Op-ed | What could happen to the LEO broadband constellations?
We live in an amazing time of technical innovation. The economies of the world are awash in vast reserves of cash. Fantastic projects are moving forward. The LEO constellation projects employ legions of specialized workers to develop sophisticated communications networks in space. Many people believe that we are on the threshold of a transformation. This would bring the vast resources of the internet to more than half the people of the world that do not have access today.
Today is a halcyon age for the workers on these new systems. It holds great promise for future users. However, it is appropriate to caution investors who are providing the financial backing for these systems. The LEO constellations are unlikely to be self-sustaining, profitable businesses. Most, if not all, investment will be lost just as it was on similar projects in the past.
Developing a new global communications company can be an overwhelming job. Many business plans for building and operating a large satellite constellation initially overlook some of the cost elements. TelAstra, Inc. has written a special report, “The Satellite Upheaval,” to address the concerns facing the industry. Here is a summary of the report findings:
LEO constellations are inherently global. They can provide communications service to any point on Earth from pole to pole. This includes the 70% of the globe covered by water. Almost all the prospective users are concentrated on a few percent of the land areas. Only a tiny fraction of the potential communications capacity can be used. This is one reason why so many satellites have been proposed. The revenue-generating capability of these systems is limited by their ability to serve regions of high demand, not by the total theoretical capacity.
Spectrum for broadband satellite services is competitive. If two communications networks use the same frequency on the same pathway there will be interference. Current geostationary satellites have authorization to use most of the spectrum allocated for space communications. New LEO constellations have secondary rights to use that spectrum. That means that the LEO satellite transmissions must not cause interference to existing systems and must accept interference from them. The LEO constellations have agreed to terminate transmissions in cases of interference, but the spectrum battle is likely to rage for a long time.
Obtaining landing rights (national regulatory licenses) is a huge, time-consuming job. The U.S. Federal Communications Commission grants licenses for satellite communications serving the United States and can grant approval to launch satellite services. However, the FCC does not grant landing rights in the nearly 200 sovereign administrations around the world. Several large regions are controlled by authoritarian regimes that do not permit foreign companies to provide communication services. Countries such as China, Russia, and India are especially difficult to serve. These countries also have their own space capabilities and plan independent constellations. Even in more-open countries, a local service provider is often required so that the country has some control over access.
Building the space segment will cost more and take longer than expected. Building hundreds or thousands of satellites is an enormous undertaking with many unexpected challenges. The budgets typically are based on the assumption that production economies of scale will produce large savings. Unfortunately, big cost reductions apply best to the mass production of millions of units. The cost savings on hundreds or thousands of satellites are significant but will not reduce prices by 99% as some budgets appear to assume.
User terminals are extremely complex and expensive. Since LEO satellites are continuously moving across the sky, the user antenna must track the satellites. Today, antenna terminals that provide this function for aircraft cost more than $10,000. Mass production and simplifications have reduced the cost for individual user terminals, but the cost is substantially higher than the $499 per installation being charged by Starlink, for example. Every terminal sold adds to the investment cost.
Terminal Distribution. There have been recent announcements that supply chain delays are creating parts shortages. The terminals use sophisticated electronic parts for shaping and moving the user antenna beams. User terminals have not been available as soon as requested. Availability and distribution of terminals are separate issues that could delay these systems.
Financing these projects requires funding for user terminals, gateways, satellites, launch services and insurance. The largest cost could end up being the financing of the user terminals, especially as long as the manufactured cost exceeds the sale price to the user. Many users will expect the terminal to be “free” which means that the terminal must be financed. In the past several new concepts have failed because the financing was not available. There are hints of this today.
Gateways are required to provide a connection to the internet backbone. For systems that do not have satellite interlinks, a large number of ground stations are needed to provide service. Each of these gateways requires land, real estate, antenna farms, electrical power facilities, processing electronics and a pipeline to the internet backbone. Typical installations for other systems have cost $25-30 million for each gateway. Even systems with satellite interlinks will need a number of high-capacity more-costly gateways.
Terrestrial alternatives usually are much more cost-effective than satellite services. Although these services are less common in remote regions, new services are expanding into the unserved regions. As terrestrial systems like 5G are implemented, the addressable market for satellite services will continue to shrink. Satellite services have never been able to achieve a large market share of communications services. Any thoughts that space-based broadband access will replace or surpass land-band systems is unrealistic.
