Future of Space-Telecoms
Starlink, a project by SpaceX aimed to build the broadband satellite constellation for a space-based internet communication system, is expected to provide low-cost, high-performance access to the Internet for entire Earth. It may sound crazy but the Starlink satellite internet service is expected to provide for SpaceX a revenue stream, sufficient to fund Mars colonization projects.
A few years ago this whole endeavour would sound impossible, though as for today it looks like SpaceX has all the company need to realize Mr Musk’s vision of space communications: investors, technology and the US government permits. Moreover, there are already appeared a number of competitors on this seemingly venturous space broadband market:
- OneWeb (SoftBank Group, Qualcomm Technologies, etc);
- Project Kuiper (Amazon);
- LeoSat (Telesat);
- “Athena”, PointView Tech (Facebook);
- Boeing and others…
Satellite broadband communications market already has its incumbents, such as Viasat ($1.6B revenue in 2018). With ARPU of $71 and a subscriber base of 576 000 users company already makes $0.6B a year from its satellite B2C services. Rest of the revenue rest upon two segments: $250 — commercial networks and $790M — government systems. One notable thing is that Viasat 32% EBITDA is comparable with the figures for classic telecoms (~30% for AT&T, Verizon and Deutsch Telecom), which may imply that satellite telecom business economics doesn’t differ much from traditional telecoms.
According to the United Nations report, 3.8 billion people on the Earth are underserved in internet connectivity. With the proposed global internet penetration of 80% by 2025 allowed by space broadband, world internet user base may reach about 5.44 billion users (population older than 10 = 6.8 billion). This implies a broadband market increase of 1.06 billion users.
Assume, that with an average annual broadband tariff of $40 ($3.3 a month) and expected target user base of 4.2B people, satellite broadband communications market will reach $168B a year by 2025 — that’s a significant figure that explains investor’s interest in new satellite broadband technology. Serving clients developing countries may require lowering a tariff, but still, the market of $120–150 billion dollars a year may stand, given additional revenue streams for satellite telecoms from corporate and government sectors. Taking into account the Viasat B2C revenue stream proportion of 37.5% as a benchmark, the entire World communications target market may approach $450B a year by 2025, which makes a strong argument for venturing into “space communications” business.
Recalling recent forecast by Mr Musk on Starlink revenue of $30–50B by 2025, it makes for 7–11% of the satellite broadband market figures, we’ve just come up with. With an approximate initial investment of $10B and a target valuation of Starlink $72B (my estimate) in 6 years, investors may hope for 20–25% ROI (depending on purchased equity share). Following this logic, it makes no surprise that so many companies have rushed to corner the emerging market.
An important implication of this connectivity space-race is an effect on traditional telecoms and digital service industry as a whole. Increase in the competition of internet-providers will run tariffs down, making it even more important for telecoms to compete in digital services. The telecom strategy of building service customer-focused ecosystems is aimed not just to increase ARPU, but to amplify the switching cost for the user.
Will investments in service ecosystems and industry shaking partnerships build a barrier sufficient to defend traditional telecoms customer base from a new generation of connectivity service providers? — it’s a subject for debate. However, it is clear that in the near future the telecom business will become venturous and exciting once again.
