Webscale and transmission network operators' interests are aligning as the 5G era dawns
Satellites play a major role in the development of telecommunications infrastructure but LEO satellites orbiting closer to the earth don’t have a stellar track record in terms of creating sustainable businesses.
Companies like Iridium and Globalstar show that while the technology is sophisticated and effective, profits don’t automatically follow. But the satellite industry continues to push forward, and several companies plan new LEOsat constellations to deliver broadband internet coverage on a global scale. Instead of working separately as many GEO satellites at higher orbits do, LEO satellites work together to send beams to/from each other, improving coverage.
In one example, entrepreneur Elon Musk, has filed plans for a LEOsat constellation as part of his SpaceX venture. Is this an idea whose time has finally come?
Latency: destroyer of deals
For global stock markets and its legions of investors and traders, speed has become everything.
The telecoms industry leap-frogged fixed lines, and the securities industry is well past the days of traders yelling at each other as they wave paper slips. Ten milliseconds of difference in a single trade execution is critical. It’s a major competitive advantage worth millions to participants and billions to the organizations which provide platforms and infrastructure.
That’s why the first signed-up customer for the (yet to be created) low earth orbiting satellite constellation to be launched by the LeoSat Enterprises start-up is a financial trading company with a global footprint.
Taking business to the stars
For Mark Rigolle, the Luxembourg-based chief executive of LeoSat Enterprises, the fact that such a significant (but still anonymous) financial sector player has “signed a contract in its own blood” is a huge boost for Rigolle’s fledgling company, and a positive sign that its business model can find resonance in the 21st century market.
LeoSat has signed a number of MoUs and is in discussion with potential future customers in the government sector-with agencies responsible for security, intelligence and military operations. They’re also talking to large telecoms players and major corporates in sectors such as energy.
These are early days for LeoSat, which is barely out of startup mode. The company is in the process of raising $100 million in Series A funding and has an ambitious final vision: a constellation of 78 LEO satellites-which could grow to as many as 108. To make this a reality, Rigolle and his team must raise around $3.6 billion.
The plan is to begin the first launches of Thales-built satellites in 2021, and to begin offering services from 2022.
“Every morning, the timeline advances by one day,” says Rigolle. “Despite having a detailed business plan and specifications with our manufacturer, the timeline shifts to the right every day.”
Rigolle has a track record of success in this area. As chief executive of O3b networks, he helped raise $1.2 billion for the satellite service provider. But O3B used Medium Earth Orbit (MEO) satellites, which have a different (and perhaps lower-risk) profile than the lower orbiting devices of LeoSat.
Rigolle views raising the money as the hard part. The rest of the LeoSat project is “totally doable” and he strongly believes in his business case. Investors and potential customers are interested, and he notices the “light bulb moment” when people begin to understand the possibilities.
“We talk about our unique attributes and after 5-10 minutes, regardless of how much negativity there is towards satellites, you see the lights coming on in their eyes,” says Rigolle.
“You can see them thinking ‘if this existed, or when this exists, I’ll be able to do this and then this’, so the idea is getting some traction.”
To explain LeoSat’s offering and its differentiated advantages, Rigolle has created the acronym “CURLS” to explain the company’s pitch to users.
‘C’ is for capacity, as he says the 78 satellites will trump other providers for capacity.
‘U’ is for the “truly ubiquitous” nature of the coverage.
“Capacity and coverage from the LeoSat constellations will be as good at either of the Poles as it is on Wall Street or the middle of the Sahara,” says Rigolle.
‘R’ is for redundancy. “No satellite system has redundancy like we do,” he says. “We have up to six satellites in view of any of our customers and we can route traffic to other satellites if need be.”
“We can deploy very rapidly. If you want to run fiber, it takes forever unless you happen to be on a fiber route. We can put you online in hours or-in the worst case-a few days, and give you 2-3Gbps.”
‘L’ is for latency. “There is no satellite system existing or planned [except for ours] that can offer Singapore to London in 190 milliseconds,” says Rigolle. “That is about 40% faster than the fastest submarine cable, because light travels faster through space.”
