Sunday, September 10, 2017

SES Bets on New Fleet of Smaller, Flexible Boeing Satellites: Move toward cheaper design reflects industry uncertainty about demand for global internet connectivity

SES Chief Executive Karim Sabbagh, shown in 2015, said the satellites will add capacity and replace some bandwidth now provided by big, high-flying spacecraft.

The Wall Street Journal
By Robert Wall in London and  Andy Pasztor in Los Angeles
Sept. 10, 2017 3:03 p.m. ET

Satellite-services provider SES SA on Monday intends to announce a deal for a new fleet of smaller, easily reprogrammable Boeing Co. satellites, reflecting widespread industry uncertainty about demand for global internet connectivity.

The Luxembourg-based company, the world’s largest commercial communication satellites operator, is opting for a less-expensive, lower-altitude design to seek an edge in the intensifying battle to beam web access to remote regions. SES expects to spend more than $1 billion on the seven Boeing satellites and associated ground systems. Each satellite is projected to cost less than half the amount for the biggest, high-altitude versions.

Like other parts of the satellite industry, SES faces depressed prices for its current offerings and also has been hurt by growing competition from legacy rivals, as well as anticipated challenges from aggressive startups with deep pockets.

The new spacecraft, significantly smaller and more flexible than older models, are slated to be put into orbit starting in 2021. They will be deployed primarily to serve mobile users in developing regions, but with prospects for such markets still unclear, SES seeks to maximize its maneuvering room and reduce capital expenditure risks.

Chief Executive Karim Sabbagh said the satellites will add capacity and replace some bandwidth now provided by big, high-flying spacecraft that need replacement. Indicating that the emphasis on smaller spacecraft built to be swiftly reconfigured in orbit is gaining momentum, he said the constellation will be “radically different” from traditional concepts because it is designed to be “more flexible and scaleable.”

In an interview, Mr. Sabbagh said the principle of smaller satellites, optimized to seamlessly supplement each other as customers and markets change, is “what we have been missing for three decades in our industry.”

The move comes at a time cash flow and profitability for operators is under pressure, so they generally have been reticent to make investments in large, more-expensive satellites that have traditionally dominated the telecommunications segment. Advisory firm Euroconsult says big satellites have experienced a “dramatic downsizing of traditional pricing” for their primary services.

At the same time, an abundance of available bandwidth and questions about the future direction of the market have contributed to a protracted and sharp drop in orders for big satellites, some of which can cost about $400 million to build, launch and insure.

Such procurement contracts have slumped 50% below historic levels, with Boeing and Space Systems Loral, a unit of Canada’s  MacDonald Dettwiler and Associates Ltd. , among the satellite makers that have laid off staff in recent years. Industry officials said manufacturers, SES and a big chunk of its competitors are all considering smaller, less costly models.

Budding rivals are focusing on launching swarms of hundreds—or even thousands—of still-smaller satellites to pipe fast, inexpensive connectivity to remote locations. This increasingly contested segment includes OneWeb Ltd., the startup backed by European aerospace heavyweight Airbus SE and Japanese internet and telecommunications giant SoftBank Group Corp.

Entrepreneur Elon Musk and his high-profile Space Exploration Technologies Corp., commonly called SpaceX, are actively planning to compete. Google parent Alphabet Inc. also has publicly expressed interest in providing space-based web links.

At the same time, long-time rival Inmarsat PLC is positioning its Global Xpress constellation of traditional, high-altitude satellites to connect planes with high-capacity internet. Intelsat SA and ViaSat Inc. also are developing ever larger, more-powerful spacecraft to reduce customer access costs. Yet industry experts increasingly emphasize the benefits of faster connections and enhanced productivity from hybrid constellations such as the one SES favors, featuring a blend of high-earth orbit and lower-positioned satellites.

The company’s next-generation spacecraft are designed to beam highly tailored signals to serve many more but smaller customers, according to Steve Collar, another senior SES official.

Both Intelsat and Canada’s closely held Telesat, another major operator with 15 satellites, have made modest moves to embrace lower-orbit satellites to target similar market segments.

SES, which built its reputation with top-of-the-line satellites hovering 23,000 miles above a specific point on the globe, initially increased its bet on smaller spacecraft last year. It acquired the 49.5% in O3b Networks Ltd. it didn’t already own in a $710 million transaction.

The latest decision doubles down on the strategy of targeting O3b’s network for growth. The additional satellites are being designed to be more powerful than O3b’s existing models, enabling SES to tap fast-growing mobile and transportation markets. “We can build a mobile network in a country without having to lay any fiber,” according to Mr. Collar.

O3b already operates 12 spacecraft with plans to loft eight more in the next two years. Funds for all the satellites already are incorporated in SES’s long-term spending blueprint.

SES last year announced plans to launch a big satellite to provide aviation coverage over busy trans-Atlantic routes. But Mr. Collar said the expanded constellation of smaller spacecraft would cover 80% of the globe.

The market to deliver in-flight Wi-Fi is expected to grow rapidly, with some estimates showing connections to roughly 17,000 commercial aircraft by 2021, versus less than 7,000 today. Some current offerings have failed to attract as many passengers as anticipated, however, largely because they remain capacity constrained and the connectivity is relatively slow.

For his part, Mr. Sabbagh said SES isn’t abandoning big satellites entirely despite the growing investment in O3B. He said the company still plans one-for-one replacements for some of its big spacecraft, which can remain in use for 15 years or more. But he emphasized the downsized versions require only a “fractional investment” of what a traditional fleet would cost.

Original article can be found here ➤

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