Geopolitical Bickering Threatens to Spill Over into Satellite Broadband Mega-constellations
A geopolitical storm is brewing around the sale of OneWeb, a Low Earth Orbit (LEO) broadband operator. For the UK government, this represents a regulatory headache. For the industry, this may mark the beginning of a further geopolitical divide.
On the 27th March, OneWeb, a UK-based satellite internet company, filed for Chapter 11 bankruptcy. Four months later, on the 2nd July, it will auction off its assets, should a buyer not be found beforehand. Details regarding potential bidders have already begun to emerge, and the inclusion of two Chinese companies with alleged ties to the CCP has prompted alarm amongst certain circles in the UK’s parliament, particularly members of its new Tory-formed China Research Group (CRG).
The auction may well prove to be politically contentious. The CRG’s Chair, Tom Tugendhat, recently also launched a Foreign Affairs Committee inquiry into the Foreign and Commonwealth Office’s role in regulating the foreign acquisition of UK assets. Further, fears have been building in the UK and Europe about the possibility of foreign entities hoovering up their distressed strategic assets amidst the COVID-19 crisis. These developments may mark just the beginning of broader geopolitical tensions surrounding Low Earth Orbit (LEO) broadband constellations.
The background
OneWeb is one of several companies aiming to provide LEO broadband via a large constellation of satellites. While satellite and constellation designs differ between companies, the general goal is constant throughout: to operate tens to thousands of satellites in LEO, beaming data across the world to user terminals (which have yet to be produced). Should reliable, low-cost user terminals be developed, these systems will provide broadband internet where physical connectivity is either impossible (e.g., on boats and planes) or in cases where building ground infrastructure is prohibitively expensive. This is already done using smaller constellations of Geostationary (GEO) satellites, however, LEO systems generally allow for far lower latency.
OneWeb intended to launch a 650-satellite mega-constellation, providing connectivity in the Ku band. OneWeb Global Limited is registered and headquartered in the UK. On the basis of its spectrum licence in the UK, the company is subject to UK regulation and also collaborated closely with the UK Space Agency. However, it maintains a web of global subsidiaries and affiliates, and manufactured its satellites under a joint venture with Airbus — OneWeb Satellites — registered in the US. This means that the company’s assets, including its satellites in orbit, IP, 50% stake in OneWeb Satellites, and various spectrum licenses fall under different regulatory jurisdictions.
OneWeb entered bankruptcy proceedings with the stated aim of pursuing “a sale of its business in order to maximize the value of the company.” However, a full sale may yet prove difficult. OneWeb’s most valuable asset is its various spectrum licenses. These are subject to complicated usage agreements under FCC and ITU rules, which mean the rights are conditional on launching its satellites within definitive timelines. In practice, some analysts predict this could mean that any potential buyer would face the daunting task of launching up to 360 additional OneWeb satellites within as little as two years in order to maintain some of its licenses. Anyone willing to launch and operate OneWeb’s full constellation would also be greeted with the $7.5 billion plus price tag estimated as the upfront capital cost to launch its full constellation.
A contentious sale
Nevertheless, several potential buyers have registered their interest, albeit with no firm commitments and no indication as to which of OneWeb’s assets they are interested in. These include familiar faces such as Eutelsat and Amazon, as well as Cerberus — a private Equity group — and two unnamed Chinese companies. The latter have turned heads in Whitehall. Especially now, UK parliamentarians are acutely sensitive to the acquisition of domestic technology that is deemed strategic.
The UK’s regulatory bodies have relatively weak FDI powers compared to their European and American counterparts. Germany, for example, tightened its laws in 2018 to allow the Ministry for Economic Affairs to intervene in any investment in defence, cyber, or ‘critical infrastructure’ above 10% of voting rights of a company. This followed several controversial incidents including the foreign acquisition of prized robotics firm KUKA in 2016, and the attempted acquisition of a 20% stake in 50Herz, a grid operator, by the State Grid Corporation of China (SGCC).
Meanwhile, in the UK, under the 2002 Enterprise Act, the Business Secretary may intervene in an acquisition on the grounds of national security if UK turnover of the company in question exceeds £70 million or the merger results in a group accounting for 25% of supply. In 2018, the £70 million threshold was lowered to £1 million in cases where the company being acquired is involved in “the development or production of items for military or military and civilian use (‘dual use’).”