The ‘S’ in CURLS stands for Security.
“There is no way this can be hacked,” claims Rigolle. “Our security is close to absolute.
“A remote site can only be brought up onto our system once it has been identified,” says Rigolle. “You can’t put a dish 100 meters from someone else’s and start capturing their data, because it won’t be recognized.”
“And each of our packets will be delivered to us in whatever encryption standard the customer wants, and then we will put it in another envelope which is encrypted again. It will be fully secure because both of those layers will be stacked on top of the other.”
Over-provision is a good thing
After detailing LeoSat’s points of difference and comparative advantages, Rigolle concedes that he is yet to meet a customer who values all of the attributes in his CURLS acronym.
“It’s true that nobody needs all of these features,” he says. “But if you are a financial trading house you want the [lack of] latency, because it’s crucial to your business. If you’re a general in the Pentagon and you’re flying drones in Afghanistan you’ll like the [lack of] latency, and also the security, because you don’t want other people to see what you are seeing.”
High-end players targeted
A core strategy of LeoSat’s business strategy is to have thousands of premium customers-not millions. This means that the targets are the world’s largest corporates, top government agencies, and national embassies who currently struggle to send data securely.
Military operations are changing rapidly through the use of global surveillance and drones, and LeoSat’s ability to “move huge amounts of video from one side of the planet to another in just over 100 milliseconds is a game changer.”
“Operational people don’t have to be close to the war zone anymore,” says Rigolle. “The military continues to want more data and needs to move it around rapidly, so we’re seeing a lot of traction in this market.”
Banking, payment, and retail industries struggle with a developing crisis over the secure storage of clients’ personal information. LeoSat offers a secure alternative where prioritized and highly sensitive data can be separated into a different layer of traffic, appeasing regulators and reassuring customers.
Then there is the telecoms industry, and the coverage needs of major network operators. The US National Science Foundation has also invited LeoSat to respond to their Request for Information for broadband data communications requirements in the South Pole and throughout the Antarctic continent.
LeoSat sees mobile back-hauling as a lucrative part of its business, but gap filling in the broadband market is the cream on top of the business model, and is not at its center.
“Where there is abundant fiber we probably won’t compete,” says Rigolle, “but where there is not enough population density I can’t see 5G being built out in the foreseeable future.”
“But there are population areas of low density where people have purchasing power, so we can provide alternatives for telcos and help them avoid fibering up, so in that situation we can provide a capex avoidance play.”
The satellite industry, says Rigolle, has historically been worried about overbuilding capacity, but in a world of ever-expanding data and new user cases for connectivity he is confident, LeoSat won’t fall victim to the problems of the past.
He points to O3b’s success in finding clients and justifying the $1.2 billion it has spent as an example of where the industry is going.
“What happened in the past is what I call the ‘pork belly cycle’,” he says.
“Farmers raise more pigs when the price of pork meat is high, but [there are] too many pork bellies [on the market], the price plummets and people say they will raise beef next year.”
Rigolle concedes that these swings were problematic in the past, but “now there’s a lot of market expansion and a lot of market creation. So if there’s anyone out there who might lose some business I think it will be the terrestrial operators.”
While much of 5G remains undefined, a key component is latency. This, says Rigolle, will play to LeoSat’s strengths. “A big part of 5G is reducing latency,” he says.
“So if you look at the backhaul side of things, and compare 500 milliseconds on a GEO satellite, that doesn’t really cut it. If you go up and down on one of our beams that’s 16 milliseconds, and that’s an attractive proposition.”
Old names, new hopes
Victorian-era railways were technological triumphs, but they created a wave of bankruptcies from founding companies who found that revenues didn’t meet projections.
This led to a wave of consolidation and assets changed hands at fire-sale prices, until eventually the numbers started to add up and investors saw a return.
Fast-forward to the final decade of the 20th century when the names Iridium and Globalstar were plastered across the tech wonders of the age. Both companies experienced a similar bankruptcy cycle and now, twenty years after their foundation, are set for re-introduction.
