The satellite industry is undergoing a transformation under pressure from different fundamental trends. Below are some of my observations after I attended Satellite 2024 in Washington, DC last week. The topics discussed at the event, the products on display on the exhibition floor, and the type and background of attendees provide some clues on major trends.
The macro view
Many speak of the satellite industry in terms of “old space” – referring primarily GEO satellite operators – and “new space” which refers to newer trends. These newer trends trace back to the entry of SpaceX into the industry and the innovations it brought in both launch services and LEO satellite design, manufacturing and operation. However, there are factors that equally impact both old space and new space. This includes geopolitics and financing in the first order, followed by regulations among other factors.
On the financing side, there are delays in investments in new projects. The capex-heavy and debt-laden satellite industry is highly susceptible to the vagaries of a high-interest rate environment. Moreover, there is no shortage of capacity in the industry which increases competition among the service providers. This helps to drive prices and profitability lower, and will force greater consolidation in the industry.
While funding new satellite constellations and projects is becoming increasingly difficult, GEO players have been reinventing their services to face the challenges from new-space companies and changing customer requirements. There are different trends that highlight this, not the least of which is the transformation to provide managed services over the past several years. In all, there are good opportunities for consolidation in the satellite industry, as already been happening in the recent past (e.g. Viasat acquisition of Inmarsat; Eutelsat and OneWeb merger to create a multi-orbit value proposition which resonates in the industry; HawkEye 360 acquisition of Maxar Intelligence RF Solutions; BAE Systems acquisition of Ball Aerospace for $5.5 billion; and L3Harris acquisition of Aerojet Rocketdyne for $4.7 billion).
Geopolitics and government impact
Unlike the premier mobile industry event – Mobile World Congress – that is global in nature and features ecosystem players from across the world, Satellite excludes Chinese players (not to mention Russian!). There is also a strong presence of government agencies including the US military and their associated agencies, which is in line with the heritage of the satellite industry. In the past few years, different type of players entered the satellite industry, especially those from the mobile industry following the integration of satellite services into 3GPP standards. At Satellite 2024, about 30% of the attendees are new to the event.
Satellite service providers see governments as a key customer. Both old space and new space companies see a necessity in tapping government contracts, which they view as a significant part of future revenues. Government spending trends, both civilian and military, will have a major impact on the satellite industry. Along this comes different requirements for product/service features and performance requirements. For instance, cybersecurity becomes a critical issue that has an impact of the type of communication layer employed by the satellites (e.g. favoring optical over RF connectivity).
Another effect of geopolitics is that LEO constellations could retrench to become a regional play as each global power or block of countries will want to operate its own constellation. There will be a Chinese constellation in space, and Russia also has its own plans. This will be good for countries in the Global South who will have more options to choose from.
New market opportunities
One cannot escape the number of companies exhibiting antennas for aircrafts which is more abundant this year than in years past. All types of satellite operators are chasing opportunities in this market segment which is viewed as a new frontier. The market size is on the order of 3-4 billion captive passengers per year. In my view, abundance of capacity and low prices will help this segment to take off. We already see many airlines offer free texting service. As prices drop, passengers, who are highly sensitive to pricing, will increasingly opt to get online during their flights. While many aviation services rely today on GEO satellites, LEO satellites with inter-satellite links will increase capacity and be in a position to provide un-interrupted service across the globe.
Additional market opportunities are being enabled by the small form-factor of user terminal. This is one important element of Starlink’s success. The event featured the use case by John Deere of connecting agricultural machinery to Starlink satellites. I would add that the entire model of packet-based (IP/Ethernet) services is a critical enabler for enterprise services.
NTN and 5G integration
Non-terrestrial networks is an important theme at satellite conferences (3GPP NTN Standards won the Via Satellite Technology of the Year Award). However, the direct-to-device market is perplexing many ecosystem players for different reasons. A chief reason cited by some players is that performance remains unknown which consequently makes it challenging to define a business model and pricing the service. [We have completed a technical performance assessment of AST – see here].
Another confusing aspect to many mobile network operators is the variance in approaches that different D2D constellations have adopted. This is making some mobile network operators to wait and see how things will play out. I would also add that the industry needs harmonization in the regulatory framework. Spectrum coordination between satellite and terrestrial players is critical, especially in countries that are small or where spectrum is licensed at a regional level.
Catching the AI wave
Surprisingly, there was not a lot on AI at Satellite 2024 (although the organizers tried to include it!). Hardware usually dominates software at satellite trade-shows. A handful of exhibitors advertised something with an AI component (such as AI-based solution to guide customer support personnel).
When asked about the use of AI in satellites, the responses closely resemble those of mobile network operators. Satellite operators say they are using AI primarily in operation and management activities. Some cite the [future] use of AI in managing beams and network capacity.
Technology evolution
In contrast to AI, virtualization is advancing in the satellite industry. I am in the camp that believes the satellite industry is lagging the mobile industry in both technology and business models. For example, the GEO satellite companies undertook providing managed services only relatively recently.
Just as the mobile industry is learning from and following the lead of the cloud service providers, the satellite industry is following the lead of the latter two industries. Virtualization is alive in both the ground and satellite segments. The integration of 5G technology into satellite networks is one aspect that’s driving virtualization. However, the need for flexible satellite platforms is another un-related reason.
A side note since I mentioned the ground segment: terrestrial integration for satellite operators is a bottleneck that’s slowing down the integration of both networks (ground stations, backhaul and peering which require tight partnership with telcos and CDNs). This is where large constellations such as Kuiper would have an edge over the smaller satellite players.
Concluding thoughts
There are many aspects that I did not cover – the advancements of optical communications especially for inter-satellite links, issues related to spectrum management, launch technologies, new alliances and business models, and many others. Nevertheless, the key takeaway is that the satellite industry is undergoing a significant transformation under the impact of financial, geopolitical and technical shifts. These transformative forces will undoubtedly shape the industry’s trajectory in the years ahead.