The law allows little scope for intervention by the UK government and has fallen under criticism by MPs. In 2019, the government announced a new National Security & Investment Bill, which promises far broader powers for intervention by the UK government in asset sales to foreign entities. Recently, calls have arisen for greater powers still, following the launch of an inquiry by the Foreign Affairs Committee into the role of the Foreign and Commonwealth Office (FCO) in blocking foreign asset stripping in the UK. Recent evidence submitted for the inquiry by LSE IDEAS, the LSE’s foreign policy think tank, notes “the new [regulatory] regime will locate such decisions more clearly in the context of power relations between the UK and its adversaries and allies.” This points to an increased role of the FCO in informing the intervention in asset sales, given its role in the UK’s diplomatic relations and “worldwide knowledge of the policies and ambitions of other powers.”
Therefore, should one of the two aforementioned Chinese companies put forward a winning bid for OneWeb’s assets, this would almost certainly meet the criteria for intervention under the desired regulatory regime. However, under the current regime, it is far from clear whether the UK government would have any grounds for intervention. Some IP owned by OneWeb, as well as its satellites, would arguably fall under the UK definition of “dual-use”. However, as a venture-capital-financed start-up, if OneWeb did not generate at least £1 million annual turnover, the company (as far as this author can see) would not qualify for intervention by the Business Secretary.
Some assets, such as OneWeb’s 50% stake in OneWeb Satellites, or its FCC spectrum rights, would fall under US jurisdiction, who could block the sale through CFIUS, the US’ powerful foreign investment watchdog. However, should a Chinese company put forward a winning bid for any of the company’s UK-registered assets, this points towards a situation where many in Whitehall would like to see the government intervene in the sale of OneWeb’s assets, but the regulatory remit may be limited to a review of its UK licence. At its core, this highlights that the UK’s regulatory regime for FDI is ill equipped to handle complex situations like this. In other words, things could get messy.
The UK faces tough choices
In Germany, when the government found itself unable to intervene in the sale of the aforementioned 20% stake in 50Herz to the SGCC (regulations at the time put the threshold for intervention at 25%), it resorted to putting forward a higher bid through the KfW, a German state-owned bank. The UK may need to resort to pulling off a similar stunt to keep OneWeb’s assets in Western hands, in lieu of regulatory means. It could, for example, take up a request by OneWeb to provide it with a state-backed loan to tide the company over until it can secure further financing. OneWeb has promised to move all manufacturing to the UK if it were to do so. The government could also resort to leaning on one of the private American buyers to put forward a higher bid.
Complicating matters somewhat is the fact that the UK government is not the only party wringing its hands over OneWeb’s auction. A few days ago, the US Space Force made clear its express disapproval of the sale of OneWeb’s assets to a Chinese company. Given its strong polar coverage, the US military had been considering OneWeb as a potential partner for more robust connectivity in the Arctic Circle, and the company’s bankruptcy and sale of its assets to a Chinese company would represent the loss of a strategic provider to what many consider a geopolitical rival. This means that, if the UK government does not act to prevent OneWeb’s assets falling into Chinese hands, the US government may (though details remain unclear as to how this could happen).
The UK government may therefore face a difficult choice. Should it choose to take a direct interest in the company and prop up OneWeb through a state-backed loan, this would create distortionary forces to international competition. This is due to the fact that saving OneWeb would likely come at the expense of US-registered SpaceX’s Starlink, its main competitor, who one can imagine may not be distraught over OneWeb’s bankruptcy. Additionally, the commercial benefit to the UK would remain unclear, and the decision would by necessity be largely political. On the other hand, were it to do nothing, the UK may be put through the humiliating experience of having the US swoop in to compensate for its regulatory dearth. Whatever the final outcome is, one thing is becoming increasingly clear: This may only be the first time LEO mega-constellations are marred by geopolitical controversy
Telecoms, meet geopolitics (again)
The geopolitical uproar around 5G telecommunications infrastructure has been making headlines for several years. While the debate has largely been framed as one around security, the policy argument has, at its core, been geopolitical. Firstly, China is seen as a strategic rival by several Western countries, and many governments simply do not trust a Chinese company to supply next generation telecommunications infrastructure. Secondly, since 5G is seen as a strategic technology that will unlock new commercial applications and markets, domestic — or at least ‘Western’ — control over the relevant infrastructure is considered desirable. The countries that provide such infrastructure may reap direct commercial gains, and, more importantly, establish themselves as standard-setters in the new playing field.
