News indicates 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.
Here’s how it is 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 organizations 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 realize 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 lower; however, this idea will need more time and market evidence. This combination of ambitious upstream capability and downstream business model might have raised concerns among the investment community. To be fair, the top managements of the investment firms are going through changes that have been attributed to the sudden reversal of the decision to fund LeoSat.
This brings us to the place where it becomes imperative to discuss the levels of uncertainty operators have to face in funding these new megaconstellations 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, especially those in the connectivity domain.
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 in the business. Besides, they already serve as the safety net in case such funding surprises hit the business.
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 materializing. 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.
Frost & Sullivan research has been publishing multiple databases covering the launch demand and value chain insights. According to the small-satellite database that was last published, 873 small-satellites launched between 2015-2018, of which 499 were commercial small-satellites. Also, based on the data captured by the Frost & Sullivan consolidated satellite launch database, 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 megaconstellation 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. If you would like to speak to Arun Sampathkumar, kindly contact Jacqui Holmes on [email protected].
