Satellite innovation surges, but risks abound

TLDR version: Satellite innovators are launching a range of direct-to-handset satellite connectivity services. Coupled with the recent revelation that Starlink now has 95,000 customer in Australia alone, it seems satellite services are booming. This will create opportunities for a rethink of the Universal Service Obligation. But satellite capex is high, and satellite systems are notorious for bankruptcies. We need to see proven business models before satellite can be trusted to shoulder the USO burden.

Satellite connectivity coming soon

The market for direct-to-handset satellite connectivity services is becoming increasingly crowded. Apple’s announcement last year that the new iPhone 14 would support emergency satellite communications brought this development to public consciousness, but a range of operators are now announcing new services.

Speaking at an Asia Pacific Satellite Communications Council (APSCC) webinar last week, satellite communications company Lynk announced that it will offer an SMS roaming service outside partner telcos’ terrestrial network footprints within a few months. The service is based on LEO satellites, and doesn’t require specialised handset, which cuts costs for users.

GEO satellite services are also playing a role. Bullitt Group, a specialist in ruggedised mobile phones, launched new satellite-capable devices days ago at Mobile World Congress in Barcelona, equipped with two-way satellite messaging technology, location sharing and SOS assistance using the Inmarsat and EchoStar geostationary satellite networks. They also launched a Bluetooth-enabled satellite “hub” that can connect any Android smartphone to satellite messaging for around $250 per annum. The Bullitt service will be available in Australia by the middle of the year.

Industry veteran Iridium is working with chipset provider Qualcomm and a lot of handset vendors to support satellite connectivity. Smartphone vendors Honor, Motorola, Nothing, Oppo, Vivo and Xiaomi announced at MWC that they would add satellite capabilities to their phones via Qualcomm’s deal with Iridium.

Starlink uptake exceeds expectations

Starlink is less about handsets than semi-nomadic broadband. It surprised many (including us) when it recently announced it had 95,000 active services in Australia. It announced in December that it had over 1 million globally (which suggests that Australia is a major market for Starlink). Its decision late last year to halve upfront equipment costs may account for the surge in uptake.

However, that 1 million does not make the company profitable. As Elon Musk recently remarked Starlink is still cashflow negative, and the history of satellite industry is littered with bankruptcies. Notoriously, Iridium went through bankruptcy after burning through US$5b in cash in the 1990s.

Elon Musk tweet, 5 October 2022

Source: Twitter

Why does this matter?

These satellite innovations may deliver geography-independent services that could solve the growing digital divide between metro and regional communities in Australia and New Zealand. The prospect of a commercial solution that supersedes the complex and costly USO arrangements is attractive. How real is it?

The technology is advancing in leaps and bounds. Lynk is upbeat about future connectivity, expecting to see multi-megabit speeds to handsets within three to four years.

The real issue is the business models, and whether the revenues involved can justify the level of capex required. The rollercoaster history of satellite communications should give us pause.

Speaking at the APSCC webinar, Iridium CTO Greg Felton stated that “Right now there’s a lot of investment and a lot of different ideas being tried out and most of them will fail. Most will eventually run out of money because they won’t be able to generate enough cash flow to keep getting investments. With the cost of capital going up we’ll probably see that sooner rather than later”. The sector also has significant spectrum allocation to overcome. Felton argued that the business uncertainty would persist until 2030.

Elon Musk can take big bets on the future of satellite, but policy-makers must be more cautious. The promise of satellite is real, but must be qualified before it becomes a candidate for USO delivery – or even a substitute that makes the USO redundant.

This means we won’t be seeing much appetite for USO reform in the next few years. Although current USO arrangements are a legacy of a different industry, they’ll remain in place until satellite business models are proven either in or out.