Reasons exist to suspect that LEO broadband constellations will be subject to many of the same arguments. Among the major planned mega-constellations (excluding commercial IoT constellations and existing voice & data providers such as the Iridium NEXT constellation), the majority of projects are either Chinese or American (see Table 1). SpaceX, is the clear frontrunner, with 422 satellites already launched. However, hot on its heels are (at least) three Chinese companies. Two are the well-known state-owned China Aerospace Science and Technology Corporation (CASC) and China Aerospace Science and Industry Corporation (CASIC). A third is a private company and a relatively new entrant: Galaxy Space. All have prototypes in orbit and both CASC and CASIC plan to launch further satellites for their Hongyan and Hongyun constellations in 2020.
SpaceX benefits from its high levels of vertical integration, allowing it to launch its own satellites. Similarly, both CASC and CASIC manufacture and launch their own vehicles, the Long March and Kuaizhou rocket families. Domestic private Chinese satellite companies such as Galaxy Space may also benefit from subsidized launches. While Chinese companies on the list have lagged behind SpaceX and OneWeb in the mass production of LEO satellites, considerable effort is being poured into ramping up production, with China’s first manufacturing base for commercial space activities currently being built in Wuhan. The bottom line is that China’s LEO broadband projects will likely catch up, and they will do so quickly.
In some areas, LEO broadband service provision will remain reasonably uncontroversial. For example, an early use of China’s LEO constellations may be in the provision of broadband internet to its domestic airlines and maritime industry. In cases such as these, it is highly unlikely that customers in developed Western democracies would utilise satellite internet infrastructure launched and operated by a Chinese company; certainly not SOEs with historic ties to the PLA. In aerospace, maritime and military use cases, therefore, Chinese constellations will serve Chinese clients, and US constellations will serve US clients.
However, if the technology matures, and affordable user terminals are developed (still a big ‘if’), tensions may arise over service provision to a less clearly delineated user group: The ‘other 3 billion’ individuals on the planet not yet connected to the internet. Details remain hazy as to how exactly LEO constellations will provide internet to largely low-income, rural populations. However, as costs decrease and integration with terrestrial networks increases, the barriers will fall, if only for providing better service in already connected regions. For example, considerable efforts are on-going both in China and the West to integrate satellite internet systems with terrestrial 5G infrastructure. This could allow for the provision of 5G connectivity in remote regions that would otherwise settle for poorer service.
China, as one of the world’s great space powers, is already a notable provider of space-based infrastructure to countries in the Global South. There is limited space in the market for LEO broadband providers, and a shakeout looks likely for the companies in Table 1. If OneWeb’s assets are purchased by either a US or Chinese company, therefore, the world may see the emergence of a US-China duopoly in LEO broadband infrastructure. Should this happen, any country choosing to utilise LEO systems to provide connectivity for its domestic population will be making an inherently geopolitical decision. For example, (purely theoretically) one could imagine a US administration putting considerable pressure on a Latin American country to integrate its 5G network with SpaceX’s Starlink constellation to provide connectivity to its rural population, rather than CASC’s Hongyan constellation or Galaxy Space.
The geopoliticisation of LEO broadband is in nobody’s interest. The phenomenon will only add to global tensions and will likely harm international efforts such as the mitigation of space debris. This will be bad for the space industry, which could benefit from more multilateral efforts to ensure its success. It would also be bad for countries hoping to benefit from LEO broadband. These would be forced into making geopolitical choices for decisions that should only factor in the benefit to their own populations. Therefore, while OneWeb’s auction is a headache for the UK government, it may also mark the unfortunate beginnings of terrestrial squabbles creeping into low earth orbit.
