5 minute read
Why 2024 will be a big year for satellites – and why they need investment
This year may be another landmark year for satellites, especially in low Earth orbit (LEO). Satellite communications, or SATCOM, may see its biggest comeback this year. Developments in this sector have been quickening – and catching the attention and imagination of non-specialists.
Bogdan Gogulan, MD of NewSpace Capital
These days, we have satellites to thank for a great number of things which we increasingly take for granted. Accurate location tracking for instance, which supports logistics, navigation, and traffic management, 5G communications, and more. Precision farming, also enabled by satellites, improves yields, irrigation management, and sustainable farming in agriculture. Satellites track emissions, floods, fires, and other climate events, giving governments the data to take action. Satellites – unseen and, for many non-readers of this magazine, unsung – facilitate much of daily life.
Drivers For Change
There are a number of drivers of these changes, one of which is cloud computing. Driven by demand, cloud revenue is forecast to continue to grow at a rapid rate worldwide in the months ahead. Microsoft took its Azure cloud platform into space in August 2023, showing that satellites have a part to play in the future of the cloud. Amazon’s Project Kuiper, which aims to increase global broadband access through a constellation of more than 3,000 satellites, is set to offer cloud services for Amazon Web Services (AWS) via satellite.
Meanwhile, telecommunications companies and mobile network operators, who have been facing a number of obstacles to growth, are seeing satellites as a possible solution.
Changes in price points and ease of access, as well as the increasing standardization of compliance rules with telco operations, are driving this. Indeed, the convergence of satellite and telecoms is a trend to watch. Satellite players have already started to adopt the standards used by telecoms operators and only cost, which is coming down, has prevented deeper integration.
Then there’s the Internet of Things (IoT). In principle, using IoT, businesses can operate remotely, monitoring devices from a base of operations. But in remote areas, a lack of mobile coverage makes this impossible. Satellites can step into the void, as they already have done for mobile phone providers and other companies, to provide IoT anywhere on the planet.
A Question Mark Over Starlink
Established SATCOM players will be keeping a watchful eye on Starlink, a creation of Elon Musk and a subsidiary of SpaceX. Starlink, which currently has around 5,000 satellites in orbit, has full vertical integration, powerful brand recognition, and a growing customer base. SpaceX can launch Starlink satellites at the lowest possible cost, and so the company can optimize its capital expenditure, which will force Starlink’s rivals to reduce their prices and thus their margins.
But Starlink, despite announcing US$1.4 billion in 2022 revenue – more than a billion more than in 2021 – remains opaque. In brief, it isn’t clear exactly where or how the money is made. Elon Musk’s portfolio of businesses is so vast that money could plausibly be moved around as needed to improve the optics of a certain company. Therefore, it remains too early to say exactly what Starlink’s ultimate market position will be. Certainly, it is a disruptor and it may come to be one of the market leaders. But a highly competitive environment can be expected in the coming years, fueled both by legacy and emerging players alike, with end users likely to be the ultimate beneficiaries.
The Need For Investment
Investment is the engine of growth in just about every sector, and SATCOM is no different. Generous and sustained funding will be necessary if 2024 is to be the Year of the Satellite.
It’s true that investors have become more conservative of late, thanks to the fairly grim economic outlook; but in many ways that has been a good thing. After years of chasing unicorns (and, in some cases, finding they really were imaginary), investors have become more diligent, choosing to direct funds into areas where not only the outlook is positive, but the supporting data is robust. One of these is the space sector.
McKinsey and Co. found that over the past decade, the space sector has seen massive growth in investment activity. Between 2012 and 2021, total annual investment grew to more than US$10 billion, up from just US$300 million. And its LEO ventures have received the lion’s share of the funding from investors, who have recognized the sheer diversity of use cases for low-Earth orbit satellites.
But the opportunity that the space sector presents is so vast, and the rate of growth in the sector so rapid, that more investment is needed. Consider how in 2021, at the end of the period McKinsey and Co. looked at, data could be gathered by satellites and made usable on Earth at a rate of 2.7 terabytes, which isn’t bad. In 2023, it hit 48 terabytes a second. That’s a small indication of how the sector is growing which is why Morgan Stanley’s Space Team estimated that the roughly US$350 billion global space industry could hit US$1 trillion by 2040.
Connectivity, Connectivity, Connectivity
The watchword in SATCOM this year is: connectivity. The industry will be dynamic. There will be disruption. There will be many, many more constellations floating around in the sky above us, serving ever-more customers with broadband access. The established satellite communications operators may have a tough time of things, but many people will benefit for the same reason.
Some questions remain unanswered. Will Starlink blow away the competition? And how sustainable are satellites? But some things are certain too, and one of them is that this year will be a big year for the satellite.
