Satellite industry stokes disruption concerns for telcos — Menon

Arun Menon

The year 2022 was eventful for the satellite mega-constellations. Operators touted aggressive revenue ambitions as they pursued scale and customer base expansion. 2022 was also the year of crises with Russia’s invasion of Ukraine, triggering ripple effects on various economies and industries. The prolonged conflict also impacted the satellite industry, with sanctions and export controls on Russia causing delays and cancelations to the planned launches of many satellites.

Notably, OneWeb incurred a $229 million loss transpiring from the Soyuz launch contract termination by Russia. The batch of 36 OneWeb satellites was eventually launched from India.

On the brighter side, accessing commercial broadband internet through low earth orbit (LEO) satellites became a reality, with SpaceX’s Starlink surpassing 1 million active paid customers. The company is poised to topple the more established peer Hughes Network Systems, which reported 1.285 million customers at the end of September 2022. Starlink’s technology and its flourishing might is propelling the satellite industry’s development at a brisk pace, which has repercussions for the $1.82 trillion (annualized 3Q22 period) telco industry.

Satellite industry stokes disruption concerns among telcos

Multiple new constellations such as Rivada Space Networks and AST SpaceMobile made strides in 2022. India’s largest telco, Reliance Jio, ventured into the satellite broadband segment through a new subsidiary, Jio Satellite Communications. Geopolitics is also driving a space rush as the European Union approved a EUR6 billion ($6.2 billion) investment to deploy its own satellite constellation by 2027, in a ploy to curb dependence on non-European players.

The emergence of several players in the past year along with Starlink’s strong growth has triggered industry consolidation among traditional operators and new space technology companies. Eutelsat's merger deal with OneWeb worth $3.4 billion was the highlight of 2022, following on from ViaSat’s $7.3 billion takeover of Inmarsat in 2021; this latter deal remains under regulatory scrutiny. SES and Intelsat are also reportedly in talks for a merger. All these transactions are seen as ways to counter Starlink’s supremacy, ensure access to capital, and ramp up network capabilities and coverage.

While further consolidation is inevitable compelled by continued macro uncertainty, satellite operators will be forced to explore additional market segments beyond broadband internet as new players emerge and competition heightens. This is worrying telcos as satellite operators look to target and disrupt traditional telecoms.

Satellite-to-mobile connectivity and 5G use cases emerge

In my last post, I briefly discussed how satellite-based telephony services could disrupt telecom in the near future. That became a reality in 2022, in a limited way, when Apple announced an emergency feature leveraging satellite connectivity on its iPhone 14 models. The feature allows users without cellular coverage to send compressed text messages from the device via Globalstar’s satellite network. This year, the feature is being extended to Android smartphones through a partnership between Qualcomm and Iridium.

SpaceX also joined the trend, albeit differently, by requesting the US Federal Communications Commission (FCC) to grant spectrum in the 1.6 GHz and 2.4 GHz bands for the company’s forthcoming Starlink service for smartphone users. Last month, SpaceX filed an application with the FCC to equip its Gen2 Starlink satellites with direct-to-cellular hardware technology. The technology will use a smartphone device’s existing radio for satellite connectivity, simultaneously enabling smartphone users to get voice, messaging and basic web browsing capabilities. If this comes to fruition, it will be a game changer for the satellite industry especially in suburb/non-urban areas, and pose a major threat to mobile telcos.

RELATED: SpaceX’s Starlink kickstarts a satellite broadband market that could disrupt telecom — Menon

Adding to telcos’ worries is the competition posed by satellite operators in 5G use cases such as autonomous vehicles and IoT. For instance, in the autonomous vehicles space Chinese automaker, Geely, deployed nine LEO satellites for navigation, connectivity and communications needed for self-driving vehicles. Elon Musk also confirmed via a tweet that Tesla vehicles will feature Starlink satellite connectivity in the future.

In the IoT space, LEO satellites are particularly well-suited to provide narrowband connectivity, processing signals emitted by connected objects. For instance, in September 2022 satellite operator Sateliot partnered with Amazon Web Services (AWS) to build a cloud-native 5G service to provide customers with reliable narrowband IoT (NB-IoT) connectivity via its LEO satellite constellation.

While these developments are nascent and far from being competitive with what 5G promises in terms of speed and latency, recent innovation suggests that satellites will soon be capable of providing cost-effective connectivity offerings to both individual users and enterprise markets.

Telcos ally with satellite operators

Despite Musk’s claim that “Starlink is not some huge threat to telcos,” it is clear from the developments examined above that some shots have already been fired by satellite operators. As a result, telcos are contemplating the integration of satellite services into their 5G network ecosystem to provide ubiquitous coverage. This is also in line with the 3GPP’s Release 17 specifications that allow for developing systems that link non-terrestrial networks (NTN) directly into the 5G standard.

A few key partnerships exploring this path are already underway. For instance, T-Mobile and SpaceX partnered to connect smartphones on T‑Mobile’s network to Starlink satellites in areas with limited or no connectivity. The partnership is similar to those made by AST SpaceMobile with several telcos, including AT&T, Vodafone, and Rakuten. Likewise, Lynk Global struck a deal with Belgium-based BICS to provide cellular service from its satellites. Apart from partnerships, a few telcos are investing in satellite-based startups – for instance, a joint investment made by Vodafone and Rakuten in AST & Science, to allow 4G and 5G compatible phones to connect to LEO satellites.

While more telco partnerships with satellite operators appear inevitable, all the talk of satellite operators eventually substituting telcos in the long run to deliver connectivity services is nothing but hot air. One key reason is that telecom is a heavily regulated industry and there will be regulatory ambiguity currently around services involving satellite operators. Further, regulatory oversight continues to be a bigger headache for satellite operators who plan to operate at broader global scale compared to telcos.

For instance, SpaceX’s Starlink internet license was revoked in France last year over monopolization concerns. In the US, FCC Chairwoman proposed new rules that would require LEO satellite operators to deorbit satellites within five years of mission completion, instead of the current 25-year guideline. The FCC also created a new agency, the standalone Space Bureau, in order to oversee the industry and keep up with evolving landscape. Obtaining spectrum licenses across the different target markets of an operator is an additional challenge. SpaceX knows it best: in late 2021, it was barred in India from accepting orders for its Starlink broadband internet as it did not have a license to do so.

The next two to five years will be crucial for the partnerships between telcos and satellite operators as both try to capitalize on 5G. Through collaborations, telcos can achieve ubiquitous network coverage but also leverage satellite operators’ network capacity to meet rising data demands. Satellite operators in turn get access to telco ground stations paid for through opex, without the need to build a new hosting facility. All eyes will be on whether the deals translate into earnings and subscriber growth for both sides, and how their relationship will evolve along the journey.

Arun Menon is Lead Analyst at MTN Consulting, with 13 years of experience in strategy and research. He primarily tracks the webscale sector, including the big tech firms (FAMGA), to assess their network infrastructure-related strategy, key investments, and spending pursuits. He is also involved in providing critical insights and analysis in areas such as strategic, financial, competitive, and market assessments. Prior to joining MTN Consulting, he worked in research and consulting roles at Deloitte and Datamonitor. He can be reached via [email protected] and LinkedIn.

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce Wireless. They do not necessarily represent the opinions of Fierce Wireless.