04.13.20

Solving real problems doesn’t mean bailing out fake business plans

Posted in LightSquared, Operators, Regulatory, Services, Spectrum at 1:41 pm by timfarrar

No I’m not talking about SpaceX and the RDOF auction, I’m returning to a topic I haven’t written about for years (but also provided plenty of opportunities for pointing out the idiocy of some billionaires), that of Ligado.

Over the last year there’s been a great deal of dysfunction at the NTIA, leading to the unfortunate loss of David Redl and what Oscar Wilde might have described as the “careless” loss of Diane Rinaldo. These problems were amply summed up in Redl’s speech a few days before he resigned, where he noted that:

“In this era of competition for spectrum resources, it can be easy to think that we’re in a winner-take-all battle, but that mindset asks us to make false choices that will shortchange America. For example, we don’t have to choose between making more spectrum available for the private sector and sustaining our critical government systems. We also don’t have to choose between terrestrial 5G and satellite services.”

Although it is not the only area where these problems have been manifested (and the fight over the 24GHz spectrum auction was far more important), Ligado has employed its usual lobbying tactics of attempting to secure high level political backing (just like in 2010-11), apparently getting former acting Chief of Staff Mulvaney to push the FCC into drafting an order to approve Ligado’s application last fall (which is why Defense Secretary Esper’s November 18 letter to Chairman Pai was specifically copied to him) and more recently even persuading Attorney General Barr to make the bizarre proposal that Ligado’s L-band spectrum could be used in conjunction with C-band as part of a plan to counter China, which would involve the “United States aligning itself with Nokia and/or Ericsson through American ownership of a controlling stake” in these companies.

Of course this latest business plan is just as much nonsense as the previous business plans presented by Ligado and its predecessor companies in their attempts to persuade the FCC to grant them a license, because other countries are deploying TDD networks in their C-band spectrum for the entirely logically reason that it maximizes the performance of MIMO, and are never going to approve use of L-band uplinks in satellite spectrum in any case. Why would US telcos decide to do anything other than follow suit?

But Ligado’s management has the singular objective of securing regulatory approval and keeping their jobs, rather than actually developing something that would be economically valuable, just like their prior business plans to provide a dual mode satellite-terrestrial network for utilities (despite seamless roaming from terrestrial to satellite mode being impossible), promise rural LTE service using satellite capacity that cost $10,000 per Gbyte, or meet the supposedly “vast global demand” for dual mode satellite phones that turned out to amount to fewer than 2000 phones when Terrestar tried to sell them.

So let’s take a step back. What is the problem we are trying to solve here? Is this really about whether Ligado gets a worthless approval that does nothing to benefit 5G one way or the other? Or is it really what Commissioner O’Rielly’s letter last week asked the President to do, to make sure that the DoD (and other agencies) do not simply get to veto any reallocation of spectrum within IRAC, and instead the NTIA works to properly balance competing spectrum interests, as Redl said last year?

Ligado’s current proposal, that the FCC simply ignore the NTIA’s public recommendation (which was set out even more forcefully in another letter from Associate Administrator Doug Kinkoph last Friday) and “bring an end to…this proceeding“, would make things worse not better. If the NTIA has stated on the record that “We believe that the Commission cannot reasonably reach such a conclusion [that the harmful interference concerns have been resolved]” then the next step is to set up a process to resolve them, not to simply reject this conclusion. Both sides have behaved badly here, Ligado in claiming that there is no harm whatsoever (when some older high precision devices and perhaps even some DoD systems certainly do need to be replaced) and the DoT in claiming that a 200MHz wide swath of spectrum should remain completely unoccupied in order to protect GPS. The US needs an NTIA that works, not an NTIA that is to simply be ignored.

Moreover the idea that the FCC would rush something like this out on delegated authority (which is basically what was being implied by news reports last Friday that an order could come later that day) would repeat the mistakes of LightSquared’s January 2011 approval, which was also approved by the International Bureau on delegated authority, in a ruling which former (Republican) Commissioner Harold Furchtgott-Roth noted “was an unprecedented and surprising development. That they would make this decision at the bureau level and not at the full commission level is just stunning”.

04.05.20

SpaceX and the FCC’s $16B problem

Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX at 11:41 am by timfarrar

Eight and a half years ago, I wrote a blog post that got a lot of attention inside the FCC, comparing LightSquared’s request for a license that would give it a $10B windfall to the relatively small beer of the $535M Solyndra loan scandal. Despite knowing that LightSquared’s promise of an integrated satellite-terrestrial network was nonsense (not least because LightSquared had already told the FCC in November 2010 that the wholesale cost of its satellite data would be $10 per Mbyte), the FCC and White House offered strong backing for LightSquared right up until summer 2011 when political pressures became too great and their support was withdrawn.

