Riding the consolidation wave

by

Consolidation among some of the world’s largest satellite operators is rippling through the broader commercial space industry.

Viasat received shareholder approval in June to buy London-based satellite operator Inmarsat in a $7.3 billion deal expected to close this year.

Eutelsat and OneWeb, meanwhile, announced in July their intent to combine operations in an all-stock transaction that values OneWeb at $3.4 billion.

Other operators could jump on the bandwagon.

And while there are no guarantees any of these transactions will close, a period of consolidation at the operator level promises more change in what are already transformational times for the market.

Eutelsat says integrating its geostationary broadband network with OneWeb’s low Earth orbit satellites is the best way to meet future global connectivity needs. Credit: OneWeb

For starters, it could result in fewer orders of broadband satellites for geostationary orbit (GEO) as operators rationalize their merged fleets, according to BryceTech analyst Phil Smith.

At the same time, more orders could be on the way for satellites in non-geostationary orbit (NGSO), if emerging business models there prove successful.

That would mean fewer commercial launches to GEO, Smith says, pushing the launch market further toward catering to the needs of constellations of smaller satellites.

The Royal Caribbean Group said Aug. 30 it will connect cruise ships to Starlink’s rapidly expanding NGSO broadband network across all three of its main brands by the end of March.

However, it is still early days for assessing how viable NGSO broadband constellations will be for serving global connectivity needs.

“The demand is there, to be sure, but the manner in which this demand is addressed using satellite constellations [is] only now generating data that will inform more detailed business analyses,” Smith says.

As well as competing with terrestrial networks, these satellite constellations must also find ways to compete with each other effectively.

There is also the potential that operators rationalizing merged fleets could significantly downsize their needs.

“If consolidation leads to reduction in size or elimination of a space-based system,” such as a constellation, “then the impact would be significant,” Smith warns.

“This almost always leads to changes in labor, like layoffs.”

WEAKENING COMPETITION

Fewer independent satellite operators would make it harder for new operators to enter the market, according to analysts at Northern Sky Research.

Future entrants would also likely struggle to offer the same capabilities as those that have joined forces.

Eutelsat headquarters. Credit: Simon Lambert

However, even though fewer operators means less competition to drive down prices, NSR analysts do not see end-user capacity costs changing much as a result.

The supply of capacity for high-through-put and fixed satellite services (FSS) is still higher than demand they see across all orbits.

Overall, NSR analysts foresee better cost economics and improved bandwidth utilization —namely, higher satellite fill rates — from operators entering a consolidation period that could ultimately create a “healthier ecosystem.”

CATCHING THE CONSOLIDATION BUG

Smith expects the wave of operator consolidation will extend to service providers and spacecraft manufacturers.

This is “not terribly unusual” in the aerospace industry, he says, and “would be taking place periodically despite the pandemic” and Russia’s war with Ukraine, which have both disrupted satellite supply chains.

Satellite capacity resellers such as Speedcast have been consolidating to build scale and take advantage of the glut in supply.

Viasat headquarters in California. Credit: Viasat

Facing uncertainty in their markets because of incoming NGSO broadband constellations, GEO operators have also been buying service providers to get closer to end customers. Case in point, Intelsat acquired Gogo’s commercial aviation business in 2020 to boost its position in the inflight connectivity market.

In the manufacturing market, Boeing’s Millennium Space acquisition in 2018 and Lockheed Martin’s investments in Terran Orbital gave them small satellite expertise for NGSO networks — and a strengthened supply chain.

NSR believes smallsat builders that have made overly ambitious bets on an expanding constellation market could see more of them sold to bigger primes.

Despite market challenges, manufacturers are still in a “build, build, build” phase, NSR says, to meet anticipated demand from new constellations that continue to be announced.

“The market is not big enough to support all of these players, as new fleets are not disruptive enough on pricing or service to open or create opportunities,” according to NSR.

SpaceX has launched more than a thousand satellites for Starlink since the beginning of 2022, OneWeb is preparing to resume the deployment of its NGSO constellation this year, and Amazon signed billions of dollars in launch agreements for Project Kuiper in April with Arianespace, Blue Origin and United Launch Alliance.

A slowdown in momentum from emerging players could create a “more enticing environment for acquisition,” NSR says.

CRUNCH TIME FOR LAUNCH

Prospects for consolidation in the crowded small satellite launch market are less rosy.

Inmarsat HQ in London. Buying Inmarsat would expand Viasat’s broadband network globally across multiple orbits and spectrum bands. Credit: Inmarsat

Analysts expect many of the launch startups created in recent years — and there are more than a hundred — will fail because of a lack of demand and the substantial capital investments they need to become commercial.

Most of these will likely fall to the wayside rather than merge with another launch startup, not least because few synergies can be gained from integrating rocket hardware this way.

“Of the many proposed vehicles and those under development, a lot have not really provided updates on progress in recent years, which is notable,” Smith says.

“Of course, it is a competitive environment, but other companies have been much more obvious about their plans, even if largely focused on announcing investment rounds and management hires, as opposed to technical specifications.”

That said, Northrop Grumman’s recent decision to develop a new first stage for its Antares launch vehicle — and a future medium-lift rocket — with startup Firefly Aerospace highlights the possibility for other kinds of tie-ups.

Northrop was forced to look beyond its previous reliance on Ukrainian and Russian suppliers for the first stage once those two nations were at war, and chose to reach out to a startup rather than a direct competitor.

It remains to be seen whether this partnership could evolve into an acquisition.

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