Op-ed | Embracing the Bubble

by and

Communications and observations satellite operators are buying satellites and procuring new systems with enthusiasm unmatched since the late 1990s.

The fixed satellite service industry has been ordering more and larger satellites with greater capacity than demand for transponders would seem to justify. Intelsat alone is adding 901 transponders (41 percent) to its 2,200 transponders between 2015 and 2017. SES will have added 666 transponders (64 percent) to its 1,048 between 2007 and 2017. Eutelsat more than doubled its capacity between 2007 and 2015 and seems to be expanding faster than SES. At the same time, numerous new national satellite systems have procured communication satellites for local services.

In the mobile satellite services industry, the story is similar. Failed systems, including Globalstar and Iridium, have been rescued by bankruptcy and export financing. Iridium stock sales augment Iridium Next funding and also could support debt payments that would be much greater than its earnings. Globalstar is giving away satellite telephones with subscriber contracts. Thuraya is thriving in the Middle and Far East and will soon buy replacement satellites.

Inmarsat has procured Ka-band satellites to make an incremental leap into global mobile broadband. In addition, Intelsat, SES and Eutelsat are providing mobile Ku-band services over ocean areas for passenger services to airlines and cruise ships. Broadband operators ViaSat and EchoStar/Hughes are providing Ka-band to increasingly remote areas for airline passengers.

The huge capacity of the new high-throughput satellites seems astronomical. The global capacity, measured by throughput, will more than quadruple between 2010 and 2017.

A new generation of low Earth orbit (LEO) broadband constellations has been proposed by a string of young successful companies including Fidelity, Google, Qualcomm, SpaceX and Virgin. OneWeb has raised $500 million and awarded a contract to Airbus for 900 satellites.

Several new operators have proposed constellations of small satellites for nearly continuous Earth observation from LEO.

Real estate prices in Silicon Valley are soaring. The home that I occupied for 10 years has more than doubled in value since 2012. This three-bedroom, 2.5-bath home with no view is estimated to be worth $3.2 million.

What happened? Has something changed dramatically? I could not explain the situation through cost modeling or design enhancements.

Conventional wisdom suggests that this expansion will not end well. Many of us saw the financial disaster when the dot-com bubble burst and the LEO satellite constellations went bankrupt.

My first impulse was to warn investors. I started writing papers and sending out messages to investor friends, but there was little interest. As Max Bialystock said in “The Producers,” “Nobody is interested in a play that flops.”

Nobody believed Cassandra.

Conor Dougherty of The New York Times recently wrote an article headlined “Overvalued in Silicon Valley, but Don’t Say ‘Tech Bubble.’” It’s not a bubble; it’s “the coming zombie start-up apocalypse,” one investor is quoted as saying.

Reporters from established publications would not return my messages. Friends asked me, “Why are you doing this?” My wife warned, “You are making yourself a threat.” Another friend said, “They will send out hit men.”

Then I was struck by a revelation. The most successful consultants earn the most money by publishing optimistic forecasts. Overly positive analysts are not punished if a company collapses.

Therefore, I am now converted. I believe that this rapid expansion is really a very good thing. Thousands of people are being employed to build and operate satellites and to sell capacity around the world. New ideas are being tested. Academics are writing papers on the merits of various alternatives. Executives are being paid millions of dollars to manage these activities, and many employees have good jobs. Airlines are thriving with global travelers selling capacity. Real estate agents are being paid in cash for new homes.

Investors have the thrill of owning hundreds of satellites whizzing around Earth. They could make a lot of money on a long-shot winner. You just need one in every 10 to make money. The rest can be losers. There is nothing to trigger a collapse and plenty of time to adjust to new market perceptions. A bubble could deflate slowly and create a soft landing.

Few lenders would be hurt in cases of default. The export credit agency guarantees will protect most of them.

Satellite manufacturers have their factories full of new satellite orders with more to come.
Users will have access to better services for lower cost.

Not only should we welcome the new investors in satellite communications, but we should embrace the change. Operators are in business for the money. The new satellite visionaries are funding the entire value-added chain. We could be on the cusp of a transformation. It’s going to be something wonderful.

Roger Rusch is president of TelAstra Inc.