Now it appears that the FCC’s LightSquared debacle could be exceeded by an even greater debacle in the satellite sector, because SpaceX is seeking to participate in the upcoming Rural Digital Opportunity Fund auction later this year, which will offer up to $16B of funding over 10 years to service providers that commit to offer voice and broadband services to fixed locations in eligible unserved high-cost census blocks. While the Wall St Journal highlighted competitors’ complaints a few weeks ago, SpaceX has now upped its demands even further, suggesting in a March 27 letter to the FCC that “the laws of physics” dictate that SpaceX should be allowed to bid in the highest performance tiers (which carry the most money per potential customer) because “far from [being] untested or hypothetical, SpaceX has already launched over 360 satellites and demonstrated that its network is capable of offering high-speed, low-latency service”.

That of course is complete nonsense, because the laws of physics aren’t the only factor determining the latency of a LEO constellation, especially one that is (or apparently was in SpaceX’s case) supposed to have onboard processing and crosslinks. For example, Iridium’s latency on voice calls is not actually much better than a GEO satellite network and certainly exceeds “the Commission’s 100-millisecond threshold for low-latency services” (this paper estimated it at “between 270-390 milliseconds”). In fact one should regard claims of extremely low (and improved) latency for Starlink’s current satellites as indicating that in reality some of the most important design features, such as onboard processing, have likely been discarded.

To date SpaceX has certainly not demonstrated anything whatsoever about the performance of its planned commercial voice and broadband services for consumers. Notably SpaceX has still not published details of its terminals (except to advise that the antennas will need mechanical steering, raising the cost significantly), and last year’s testing by the US Air Force onboard a plane did not even use a SpaceX antenna. Moreover, that test did not involve most of the operational elements needed to offer a scalable commercial service, such as provisioning and sharing of capacity between multiple users, because SpaceX simply dedicated an entire satellite to one user terminal.

In particular, SpaceX makes great sounding (but carefully worded) claims in its submission to the FCC that “SpaceX also specifically designed Starlink to provide high-speed broadband service, using advanced phased-array antennas that allow the system to automatically optimize service to certain locations and dynamically adjust its throughput per user” when in fact many features of the supposed “design” have not actually been implemented in practice. While some of those discarded design features, such as crosslinks, are well known, I’m told that to date the satellites also don’t have any ability to dynamically reallocate capacity between beams, because that was apparently “too hard”. Perhaps that’s not surprising, when SpaceX is writing the software itself, rather than looking to companies with actual experience in designing scalable satellite broadband networks, like Hughes and Viasat.

But what is truly outrageous in SpaceX’s submission is the suggestion that the FCC should now let SpaceX participate in an auction to win $16B of ratepayers’ money without ever providing service to a single consumer, because SpaceX has now pushed back the launch date until after the FCC’s planned October 2020 auction date. The latest letter states simply that (even if you are foolish enough to take Elon Musk’s ever-optimistic timelines at face value) “SpaceX will now begin to offer its Starlink broadband service for consumers—first in the United States and Canada—by the end of 2020″. Of course now that Starlink’s primary competitor, OneWeb, has gone into bankruptcy, the urgency of pushing Starlink forward as quickly as possible has diminished (not to mention SpaceX being short of money itself), and why would SpaceX now want to risk consumers experiencing a service that in the early days may not work very well, if at all, before the FCC auction takes place?

But as I pointed out a couple of weeks ago, bidders are not required to actually provide service to any specific number of customers at all in order to receive the RDOF funding, and instead are simply expected to use the funding to subsidize their buildout and make it available. So SpaceX could then take the FCC’s money, never provide service to a single customer that the money was meant to help, and reallocate its capacity to serve other users like the DoD anywhere within the country or even the rest of the world.

Perhaps the FCC and Congress, like the rest of us, are pre-occupied with the coronavirus, and think this issue should not be at the forefront of our concerns right now. But when Elon Musk has convinced many gullible people that Starlink will “catalyze enormous positive change, bringing, for the first time, billions of humans into our future global cybernetic collective” and so it would be “stupid to put one more federal dime into rural broadband when Starlink could solve the whole problem by later this year” it remains possible that SpaceX will be able to get away with this nonsense and walk away with billions of dollars of funding that were intended to help close the homework gap while we are all distracted.

