True value of OneWeb bailout?

So we found out new major owners of OneWeb - UK government (45%) and Bharti Global (45%), while old owners retain 10% stake. 

Participation of UK government was a surprise to me. I did expect that some of existing investors would step up, and Bharti Global was pretty obvious investor. One of the largest telecoms, with especially strong foothold in developing nations. For them, original OneWeb mission seems like excellent fit and they represent excellent anchor customer that will use OneWeb primarily as back-haul to extend reach of their mobile networks. For mere 500 million USD, they get simple solution to cover large areas not well covered with infrastructure. So in essence, their investment essentially gives them priority access to whole OneWeb infrastructure, while all other backhaul connectivity supplies (for example SES mPOWER and Starlink) have to invest around 2 billion to build complete network. When using lower available bandwidth, their future costs (per bit) will be comparable. 

So in essence, Bharti is a big winner here. They essentially managed to acquire LEO constellation of sufficient capacity. It will make them more competitive for acquisitions of mobile operators in developing countries.

This acquisition will hurt SES more than SpaceX, since mPOWER constellation targets telecom back haul as one of their main markets. Since Starlink targets initially (rural) subscribers in developed countries, not mobile subscribers or mobile operators, there is a niche where OneWeb could find initial market through Bharti and its 700 million mobile subscribers.

But the costs required to finish the constellation remain obscure. For example, Bharti requested ISRO to help with design of user terminals. Which is a sign that current terminals are either too expensive for production or uncompleted design. It could also secure involvement of Indian government, since their large population seem to be a natural customer base of any LEO constellation. 

But that does not remove the fact that OneWeb requires large investments to complete the constellation. Its price per megabit is going to be much higher than Starlink, maybe even ten times higher. And by the time they plan to enter service (in 2022), Starlink will be operational, with truly mass-produced terminals. Furthermore, marginal cost of additional satellite in orbit is much lower for Starlink, even if OneWeb switches to ISRO GSLV Mk III launchers.

But OneWeb probably could not easily bailout from Arianespace/Soyuz launch contract, as significant part of early launch costs must have been payed in advance. Plus there is unsecured debt to Arianespace of over 238 million USD for upcoming launches (out of 1.1 billion launch contract value in 2015). So we can assume that most of that contract value has already been paid to Arianespace. 

But that is not all. There are disputed convertible debt issues. So legal issues will drag for years ahead. And it is questionable if a billion investment will be enough to complete the constellation. So OneWeb is not a significant competitor to Starlink - except in its home territory - India.

Another surprise was Hughes Network Systems investment of 50 million USD into new OneWeb ownership structure. I thought initially that this was inspired by RDOF auction. Hughes, which mainly operates GEO Internet broadband service EchoStar, is one of the players that has most to loose from Starlink. So OneWeb stake would enable them to easily transition their (unsatisfied) customers to new LEO service. But this defensive move might be too little-too late to counter Starlink. Plus they are likely to be too late to be candidate for RDOF low latency tier funding. 

So OneWeb will likely have some success, but nowhere near the capability of Starlink. Beside low latency and lower (radiated) power requirements, LEO constellations provide another huge advantages compared to GEO satellites. With GEO, single frequency reuse is limited to different positions along the single arc representing the geostationary orbit. But with LEO, a single frequency can be reused on any position on the visible sky, limited only by the elevation angle. LEO really opens a whole new dimension for frequency reuse. Which means that every Hz of frequency spectrum will be much more valuable to LEO operator than GEO operator. 

We can witness that satellite operators have entered a fierce battle regarding frequency use with  FCC and ITU. As SpaceX seems to be heading to large hundred billion valuation, it will obviously going to be the first successful LEO constellation operator. Its valuation is much higher than Viasat (2.4 Billion), Echostar (2.5 billion), SES (4.7 billion), Intelsat (0.1 billion). Essentially, SpaceX can buy off any existing satellite broadband competitor to remove competition. New entrants (Amazon, Samsung) are simply too far behind to prevent a frequency grab.

So that leaves OneWeb. I wondered why would anybody invest into OneWeb out of bankrupcy, since their price per bit should be significantly higher than Starlink. But OneWeb has a priority rights on the world level for 6GHz of spectrum. It uses similar frequencies as Starlink, as it can be seen from their FCC application:

Since it was not clear if any of announced LEO constellations would be successful, the value of that frequency spectrum was not validated. But now we have the numbers: Starlink shall cost around 10 billion, projected revenue over 30 billion per year, market valuation 100 billion (I do ignore other revenue streams from SpaceX, as they are much smaller in comparison). 

Ten billion dollars is the amount of money Amazon reserved for their project Kuiper. They will have reusable launcher, and probably can address any technology edge that SpaceX currently has. There is just one thing they don't have: priority access to frequency bands. So they can move to higher frequency bands (high technology risk)....or acquire OneWeb. 

For SpaceX, their main limitation in the long run is not number of launches or number of satellites. It is number of Hz they can use to stay competitive with wireless broadband and terrestrial networks. Terabit capacity per single F9 launch seems very impressive today, but that will change in a decade. Their total network throughput has to grow. But acquisition of OneWeb frequency rights would ensure priority rights for most of available frequency bands in Ku and Ka band. That alone might be worth several billion to SpaceX if they are successful on the world stage, as OneWeb satellites could (due to interference priority rules) block their access to subscriber terminals. That will not be the problem with sparsely populated OneWeb constellation (of just 650 satellites), but could easily lead to interference problems if they decide to build-up the constellation to 48000 satellites. Due to the overlap of used frequencies, that would lead to bitter problems. 

So a rising tide of Starlink success might indeed lift OneWeb boat too far beyond a billion dollars. How far, we don't know yet.