Acquiring communication subscribers often takes a long time. Potential subscribers that already have internet access will migrate to new services gradually. Distribution of new services to potential subscribers that don’t have internet service is even more difficult. The people who live in remote regions are typically the poorest and can least afford any communications services. Illiteracy rates tend to be higher, complicating both subscriber acquisition and use of the service.
Operating the constellation requires sophisticated software and carries high costs. We know from past experience that each satellite requires monitoring and control. The costs have been $500,000 to $1 million per satellite per year. Of course, more efficient constellation management methods will be developed, but the cost will remain substantial.
Routing the communications traffic would be the most complex network management task ever attempted. Since the LEO constellations often use frequencies on a secondary basis, they must avoid interference with other satellites using the same frequencies. Consequently, they must keep track of the transmission path for every user at all times. A control channel must command the frequency for each user and tell the user terminal which satellite to use for service. A similar process is used for cellular communications, but when applied to satellite communications the “cellular towers” are also moving which expands the computation process. The central communications processing computer must keep track of other satellite systems that might be using the same frequencies at the same time. Eventually, this would be done for millions of simultaneous transmissions.
Software maintenance is needed to adapt the systems to changing conditions. The LEO megaconstellations are software-defined and controlled. Sometimes there are small failures that can be corrected by programming changes. When new mega-LEO systems are launched, the computations must be updated. New regulations and frequency coordinate agreements could also affect the software. Incorporating software upgrades could shut down entire systems during the transition.
Servicing the end-user requires staff to answer subscriber calls and messages. Users inevitably need to ask questions about service or to resolve problems that they encounter. Sometimes it is necessary to visit the user to resolve problems or to replace equipment. A “truck roll” to visit a user can cost on the order of $200 per visit.
Billing and collection are often performed by a local service company. The cost of billing, collections and servicing can be substantial. These are real costs related to administering a consumer service.
Partnerships with local service providers are needed to provide full service. Satellite operators often serve as “carrier’s carriers.” That is they only develop and operate the space segment. The space segment operators form national service partners who deal directly with the end-users. The service provider obtains national landing rights and regulatory licenses, builds and operates gateway ground stations, advertises and contracts with end-users, provides user terminals, installs the terminals, gives customer telephone support, and bills and collects for service. This is a significant job and the service operator often takes 40-50% of the customer revenue.
The multiple LEO constellations could result in a glut of capacity and depress service prices. Not only are there several FCC-licensed LEO constellations, but other countries have announced intentions to launch similar systems. China has announced a megaconstellation with 13,000 satellites. Telesat Canada has begun construction of Lightspeed, a global network of 298 LEO satellites. The European Commission wants its newly proposed satellite megaconstellation to be offering some sort of initial service in 2024. Within a few years, the available capacity will explode. Supply shortages in unserved areas could ultimately become supply gluts in the next few years.
Collisions between satellites and in-orbit debris are a concern that has worried many experts for years. To date, this has not been a major issue. However, the risks have been amplified by multiplying the number of satellites being launched and orbited. The LEO constellations tend to operate much closer to the orbits used for human exploration, including the International Space Station and China’s Tiangong space station. Although there have been only a handful of satellites destroyed by collisions, there must be many thousands of lesser impact events that cause more limited damage. Eventually, there will be a need to impose stricter regulations on the LEO constellations.
Astronomical observation has been impacted by reflections from hundreds of LEO satellites. The amount of post-observation image processing has been greatly increased. The concerns of astronomers have not been given much weight due to the enthusiasm for commercial use of space. At some point, the environmental impact of the reckless deployment of thousands of satellites must be resolved.
The bottom line is that these LEO constellations will greatly exceed their budgets. Because many of these systems have private ownership, they are not required to make financial disclosures of costs or profits. We have estimated the costs for the largest systems. Based on past experience and our cost models, overruns of a factor of two or more can be expected. We concluded that the cost of the OneWeb system would be $7.5 billion. The system went bankrupt when costs greatly exceeded the initial budgets and funding. The new owners are attempting to raise additional funding. Our cost models show that the SpaceX Starlink system has invested about $4.4 billion in 2021 and a total of $11.3 billion to date. Telesat Lightspeed is budgeted at $5 billion, but this seems optimistic. Nonetheless, the titans of technology and institutions that back most of these systems have extremely deep pockets. We should not expect any of these systems to disappear unless the backers change their minds and withdraw from the business.
Roger Rusch is president of TelAstra Inc., a satellite telecommunications consultancy specializing in cost modeling, competitive analysis, risk mitigation, and regulatory matters.