The consolidation of major operators is slow in coming
Satellite operator consolidation is a recurring topic at industry conferences such as the annual World Satellite Business Week in Paris.
The potential for consolidation of smaller regional fixed satellite service (FSS) operators was highlighted as a key trend to watch at the WSBW in 2006, recalls Maxime Puteaux, senior adviser at Euroconsult, the organizer of the conference.
Observers expected fierce competition to push some of the 33 geostationary orbit (GEO) operators at the time to merge amid disappointing prospects in the broadcast market.
However, mergers between even small operators have been rare in an industry where nationalist protectionism and one-size-fits-all regulations often hamper deals.
The number of GEO operators has actually increased to 53 since Euroconsult’s count in 2006, Puteaux said, fueled by the creation of national or regional operators with strong government support.
That momentum waned around 2015, and in recent years a wave of non-geostationary orbit (NGSO) companies has been a game-changer for GEO operators of all sizes.
The rise of Starlink, OneWeb and other NGSO broadband constellations has occurred amid a broader shift away from video streaming revenues that have historically underpinned the commercial satellite sector. Data is now widely seen as the engine of growth for satellite operators.
The recent string of major satellite operator mergers “reflects that the shift from video to data use cases is well underway,” says Brad Grady, space industry analyst at Northern Sky Research.
This shows that previously the industry “was not well placed to effectively seize these opportunities”, he says.
French GEO fleet operator Eutelsat and UK-based OneWeb hinted at a future for the multi-orbit industry when they announced plans to combine in July.
OneWeb’s low Earth orbit satellites can provide higher throughput at lower latency than satellites farther from Earth in GEO. The startup’s polar-orbiting network also aims to provide more global coverage than GEO satellites fixed along the equator.
Meanwhile, Eutelsat’s larger and more powerful GEO spacecraft can bring more capacity to densely populated areas.
These hybrid networks have only recently become viable through small-scale user terminals that can seamlessly switch satellites from one orbit to another.
Before agreeing to merge with OneWeb, Eutelsat had already amassed 23% of the startup’s capital to bolster data services as its video business gradually declined.
A similar multi-orbit growth story was painted in November when US broadband operator GEO Viasat announced it would buy UK satellite fleet operator Inmarsat.
However, unlike Eutelsat, Viasat has always been a pure broadband operator.
Its deal for Inmarsat would also provide access to multiple frequency bands and an international presence as ViaSat-3, a group of three GEO satellites that Boeing is building for the company, is set to expand its services globally to the first time.
As for SES and Intelsat, neither will say whether they are discussing a merger that the Financial Times reported on Aug. 4 was in active talks.
But both acknowledged paying particular attention to the ongoing consolidation in the industry.
The satellite industry is “transforming,” said Intelsat spokesman Clay McConnell, “with new capabilities and technologies coming to market.”
Partnerships “bringing together complementary capabilities can drive competition” in the connectivity market, he added.
SES CEO Steve Collar made similar comments Aug. 4 when asked about talks with Intelsat, saying “industry consolidation is a good thing” to help streamline the market.
Intelsat operates a GEO constellation and has been looking to begin a new chapter of connectivity-focused growth since emerging from bankruptcy in February, when the operator cut debt by more than half to $7 billion.
SES is also targeting the growth of data markets with satellites in GEO and Medium Earth Orbit (MEO).
SES acquired its MEO business in 2016 when it merged with O3b Networks – a deal with similarities to the proposed combination of Eutelsat and OneWeb, Grady notes.
He compared Viasat buying Inmarsat to Luxembourg-based SES acquiring US rival Americom in 2001 to expand internationally – one of the few major successful satellite operator mergers in recent decades.
Another notable consolidation deal came in 2006 when Intelsat purchased PanAmSat to become the largest satellite operator at the time.
In 2014, Eutelsat also acquired Mexican satellite operator Satmex to expand its presence in Latin America.
Eutelsat once held a stake in Spanish operator Hispasat and hoped at some point to merge with the company, but was ultimately unable to win favor with the Spanish government.
Although Eutelsat plans to take over OneWeb, the UK government would retain its so-called golden share in the startup under their merger agreement. This means the UK would retain special voting rights for the OneWeb business, which was a key part of the success of merger negotiations with Eutelsat.
THE COVID-19 COMPONENT
Although consolidation and merger and acquisition (M&A) activity has been rare among satellite operators, it has been widespread elsewhere in the industry, particularly among satellite distributors and equipment suppliers.
A pandemic that began impacting global markets in early 2020 also helped push space companies to the deal table.
COVID-19 put “some businesses at risk and opened the door to acquisition” as funding sources dried up, Puteaux notes, highlighting how it contributed to OneWeb’s collapse into bankruptcy in March 2020.
The British government and Indian conglomerate Bharti Global bought OneWeb out of bankruptcy later that year for around $1 billion. That’s a considerable discount for a startup that had raised more than $3 billion for its constellation before collapsing.
The pandemic also pushed Intelsat into bankruptcy in May 2020. The operator emerged almost two years later in February under the control of former creditors.
Puteaux expects “opportunistic” buyers to buy more companies if macroeconomic conditions deteriorate and reduce access to capital.
COVID-19 has taken on “a progressive nature” for the space, says BryceTech analyst Phil Smith, impacting the workforce first, then supply chains.
Some pandemic-related supply chain shortages, such as semiconductors and other electronic components, are impacting multiple industries.
Other supply shortages, including the liquid oxygen used to fight the pandemic early on, are more space-specific.
And while Russia’s war in Ukraine has boosted demand for satellite capacity in the Eastern European region, it has had a negative impact on the industry as a whole.
Ukraine is the world’s leading supplier of noble gases commonly used as propellants for electric satellite thrusters. The war has also reduced the availability of Ukrainian Antonov planes that satellite makers use to transport large spacecraft to launch pads.
“The full nature of these and other activities continues to unfold,” Smith said.
As with the war in Ukraine, analysts also see COVID-19 as a double-edged sword for satellite companies.
As markets begin to recover from the pandemic, NSR research suggests operators are seeing increased demand for backhaul, social inclusion programs and consumer broadband.
“Consolidation leads to increased market power and a more competitive position” to seize these opportunities, said NSR research director Jose Del Rosario.
Before the rapid expansion of Starlink’s broadband network, these gamers thought they could win against the competition on their own. Going it alone no longer seems so appealing to some.
This article originally appeared in the September 2022 issue of SpaceNews magazine.