03.21.20

Why SpaceX desperately needs a government bailout…

Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX at 12:36 pm by timfarrar

Over the last couple of months its been interesting to watch the maneuvering by SpaceX as it sought to raise its next funding round, in large part from a range of new investors with little or no knowledge of the satellite sector. My understanding is that the original ambition was to raise well over $1B, to be announced in conjunction with Elon Musk’s appearance at Satellite 2020, and attempt to flatten the competition as OneWeb struggled to complete its own planned $1B round.

SpaceX staffed up in anticipation of this new funding, doubling the staff in Boca Chica in February, which has increased the company’s burn rate even further. According to data disclosed at the time of the November 2018 debt funding round, SpaceX generated $270M of adjusted EBITDA in the 12 months to September 2018, but only by counting hundreds of millions of dollars of customer deposits, such as that paid by Japanese billionaire Yusaku Maezawa for his trip around the moon. As a result it seems clear that SpaceX was otherwise burning cash even in 2018, when its revenues were projected to be $2.5B+. And in 2019, revenues roughly halved as the number of launches fell from 21 to 13 (of which 2 were unpaid Starlink launches). So before the staffing ramp up in early 2020, SpaceX had already been burning over $100M per month in cash, and so far in 2020 four of the six launches have been unpaid Starlink launches, resulting in even less revenue now coming in the door.

In early 2020, a key objective was to raise enough money to last until the end of the year, when SpaceX anticipated that it would receive considerable funding from the DoD (we heard rumors that up to $1B was being sought) and planned to obtain billions more from the FCC’s Rural Digital Opportunity Fund auction (which was expected to start in October and will offer up to $16B of funding over 10 years to service providers that commit to offer voice and broadband services to fixed locations in eligible unserved high-cost census blocks). Importantly, bidders are not required to actually provide service to any specific number of customers at all in order to receive the funding, but instead are expected to use the funding to subsidize their buildout and make it available. While this is a rational approach for a terrestrial network that can only make a return on the investment to the extent that it is then able to win customers within the coverage footprint that has been built out, it makes no sense whatsoever for a satellite system that covers all customers immediately but can then reallocate its capacity anywhere within the country or even the rest of the world.

SpaceX downplayed expectations in February as rumors began to spread about its funding round, telling CNBC on February 21 that it was raising $250M to buy back employees’ shares (an obvious attempt to boost its hiring efforts), while hoping to maintain the element of shock and awe, just as happened in May last year when it launched 60 satellites, a far higher number than anyone had expected. As markets began to teeter, SpaceX had to be content with telling CNBC on March 9 that the company had “authorized” $500M in new shares, but when the Form D was filed on March 13 it became clear that investors had contributed far less than expected, with only $221M contributed to date and the round listed as just $250M. That’s no more than two months of cash burn at SpaceX’s current rate of spend.

Elon Musk’s appearance at Satellite 2020 didn’t go well, and was notable mainly for his comments that “zero LEO constellations haven’t gone bankrupt” and that he “just wanted to be in the not bankrupt category”. His obsession with the problems in closing the SpaceX funding round was also very evident from the fact that he was still tweeting about the market correction when he should have already been on stage.

So it’s hardly surprising that we now see reports that the Commercial Spaceflight Federation is asking for a bailout for SpaceX and other member companies and that Musk has adopted a high risk approach of criticizing the coronavirus as exaggerated and insisting that SpaceX remain open and working at full speed. But what articles suggesting that Tesla has the cash to weather the storm miss is that Musk’s most critical near term cash problem is now at SpaceX not at Tesla.

It’s hard to imagine the company changing course and abandoning either Starship or Starlink, which means the enormous cash burn will continue. However, the recent equity valuation of $36B is now completely untenable (especially if OneWeb collapses, as has been rumored this week), although a several hundred million dollar secured loan might still be a feasible option to tide the company over for several months. Nevertheless, unless Musk is proved right about the coronavirus and the markets improve quickly enough that new funding becomes available to SpaceX relatively soon, or alternatively the US government offers to bail him out (either publicly or with off the books money from the DoD), SpaceX is currently heading on autopilot towards a concrete wall of bankruptcy.

12.12.19

Reality and hype in satellite constellations…

Posted in Broadband, Echostar, SpaceX, Spectrum, ViaSat, VSAT at 4:47 pm by timfarrar

I was surprised to see last month that generally well informed observers like Om Malik were taking seriously (and even describing as “astute”) a blog post by Casey Handmer that suggests Starlink is a “very big deal” that will “catalyze enormous positive change, bringing, for the first time, billions of humans into our future global cybernetic collective.”

