Photo: OneWeb

The satellite industry is sometimes difficult to understand. OneWeb recently filed for bankruptcy, letting go of most of its staff, but not long after filed for an expansion of their fleet to 48,000 satellites.

In 2015, OneWeb announced that its constellation would comprise 1,600 satellites, but later brought that total number of spacecraft down to 650 to save on CapEx. Now, while in bankruptcy, the company has filed for 48,000 satellites “to enable long-term flexibility.” Insiders are already having a hard time getting their heads around that. Outsiders must be totally lost.

Here is another head-scratcher. Intelsat, an icon of a satellite company founded in 1964, also went into Chapter 11 last month and is now being criticized for stifling its creditors and investors in pursuit of a cash payout from the U.S. government. In the hopes for a multi-billion dollar payday down the road, Intelsat needs to spend $1.6 billion in the coming years to free up part of their spectrum, which is now designated for 5G operators. How does a company plan to spend that kind of money in Chapter 11?

Both OneWeb and Intelsat seem to assume that bankruptcy is a stepping stone toward a brighter future. They are likely inspired by Iridium, which in 2001 — as a result of a government bailout — came out of a 16-month bankruptcy, relieved from $4 billion in debt and with a $75 million government contract for services as a head start. Today, Iridium is on its second generation of satellites, has well over a million customers, and has launched new services and turned cash flow positive. I’m impressed with the Iridium story and how it now provides unique and relevant services, but it cannot serve as a blueprint for others.

Although it is now in Chapter 11, Intelsat was once an intergovernmental organization, created by politicians who also provided budgets for Intelsat’s engineers who in turn created meaningful solutions. It was a perfect fit — the bigger the budget, the more could be done. This way of working created a culture and defined an ecosystem beyond Intelsat. “Build it and they will come” dominated the industry for many years. 

With the burst of the internet bubble at the turn of the millennium, this credo quickly changed to Jerry Maguire’s “Show me the money!” In 2001, when Intelsat was privatized, a new culture of profits and customers needed to quickly replace the old one of budgets and subscribers. Not just for Intelsat, but for the entire industry.

Fast forward 20 years and you’ll find that measuring success by the level of customer interest, stickiness, and revenue generation is still not a common practice in our industry. OneWeb received massive attention and was believed to have great potential for success. They were able to raise $3 billion dollars. That is great for budget (hence the attention), but it doesn’t say anything about paying customers. For those that worked with OneWeb’s Medium-Earth Orbit (MEO) equivalent O3b, currently part of SES, this was no surprise as O3b still struggles to turn a profit. If they are struggling, then putting more satellites in a lower orbit will certainly not make things easier for anyone.

Now enter the FCC’s $16 billion Rural Digital Opportunity Fund (RDOF). This is a fantastic new budget that operators have laser-focused on. Many believe that OneWeb’s filing for 48,000 satellites is in direct relation to making the RDOF deadline. Does this sound familiar? We can’t help ourselves when it comes to politicians providing money for engineers to build new stuff. If we keep running after budget dollars, be it from the equity market or from the government, without asking the question “Who is going to buy the service and why will they continue to do so?” then we’ll keep seeing big disappointments. No matter how big the budget, if customers stay away things will be over at some point. 

If OneWeb somehow receives part of that money, will the company achieve an Iridium-type comeback? I doubt it. Unlike Iridium, its constellation is nowhere near fully launched and its services will meet heavy competition. Most importantly though, customers are still absent. You’ve built a global constellation covering the entire earth as a solution for a local American problem limited to roughly 1% of the earth’s surface! Even if all rural Americans were to come aboard as customers, turning those limited revenues into profits will remain a challenge. Planning to go beyond and offer broadband world-wide? You then have to consider that you used U.S. taxpayer dollars to offer broadband in Africa and China. Good luck with that in today’s political climate.

There are also those who think that OneWeb’s recent expansion of the filing is part of a grooming exercise for Amazon’s Project Kuiper. With $3 billion spent by OneWeb so far, there are no blankets big enough to cover the entire fall-out of this company. But, Amazon might just be the exception! Having missed out on the first round of FCC filings, the company may in OneWeb have the solution to that big market access headache. 

There are however many things to calibrate: satellites, orbits, altitudes, power densities etc., etc. With OneWeb’s amended filing it may have indeed calibrated one aspect: the number of satellites. Amazon has always claimed that for Project Kuiper their number of satellites would be in the 1,000s, so that might fit now. In that scenario Amazon would gobble up OneWeb like a giant PacMan and who knows what Amazon would spit out when it’s done. It will not be an Iridium type come-back, that much is clear.

Back to Intelsat. Can it get out from under Chapter 11 and pull off an Iridium-like comeback? Yes and no. The company will most likely come out of Chapter 11. Restructuring debt while continuing to serve customers and getting a cash influx in exchange for returning valuable spectrum seems totally doable. However, there are no sticky customers who realize they’re buying an absolute unique service! Intelsat has customers that have been tough on them for a while now, asking for lower prices and threatening to leave. There is a reason Intelsat is in bad shape and a cash infusion will not change that. If, however, Intelsat uses this Chapter 11 period as a time to rethink customer service and come out the other end with better products and a new plan, the company will have a shot at renewed success. Arguably something that should have been done in 2001 when the company privatized, but as they say, it’s never too late!

Whether you are using public money or money from your creditors by coming out of bankruptcy, now more than ever you have a fiduciary responsibility to spend it in places that bring real financial results. Rural broadband services using bent-pipe satellite in lower orbits, heavily limited by scarce spectrum and totally dependent on an elaborate network of ground systems, is no such opportunity. If it had been, O3b would have started printing money a long time ago. While a big budget for satellite broadband may get you started, over time, the terrestrial guys will have you for lunch. 

Those who truly want to solve rural broadband divide should reconsider High Altitude Platform Stations (HAPS). It’s local, much less expensive and highly effective. If you want to build a global satellite constellation, then you better solve a global problem. Secure communications for MNOs, low latency networking for finance, real-time command and control for militaries, disaster relief and recovery for governments, global scalability for oil and gas … there are a ton of opportunities out there that no other infrastructure other than a well-designed satellite constellation can successfully address. Focus on that before spending billions of dollars. 

Ronald van de Breggen is an independent consultant at Route 206, helping technology companies become commercially successful. His latest achievement was securing over $2 billion in customer commitments for LeoSat. Ronald holds a business degree from Nijenrode and a Masters degree from the technical university of Delft, both in the Netherlands. This article was originally published on his LinkedIn.