The story of Iridium’s original failure is a spectacular one. It was a $6 billion investment which went into Chapter 11 bankruptcy in the US in 1999 after only nine months in business. The people involved were famously dubbed “Iridiots.”
A masterpiece of technology created by boffins from Motorola, the problem was the business case. The phones cost $3,795 and were so big they were called (among other things): “a Dumpster on a Mercedes engine.” Calls would cost upwards of $4 a minute. When then-US VP Al Gore made the first symbolic call to a descendant of Alexander Graham Bell, his voice was garbled beyond recognition.
But Iridium’s universal coverage has saved the lives of mountain climbers, and their service is used extensively by the US Navy-which often finds itself outside of areas with conventional coverage.
Today, Iridium is launching new satellites to replace the 66 original satellites it sent up two decades ago. Purchased out of bankruptcy for a mere $25 million in 2000, it has quietly changed its strategy from the mass market to corporates with activities in remote locations, such as the mining, maritime, oil, and gas industries. It has also found that gap-filling for operators with predominantly terrestrial infrastructure is a limited business model.
The new Iridium constellation of 70 satellites is being launched by Elon Musk’s SpaceX, with the first of ten going into orbit in January. The company is also taking back maintenance responsibilities from service provider Boeing, with many employees set to cross over to Iridium.
Globalstar has followed a similar, if less spectacular, trajectory. Founded in 1991 as a joint venture between Qualcomm and Loral, it went into bankruptcy in 2003 and re-emerged in 2006. Since then, it has launched another eight first-generation and 24 second-generation satellites.
It’s a long way back financially for Globalstar. In FY2016, revenues were a modest $96.9 million, with an operational loss of $2.9 million. Fluctuations in liabilities from derivatives exposure pushed the company to a net loss of $132 million.
Despite this, the stock analysts like Globalstar, and are predicting good things. Another example, perhaps, of a company whose time has finally come.
LEO, MEO or GEO. Where’s the advantage?
The altitude of the orbit gives satellites particular characteristics and advantages, which are not always conflicting and can be complimentary.
To define the three types:
- LEO or Low Earth Orbit satellites, in an orbit of between 100 to 500 miles from earth.
- MEO or Medium Earth Orbit satellites, in an orbit of between 6000 to 12,000 miles.
- GEO or Geostationary satellites, in an orbit of up to around 22,000 miles.
The big divide in the debate is between LEO and GEO. MEO satellites are considered the happy medium between the two, balancing cost, coverage and latency issues. Like LEO satellites, they orbit the earth up to twice each day.
The major advantage of LEO satellites is that they can provide significantly lower latency. Because they are continually on the move, LEO satellites are often over unpopulated areas, and this means that greater capacity needs to be put into a LEO constellation than is used for the services.
This has been an issue in the economics of LEO in the past. Small LEO satellites are cheaper to produce and require far less power, but more of them are required, which neutralizes some cost benefits. GEO satellites require bigger rockets and more fuel to get to their required altitude.
Low orbiting constellations are more difficult to operate and control, and complex frequency co-ordination.
A stationary GEO satellite covers a particular region, while a constellation of LEO satellites working together would be needed to deliver the same coverage.
LEOs have been deployed in constellations which have focused on ubiquitous global coverage, while a single GEO satellite covers only a defined area. GEO satellites are also out of range of the Earth’s Poles, meaning that ships and aircraft and researchers in Arctic and Antarctic areas cannot use them.
An advantage for GEO, is that a single satellite can begin to deliver revenue from launch, while LEO systems require multiple launches to create a functioning constellation.
Satellites from different constellations can also work in a complimentary way. LeoSat and Globalsat are both LEO players, but in December they signed an agreement to work together to market what they claim will be the fastest, most secure and widest coverage HTS (High Throughput Satellite) data network in the world.
And there’s no shortage of satellite launches of all kinds planned for the future. The Indian Space Research Organization set a new record when it successfully launched 104 satellites in a single launch earlier this year. Around 50 launches of all types of satellites are slated for 2017.
This article was first published in Telecom Asia May-June 2017 Issue
Matt Walker / MTN Consulting
Webscale and transmission network operators' interests are aligning as the 5G era dawns