In order to justify that level of hype, Handmer claims that each satellite will cost $100K (which could “fall to $20k by the thousandth unit off the line”) and generate $30M in revenue during its five year lifetime, delivering “the ocean of gold needed to philanthropically build a self-sustaining city on Mars”. The first half of this claim is excessively optimistic unless the capabilities of the satellite are dramatically scaled down, which is already known to be the case.

For example, Starlink has abandoned crosslinks, at least for now, and would require a fundamental change in design and deployment in order to accommodate them: placing fragile movable RF antennas (let alone laser payloads which was the original plan) on the corners of the satellites would mean changing the current stacking and non-propulsive deployment mechanism and potentially implicate other characteristics like the stabilization of the satellite bus, due to the need for extreme pointing accuracy (especially for laser crosslinks). And the cost of a single phased array antenna on the ground can exceed Handmer’s supposed $100K cost for the entire satellite, which may be another explanation for why the current satellites are apparently operating in a fixed beam configuration.

But my primary focus is on the second half of the claim with regard to revenue, which is far easier to validate against terrestrial broadband benchmarks. In order to get to his $30M per satellite figure, Handmer assumes that a satellite will generate 100 beams capable of supporting 100Mbytes per second (800Mbps), i.e. a peak capacity of 80Gbps per second, with a loading factor of 100 seconds per 90 minute orbit (i.e. 1.85%) in order to carry 1000 GBytes of data per orbit. This peak capacity is significantly in excess of the figures in SpaceX’s own November 2016 FCC filing (which states an average aggregate downlink capacity of 20Gbps), and that filing doesn’t account for any reduction in capacity resulting from SpaceX being required to share spectrum with other satellite systems such as OneWeb.

However, Handmer’s assumed loading factor could be slightly on the low side (thought certainly not “ludicrously low” as he alleges), if Starlink was able to provide services all around the world. For example, Iridium’s (never filled) capacity for its first generation of satellites was just under 4% of the nominal peak capacity per satellite (1100 calls per satellite x 66 satellites = 38.2 billion minutes, but the system only had 1.5 billion minutes of saleable capacity per year).

On the other hand, SpaceX is planning to ignore the ITU spectrum priority rules (claiming merely that Starlink needs to initiate rather than complete coordination with other systens), which give OneWeb priority access to the NGSO spectrum and may block Starlink from gaining market access in many countries. And the low altitude of Starlink’s satellites, combined with the lack of crosslinks, means that providing services to ships and planes crossing the oceans and poles is not a feasible objective in the foreseeable future.

Combining these two factors, it appears that Handmer’s 1000Gbytes of saleable capacity per orbit will in reality be more like 250-500Gbytes per orbit (i.e. 2-4 times less), based on a peak capacity of up to 20Gbps (downlink plus uplink) and a loading factor per orbit of 2%-4%.

But the more important assumption is that this capacity will be sold at “a subscriber cost of $1/GB”. That figure is ludicrously overstated compared to the cost of broadband today. For example the average usage of Altice customers was 220Gbytes per month back in Q2 2018, while Charter’s median broadband usage in Q1 2019 was 200Gbytes with cord cutters averaging 400Gbytes per month. If we take a typical retail ARPU of around $60 then the retail price is $0.15-$0.30 per Gbyte and with consumer Internet data usage projected to increase by 160% between 2018 and 2022 (according to Cisco) the retail price of data on existing fixed broadband connections will soon be below $0.10 per Gbyte. So Handmer has overestimated the retail revenue potential per satellite for Starlink by at least 20-40 times.

Another, even more critical consideration is that the underlying cost of data delivery over fixed networks is much, much lower than the retail price. Back in 2016, Dave Burstein noted that it cost ISPs less than 1 cent per Gbyte to deliver internet traffic, and that figure is undoubtedly lower today. That’s the more appropriate basis for comparison with the cost of delivery for Starlink (unlike Handmer’s ridiculous comparison with an obselete 14 year old submarine cable, when most domestic internet traffic doesn’t even need to go outside the US), which (using our 250-500Gbytes per orbit figure above) would have a satellite capex cost alone of 0.7-1.3 cents per Gbyte over 5 years.

Then you need to add the cost of the ground segment and backhaul (certainly at least as high as the satellite capex), and most importantly, the cost of the user equipment, which will be much higher than the (less than $100) cost of a terrestrial cable modem and will far outweigh the cost of the satellites themselves. As CNN notes, “ground equipment may pose one of the biggest obstacles to success” and was probably the main reason why previous efforts like Teledesic folded.

