Satcom Industry Soars over Economic Turmoil

There are several economic factors influencing operators in the Satcom market. Chiefly, these factors are tied to escalating geopolitical issues, economic headwinds, and supply chain issues.

• Geopolitical Issues: These have had a major impact on the Satcom industry and Satcom operators’ ability to launch. Notably, one week after the Ukraine invasion, Russia held 36 commercial satellites owned by OneWeb hostage on the launch pads. This marked the beginning of new barriers to the global space industry and the Russian launch embargo, which stranded nearly 200 civil space and commercial satellites (or 2 years’ worth of contracted launches). Several operators were impacted, including OneWeb, the European Commission, the European Space Agency, and Axelspace, to name a few.

• Supply Chain Adaptation: COVID-19 exacerbated some of the existing problems with the Satcom supply chain. Chiefly, there has been underinvestment in the space and Satcom supply chain relative to other industries, and the supply chain shock from the pandemic hit harder than other industries. Notably, the growth in using a massive number of satellites for a network (constellations) has also introduced new supply chain considerations, as the quantities of components required on a regular basis have increased. In this respect, the industry is facing similar supply chain challenges, particularly from semiconductors, which large-scale manufacturing like automotive and consumer electronics are experiencing. Alongside this, new technological developments, such as specialized components, are posing challenges as the inventory of key components is moving rapidly through the supply chain. These factors have impacted Satcom companies throughout the supply chain with significant lead time increases and forced many operators to adapt designs and contracts.
• Inflation and Energy Prices: The industry is starting to see the effects of inflation kick in with higher Capital Expenditure (CAPEX) and Operational Expenditure (OPEX) related to launching new satellites and operating services. Furthermore, Ukraine's conflict has driven higher energy costs, which have impacted the finances of Satcom operators.

Satcom operators have been facing a bottleneck of sorts. The sudden restriction from Russian launch pads, the ongoing semiconductor shortage, and inflation have created industry financial pressures and pushed back launch schedules. This has prompted Satcom operators to relocate their launches, adapt designs for missing components, increase prices, and increase contract timelines (new contracts, renewals, the start of service, etc.). 

• Geopolitical Impact: This development has few short-term winners, as commercial and national space launches have shifted away from Russian launch providers. While operators like OneWeb have been able to work with SpaceX to enable launches, nearly all launches are booked in 2022, and many operators are still left with unfulfilled launch contracts. This shows issues related to a capacity crunch in launch services for satellite communications. This bottleneck will inflate launch costs and impact the cost to consumers and operators alike. In the long term, the increase in using affordable and reliable launch services from companies like SpaceX and Blue Origin reflects a pivotal shift and expansion of more reliable commercial satellite and cargo launch services in the west.

• Supply Chain Impact: Satellite launches are being delayed because of skilled labor and material shortages. Specialized components like Radiation-Hardened (rad-hard) electronics, which consist of components like circuits, transistors, resistors, diodes, capacitors, Central Processing Units (CPUs), and sensors, are becoming difficult to source in the appropriate quantities, as these are essential for extending the life expectancy of the ever-popular Low Earth Orbit (LEO) satellites. The parts shortage has also prompted operators like Viasat to adjust their designs to work around component delays, instead of waiting for lead times. The parts shortage has created delays in production, but the impact of the pandemic has pushed back the start of service for many new systems by 1 to 2 years.
• Inflation Impact: SpaceX has raised prices for its products and services, including rocket launches and Starlink subscription costs, citing “excessive levels of inflation.” Alongside the increasing costs of energy and the decrease in global launch pad availability, financial pressures are mounting and forcing operators to adjust pricing. As a result, the industry is starting to see a gradual increase in prices for both the consumer and enterprise segments.

More now than ever, the Satcom industry is showing that it is primed for growth and here to stay. While the pandemic and increasing geopolitical tensions have tested supply chains, budgets, and schedules, the industry is showing its resiliency and adaptability. In this respect, the industry is quickly accelerating with 1) market consolidation of major players; and 2) integration of Non-Terrestrial Networks (NTNs) for space-borne 5G broadband. The market consolidation aspect could be seen, in part, as a consequence of the many economic factors influencing the industry, as many companies are now merging portfolios, infrastructure, and supply chains to remain competitive in existing business lines and tapping into new ones.

Consolidations like the OneWeb and Eutelsat merger, Viasat and Inmarsat merger, and rumored SES and Intelsat merger are showing that players in various orbits with established infrastructure and customer bases are taking the field to compete in the satellite broadband market. Starlink’s recent announcement with T-Mobile to provide connectivity directly to phones in dead zones via cell tower emulation not only shows a direct competition to Lynk and AST Space Mobile, but the beginning of a major partnership between terrestrial telcos and NTN satellite companies for 5G and beyond.

To this end, telcos and Satcom operators have much to gain from an expanded partnership in the 5G ecosystem. Satcom is integrated into The 3rd Generation Partnership Project’s (3GPP) broader objectives of delivering versatile network connectivity for diverse applications of 5G. This versatile arsenal of wireless infrastructure solutions, consisting of 5G terrestrial and satellite, can better equip operators to deliver inclusive broadband services to urban, underserved, and unserved populations—a number that ABI Research estimates will grow to 330 million premises, equivalent to 1.3 billion household members by 2026 as part of the Serviceable Addressable Market (SAM) potential for the global Satcom industry.