady notes.

He likened Viasat buying Inmarsat to Luxembourg-based SES acquiring U.S. rival Americom in 2001 to expand internationally — one of the few sizable satellite operator mergers to be successful in recent decades.

Another notable consolidation deal was completed in 2006 when Intelsat bought PanAmSat to become the largest satellite operator at the time.

In 2014, Eutelsat also bought Mexican satellite operator Satmex to expand its presence in Latin America.

Eutelsat once had a stake in Spanish operator Hispasat and at one point had hoped to merge with the company, however, it was ultimately unable to win the favor of Spain’s government.

Although Eutelsat plans to take over OneWeb, the British government would keep its so-called golden share in the startup under their merger agreement. This means the U.K. would retain special voting rights for the OneWeb business, which was a critical component of successful merger negotiations with Eutelsat.

THE COVID-19 COMPONENT

While consolation and merger and acquisition (M&A) activity has been rare among satellite operators, it has been prevalent elsewhere in the industry, particularly across satellite distribution and equipment providers.

A pandemic that started impacting global markets in early 2020 has also been helping to push space companies to the deal table.

COVID-19 put “some companies under jeopardy and opened the door to acquisition” as funding sources dried up, Puteaux notes, pointing to how it contributed to OneWeb’s collapse into bankruptcy in March 2020.

The British government and Indian conglomerate Bharti Global bought OneWeb out of bankruptcy later that year for about $1 billion. That’s a sizable discount for a startup that had raised more than $3 billion for its constellation before it collapsed.

The pandemic also pushed Intelsat into bankruptcy in May 2020. The operator emerged nearly two years later in February under the control of former debt holders.

Puteaux expects “opportunistic” buyers will snap up more companies if macroeconomic conditions worsen and reduce access to capital.

COVID-19 has taken on “a phased character” for space, says BryceTech analyst Phil Smith, first impacting labor and then supply chains.

Some pandemic-related supply chain shortages, such as semiconductors and other electronic components, impact multiple industries.

Other supply shortages, including liquid oxygen used to combat the pandemic early on, are more specific to space.

And while Russia’s war in Ukraine has boosted demand for satellite capacity in the Eastern European region, it has negatively impacted the broader industry.

Ukraine is the world’s dominant supplier of noble gases commonly used as propellants for electric satellite thrusters. The war has also reduced the availability of Ukrainian Antonov aircraft that satellite makers use for transporting large spacecraft to launchpads.

“The full nature of these and other activities continues to unfold,” Smith said.

As with the war in Ukraine, analysts also see COVID-19 as a double-edged sword for satellite companies.

As markets begin to recover from the pandemic, NSR research suggests operators are seeing increased demand for backhaul, social inclusion programs, and consumer broadband.

“Consolidation leads to enhanced market power and a more competitive posture” for capturing these opportunities, NSR research director Jose Del Rosario said.

Before Starlink’s rapidly expanding broadband network, these players believed they could win against the competition by themselves. Going it alone no longer seems as attractive for some.

This article originally appeared in the September 2022 issue of SpaceNews magazine.