Viasat spends $700 to acquire each satellite broadband customer of which roughly $300 is the end user equipment and installation adds another $150. But those are fixed dishes which do not need to track the satellites as they move across the sky. A Starlink terminal could easily cost $1000 or more, even with various compromises to reduce cost (such as narrowing the scan angle, though that will require a very large number of satellites, potentially several thousand, to be in orbit), before adding the cost of rooftop installation, let alone customer acquisition. And if each customer consumes say 500 Gbytes per month, then that will mean 250-500 terminals will need to be deployed to consume each satellite’s saleable capacity, implying incremental terminal costs of at least $250K-$500K per satellite (at $1000 per terminal).

To sum up, Handmer’s assessment that the satellites will generate revenue equal to 300 times their costs is fatally flawed. Even looking purely at retail revenues, then the revenues will be 20-40 times lower than he estimates, while the total system capex costs will be 4.5 to 7 times higher than he estimates (including ground segment costs of $100K per satellite and terminal costs of $250K-$500K per satellite). In the best case (and with unlimited demand!) that means retail revenues will be just over 3 times the capital costs, while in the worst case the retail revenues will only just cover the capital costs, ignoring ongoing operations, service and support.

When looking at the underlying costs of data delivery, it is also clear that Starlink’s costs will be meaningfully higher than the cost of terrestrial data delivery in areas with access to broadband, giving terrestrial rivals plenty of room to compete to retain their existing customer base (and ensuring that additional cost sensitive markets like cellular backhaul will remain out of reach).

So my conclusion is that while Starlink may be a “big deal” for the satellite industry (and for astronomers), it certainly isn’t a big deal for the terrestrial broadband market. In essence, under any plausible set of cost assumptions, Starlink’s bandwidth will cost more than current terrestrial broadband connections, and Starlink’s ability to disrupt a retail market where existing providers have existing infrastructure with enormous gross margins will be very limited. That’s nothing like Handmer’s nonsensical claims that “further launches will be funded entirely by providing better service to high density cities”.

Starlink may provide service for customers with no access to terrestrial broadband alternatives, but the satellite broadband market has fewer than 2M subscribers in North America and 1M users in the rest of the world combined, which Viasat, Echostar and others have spent the last decade trying to serve (and at least in North America have essentially saturated the market). So it seems unlikely that Starlink will do much better.

05.09.19

Backing winners?

Posted in Broadband, Operators, Regulatory, Services, SpaceX, Spectrum at 3:13 pm by timfarrar

I noted a couple of weeks ago that SpaceX was putting the FCC under considerable pressure to approve its April 5 request for Special Temporary Authority to operate its initial tranche of Starlink satellites. However, rather than giving approval for this STA, on April 26 the FCC instead approved SpaceX’s November 2018 license modification.

Buried in this order is a key waiver sought by SpaceX, which is fundamentally different from the authorizations granted to other NGSO players (including Theia, whose license was approved at today’s FCC Open Meeting):

28. Waiver of ITU Finding Required Under Section 25.146(a). In the SpaceX Authorization, the Commission required that SpaceX receive a favorable or “qualified favorable” finding from the ITU with respect to compliance with applicable EPFD limits in Article 22 of the ITU Radio Regulations prior to commencing operations. SpaceX asserts that the ITU will not examine the modified filing in this respect anytime soon and in light of its expedited deployment schedule, requests a waiver of this condition prior to the initiation of service. OneWeb and the GSO Satellite Operators, request that the Commission deny SpaceX’s waiver request. SES and O3b, argue that any waiver grant addresses the timing of the ITU filing and is conferred at SpaceX’s own risk. Given the ITU’s timeframe for examining SpaceX’s modified filing and the fact that SpaceX presents EPFD calculations using the ITU software, we agree that this condition should not deter SpaceX start of operations. Thus, SpaceX’s request for waiver of the requirement to receive a favorable or “qualified favorable” finding prior to commencing operations is granted. We retain the requirement, however, that SpaceX receive the favorable or “qualified favorable” finding from the ITU, and in case of an unfavorable finding, adjust its operation to satisfy the ITU requirements. Accordingly, operations of SpaceX’s system, as modified prior to the ITU’s finding, are at SpaceX’s own risk.

While other systems like Theia are required to receive ITU approval “prior to the initiation of service”, SpaceX has now been given permission to provide service over the Starlink system unless and until a final ITU finding is published. This appears to reflect the FCC’s view of SpaceX as a potential winner in the NGSO race and a desire to enable operations to begin as soon as possible. In addition, SpaceX appears to be receiving strong backing from other agencies within the US government for the capabilities that Starlink is expected to make available.

