Amazon’s Kuiper, SpaceX’s Starlink, and OneWeb are three of the next-generation of low-Earth orbit (LEO) satellite constellation projects that are currently being developed and all of them promise to deliver low-latency, high-speed broadband connectivity to unserved and underserved communities around the world. And like some of the previous LEO satellite systems that made their debut more than 20 years ago, at least two – Kuiper and Starlink – have impressive backers with deep pockets.
However, after spending many years early in my career writing about the ups-and-downs of Iridium, Globalstar and Teledesic, I’m pretty skeptical about the long-term viability of these new LEO systems and I found that many experts agree with me.
Here’s a quick rundown of three of the new LEO systems that I hear about the most.
OneWeb has been around the longest but it has struggled financially and just received federal bankruptcy court approval for its sale for more than $1 billion to the British government and Indian telecom firm Bharti Global. This sale will allow OneWeb to emerge from bankruptcy. Bharti and the British plan to continue with OneWeb’s deployment of LEO satellites. The company has launched about 74 satellites so far and it planned to deploy at least 650 satellites. It had hoped to launch its service commercially in 2021.
Perhaps the most high-profile of the new LEO ventures is SpaceX’s Starlink. The price tag on Starlink’s constellation of satellites is reported to be in the $10 billion range. The company eventually plans to deploy thousands of LEO satellites and deliver 1-Gig service around the world. Currently, it has about 700 LEO satellites in operation. Elon Musk, SpaceX’s CEO, revealed on Twitter a few days ago that StarLink will soon launch a beta test of its service in the northern United States and southern Canada with more countries to follow as soon as StarLink gets regulatory approval.
Amazon’s Project Kuiper is the newest entrant into this mix. The company just received FCC approval for its plan in late August. Amazon has said it plans to deploy 3,236 satellites, deliver satellite-based broadband across the U.S. and will invest $10 billion in the project.
Enormous price tags
These systems have a few things in common – multi-billion-dollar price tags and a desire to provide broadband to areas where terrestrial networks are lacking. According to a McKinsey & Company report published earlier this month, satellite technology has made advancements in the past two decades and demand for broadband has increased. The COVID-19 pandemic, in particular, has exposed the vulnerability of the millions of people that are underserved or unserved by existing broadband networks. With so many people working and learning from home, broadband access has become a necessity for every household.
However, McKinsey also noted that companies that are planning large LEO satellite internet constellations, such as Starlink and Kuiper, need to reduce their costs significantly if they want long-term viability. It also said that the development, manufacture and launch of these types of projects are slow and take a long time to go from concept to reality.
Challenges are significant
In a recent CoBank report on rural broadband, the company noted that the broadband market is robust and that investors are targeting rural operators and wireless internet service providers (WISPs) with investment dollars because the COVID-19 pandemic has made it clear that broadband is an essential service for Americans. However, CoBank’s lead economist Jeff Johnston said in the report that the company remains skeptical about the LEO satellite market and its prospects for benefiting from this trend. “Despite the deep pockets behind the LEO satellite broadband networks, we remain skeptical that these heavyweights will be able to disrupt the terrestrial broadband market,” Johnston wrote.
That sentiment is echoed by Dan Hays, principal with PwC. Hays noted that while the technology has improved and LEO satellites now can use cheaper components and are smaller and more efficient, they still struggle with latency and antenna size on the terrestrial devices. But even more important, said Hays, is that the business model for these LEO systems is still very troublesome.
In particular, Hays said that the market is shrinking. “LEO systems are trying to solve the problem of unserved communities and households … But where are those households?”
Hays said that the majority of those underserved households are in rural communities with no broadband options or what broadband options that are available are not economically feasible. “The number of households is dwindling with the continued expansion of terrestrial cellular networks,” he said.
But there might be some societal benefits to providing broadband to parts of the world where connectivity is non-existent, such as Sub-Saharan Africa. “We think satellite broadband could be a potential solution for those areas, but not at an individual level,” Hays said. Instead, companies might want to consider setting up connectivity for a group of households or a village where the connectivity can be shared.
Serving up satellite broadband to the underserved seems like an unrealistic goal to me. However, Hays notes that companies like Amazon may have a bigger goal. In other words, providing connectivity alone may not be profitable to Amazon but by connecting the underserved or unserved, the company will likely be filling its coffers by feeding its retail business with many more potential buyers.