By December 5, 2019 Read More →

LeoSat shutdown is only a minor setback for the industry

News broke that LeoSat has laid off all of its employees and shut down as investors backed out of their commitment to the megaconstellation operator. While this seems to be a negative development, it is a minor setback and the business can make a comeback, should it gain the confidence of the same or new investors.

So how is it a minor setback for the small-satellite market? LeoSat tried to create a high-performance LEO-based system, aiming at HTS from low Earth orbit, which could provide seamless high-throughput connectivity to top organisa-tions around the world. While technically feasible, this is a rather cost-intensive effort compared to the likes of OneWeb.

Achieving high throughput is possible, but doing it from LEO is going to be a challenge as the platform will be relatively expensive and many such units will be required to realise the system. LeoSat had announced 78-108 satellites. With the initial investment being on the high side, the waiting time for relevant ROI will also be longer.

This means the investment needed will have to be sizeable, sufficient and allowed to sit in the market longer before the returns come in. The business model was primarily aimed at corporations, trying to provide high-performance connectivity to the established members of the industry. While the system could have supported other customer groups, it has positioned itself to target the top industry participants. With the global slowdown, the likelihood of sustainable commercial success from top corporations seems fairly low.

This brings us to the place where it becomes imperative to discuss the levels of uncertainty operators have to face in funding these new mega-constellations before they become operational. Every time the industry observes a new segment of products and services entering the market, the new players enter in a climate of uncertainty and immense competition from incumbents. It is just more pronounced for the new players in the small-satellite market.

OneWeb is a different case where the joint venture partners are solvent enough to support the business, but they chose to let the new business evolve on its own terms and efforts. This indicates the level of confidence the JV partners have.

Right now, the small-satellite market is observing a rising demand for dedicated launches where, very soon, the predominant demand is going to be from connectivity players as megaconstellations start materialising. The Earth observation community of small-satellite operators has already gone past the early entry phase and is now in a well-laid-out growth phase. The constellation sizes are relatively smaller, but they are expected to grow as the definition of persistent surveillance changes.

According to the small-satellite database that was last published, 873 small-satellites launched between 2015-2018, of which 499 were commercial small-satellites. If we only consider those operators with an established history of launch, the cumulative demand forecast between 2019 and 2029 stands at 9,961.

The overall number, including the other operators that have yet to launch, is significantly larger. This indicates that the small-satellite market isn’t going anywhere, and it is only going to grow further. As for the mega-constellation operators, those with cheaper entry plans will gain the confidence of the wary investors and make the initial disruptions before proceeding further with other evolutions and advancements.

LeoSat has shut down due to lack of investment, but it is not the end of the road. This is not the first time that a small-satellite business has taken a step back. It should be noted that times have changed and the megaconstellation operators will have second chances coming their way, provided they are ready to revisit their plans and accommodate the investors’ concerns and expectations.

It is a big market dependent on small-satellites after all. The setbacks will only make them more resilient to financial uncertainty.

Author Arun Sampathkumar is industry manager for space at Frost & Sullivan

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