So next week on May 15, SpaceX plans to launch “dozens of satellites” (perhaps as many as 40-50 from what I’ve heard in Washington DC this week), although it remains unclear what technologies are actually onboard these satellites. It seems that the satellites include a variety of different designs (launching everything “including the kitchen sink”) and there may even be some non-communications payloads onboard.

It appears that the launch will be accompanied by a publicity blitz to set the scene for a major fundraising effort immediately thereafter, with one feature of this PR campaign being SpaceX’s production line in Redmond, described to me as “more impressive” than OneWeb’s factory in Florida. But SpaceX clearly believes that numbers are important, and will be comparing the number of satellites it has launched to the 6 satellites launched by OneWeb in February. So I expect SpaceX’s fundraising target will also exceed the $1.25B raised by OneWeb in March and will include more of the wild predictions we’ve heard for Tesla in recent weeks as well as on the SpaceX fundraising call in early April.

That sets the scene for a race between OneWeb and SpaceX to launch as many satellites as possible in the next 6-12 months: OneWeb is claiming it will be launching 35 satellites per month starting in the fall, and SpaceX is suggesting it may also have 2-6 more launches by the end of the year (helpfully filling a hole in its Falcon 9 manifest as the demand for GEO launches continues to slow, but clearly requiring a substantial financial commitment).

In comparison, other proposed systems like Telesat and LeoSat will be far behind, and even though these systems may have designs which are more optimized for their target markets, it could become increasingly difficult for either system to attract the attention and funding they need to move forward, without backing from major strategic investors. Speculation is likely to focus on Amazon’s Project Kuiper plans, but unlike Elon Musk’s “build it and they will come” mentality, I expect Jeff Bezos is more likely to want to put together a solid plan before committing to spend many billions of dollars on such an effort.

But the most important thing of all is whether investors believe Elon Musk’s predictions and will now throw billions of dollars at his Starlink vision. A shortfall in the amount raised, as seems to have been the case in all of SpaceX’s various funding rounds over the last year, will keep the pressure on the company after a series of costly issues (most notably the loss of the Crew Dragon capsule). On the other hand, if he is able to raise a couple of billion dollars, SpaceX and OneWeb could make this into a two horse LEO constellation race over the next couple of years. So I’ll be waiting with bated breath to see the launch next week and what the subsequent fundraising effort reveals about investors’ confidence in both the project and (more importantly) in Elon himself.

04.08.19

High Times…

Posted in Broadband, Operators, Regulatory, Services, SpaceX, Spectrum at 9:43 am by timfarrar

Last week, on hearing the news of Amazon’s Project Kuiper LEO constellation plans, my immediate reaction was that it looked like “a good way to make it even harder for SpaceX to raise their next funding round”. Unsurprisingly, that turns out to be exactly the situation, because I’m told that Elon Musk held a lengthy conference call with SpaceX investors last week to seek additional funding for Starlink, ahead of the next launch (which has now been announced to be “no earlier than May”).

SpaceX is seeking to complete a near term equity raise (apparently limited to existing investors) at a valuation of $32B, and has made some outlandish claims about the potential for Starlink, similar to (if not even more exaggerated than) the widely ridiculed business plan published in the Wall St Journal back in January 2017, with many tens or even hundreds of millions of subscribers relying on the constellation. Jumping onboard with others, but exaggerating further, Starlink’s flat panel terminal is claimed to be capable of 100Mbps, but will cost only $500 at launch, falling to $150 over time. Moreover, the cost of the 4000+ satellites is said to be around half a million dollars each, including launch, implying total capex of less than $3B.

Meanwhile, Amazon continues to troll SpaceX, hiring the former leaders of Starlink, who Musk fired for wanting “more iterations of test satellites” rather than “cheaper and simpler satellites, sooner” and posting over 70 jobs in Bellevue, WA in an attempt to lure away additional engineers from Starlink facility in nearby Redmond.

So can Bezos derail SpaceX’s satellite internet plans, which may be the last avenue left to raise money for SpaceX, as the demand for launches continues to decline and its backlog nears exhaustion? Are people starting to doubt Elon Musk’s claims? Or does Musk still have enough believers amongst the existing SpaceX investors, including Google, which may have many reasons of its own to push back against Amazon?

UPDATE (4/19): The WSJ reported on SpaceX’s new funding round on April 15, noting that Gwynne Shotwell had expressed doubts over the prospects for Starlink in a February interview (although the outlandish claims I noted above were of course made by Elon Musk in the first week of April, not by Shotwell). It then emerged in an April 17 SEC filing that initial fundraising attempts had been largely unsuccessful, with only $44M out of $400M raised to date, suggesting that SpaceX’s approach, described to me as “you’ve got 24 hours to wire us the money or we’ll get it from someone else”, appears to have backfired.

So that makes me wonder quite how much financial pressure SpaceX is now under. Certainly SpaceX is putting considerable pressure on others, notably the FCC, where it filed on April 5 for Special Temporary Authority to operate its initial tranche of Starlink satellites. SpaceX claims these satellites will be launched in “early May”, despite it not having received approval for the revised constellation plan that was filed in November 2018 and not even specifying how many satellites will be in this “initial tranche”.

Given the complexities inherent in assessing SpaceX’s “iterative design” which will initially “use only Ku-band spectrum” and subsequently “phase the Ka-band antennas back into subsequent generations”, it is hardly surprising that it has taken the FCC some time to make a decision on whether to grant a license modification (indeed the FCC is only now proposing to grant a license for Theia’s NGSO system that was filed back in November 2016). Moreover, the mess that resulted from Swarm’s unapproved launch in 2018, led the FCC to caution satellite launch providers such as SpaceX that “a satellite integrated into a launch vehicle or deployment device without a current FCC authorization may need to be removed from that vehicle or deployment device if the satellite operator’s application for an FCC authorization is not acted upon favorably, or for various reasons cannot be granted within a time frame consistent with the launch schedule.”

So will the FCC bend under the pressure that SpaceX is exerting? Even then, would the launch of a few more demo satellites persuade investors that it’s now worth putting more money into SpaceX to fund a questionable (some would say non-existent) Starlink business plan? Or is this going to end badly, with SpaceX running out of cash to fund both Starlink and its new Starship development projects? Certainly the idea that “the decision to open a second $500M funding round just months after the first also bodes well for demand” (as opposed to indicating that SpaceX is experiencing a cash crunch) seems about as plausible as Musk’s recent suggestion that Starship should be fitted with “giant stainless steel dragon wings”. High times indeed!

11.09.18

The New New Space Thing…

Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX, Spectrum at 5:32 pm by timfarrar

Michael Lewis’s book “The New New Thing” was published the same week as I moved to Silicon Valley in October 1999 and provided a great tour through the landscape at the high point of the Dotcom Bubble, just as his Liar’s Poker was a signature story of the 1980s Wall Street boom. Unfortunately we don’t have anything quite the same about New Space, although Tim Fernholz’s book comes close.

However, just as it was obvious back in 1999 quite how untethered Silicon Valley had become from real world business models, the New New Space industry seems intent on demonstrating the same about the space sector. In recent months I’ve heard about numerous planned nano-satellite constellations that are struggling to raise funding (beyond their $10M or so in proof of concept venture capital) and may run out of money soon, because they simply don’t have a credible business plan.

Looking elsewhere, it seems that 5G IoT and “Armani WiFi” are not really such convincing buzzwords after all (sorry Charlie and Jay), and Ligado’s lobbyists can’t outwit Brad Parkinson’s “fervent ally” in the White House, so some if not all of those multi-billion dollar investments will soon prove to be a complete debacle as well.

But the poster child for the bursting of the bubble can be seen in SpaceX’s increasing frantic attempts to raise money in the face of a rapid decline in launch demand, and increasing competition from Blue Origin, which doesn’t need to make a profit. Firing your bankers because they are nervous about how much additional debt you will take on in the future is a bad sign, and redesigning your constellation to hide its problems seems even more bizarre.

SpaceX’s launch tempo is already falling, with 10 launches now scheduled for the second half of 2018 compared to 12 in the first half, far short of the 50% increase in 2018 launches and medium term 30-40 launches per year that the company predicted only a year ago. So its an open question what the core business is worth, but with $270M in LTM adjusted EBITDA (which counts deposits and excludes some R&D) and a declining revenue outlook for 2019, the valuation of $28B achieved this spring is clearly ludicrous.

SpaceX’s attempts to find new sources of revenue are also proving deeply problematic because the broadband satellite constellation business now appears to be in even more dire straits than the launch business. Recently rumors have circulated that SoftBank is looking to exit from OneWeb (before the next tranche of its $1B equity commitment is due after the test satellites are launched in early 2019), as the system costs increase and questions abound over the size of the market opportunity for satellite broadband. Certainly Masa Son’s attitude to the project appears to have changed dramatically in the last year, from touting satellite as an alternative to fiber, to not even mentioning satellite in a recent lengthy feature on the Vision Fund.

And finally, given the lack of demand for launch services, the need for the BFR now seems highly questionable, except as a vehicle for space tourism. Since SpaceX is likely to have investment needs of $1B+ per year just for BFR and the debt capacity of the company is unlikely to be more than about $2B, it therefore wouldn’t be in the least surprising if the company’s next step in 2019 is to start taking more deposits from potential tourists who want to emulate Japanese billionaire Yusaku Maezawa. In the meantime, soliciting contracts from anyone who might offer a cash deposit seems like another avenue SpaceX will be exploring.

Looking back once again to 1999, it seems quite relevant to note that the first major meltdown (the Iridium bankruptcy) came in August 1999, well before the bursting of the wider tech bubble. And it now appears that there are several multi-billion dollar satellite projects that could suffer the same fate within the next year. What will that mean for investor perceptions? Will incumbents benefit? And which elements of this new technology will prove to be useful in the long run?

09.28.18

Fake it till you make it?

Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX, Spectrum at 1:03 pm by timfarrar

As students of history and those who were there at the time (such as FCC International Bureau chief Jose Albuquerque) know only too well, sometimes a dud satellite can be just as good as a real one for promoters of a new broadband LEO system. Back in February 1998, the Teledesic BATSAT apparently never worked properly (some say not at all), but the launch was instrumental in causing Prince Alwaleed to invest $200M in the company in April and more importantly in persuading Motorola to abandon its own Celestri LEO system and join forces with Teledesic in May 1998, investing $750M for a 26% stake.

So the question now is whether SpaceX is in the same position with Starlink? After all, when basking in the glow of apparent back-to-back successes with Falcon Heavy and Starlink during February 2018, followed by receipt of its constellation license from the FCC, SpaceX raised $500M the following month at a reported valuation as high as $27B, supposedly to develop the Starlink constellation.

And subsequently, SpaceX has been positioning itself to play a role in DARPA’s Blackjack satellite constellation program, which will provide total funding of up to $117.5M to be split between several bidders. Notably, SpaceX filed a new experimental application with the FCC in August 2018 “to reflect additional test activities undertaken with the federal government” and add “two new types of earth stations, one of which will transmit uplink signals to the Microsat satellites first from the ground and later from a moving aircraft”. In that application, SpaceX told the FCC that:

“These experimental engineering verification vehicles are currently engaged in the test regimen as authorized, in order to enable the company to assess the satellite bus and related subsystems, as well as the operation of space-based and ground-based phased array technologies.”

As he looks to secure both DARPA funding (which should be announced in the next couple of weeks) and FCC approval of the new experimental license application, Elon Musk is certainly extraordinarily sensitive to any suggestion that there might be a problem with Starlink. Notably, within a few hours after my previous blog post appeared on September 18, it seems he planted a (rather bizarre) question on Twitter so that he could state that “Starlink should be active by then [2023]“. Indeed, he was so keen to get this assertion out there that the same question was posted twice.

And if we look back to Elon’s previous tweet about the status of Starlink, its hard to believe it was purely a coincidence that this information was released the day after DARPA’s Blackjack solicitation.

But the reality is that the Starlink satellites have not performed in accordance with the plan that SpaceX presented to the FCC as recently as February 1, 2018, when Patricia Cooper told the FCC that:

“As set out in the original application, after system checkouts are performed and the system is evaluated as ready to proceed, SpaceX will engage in orbit-raising maneuvers until the spacecraft reach a circular orbit at an altitude of 1,125km.”

And the original application stated that:

“After system checkouts are performed and the system is evaluated as ready to proceed, the orbit-raising phase of the mission will commence. This segment will last approximately half a year depending on system performance.”

But what has actually happened? Both satellites have remained around the launch altitude of 514km, with TinTin A not showing any meaningful evidence of propulsion since at least early March, and TinTin B not experiencing any significant change in altitude after attempting a few orbital maneuvers. So it seems all but certain that there has been a major issue with the propulsion system onboard both of the Starlink satellites.

When confronted with the rumors of a satellite failure by SpaceIntelReport, SpaceX stated that the satellites “were delivered to their intended orbit, communicated with ground stations, continue to communicate with ground stations, and remain in operation today.” That may all be true, but says nothing about whether the propulsion system has failed.

Unsurprisingly such a failure would put SpaceX in a very awkward position, when there were already many questions about whether Starlink would go forward, not least because the satellites may not reach the correct orbit to bring SpaceX’s ITU filing into use, and the FCC’s experimental authorization was based on the assumption that mission operations would be conducted at 1125km. And if SpaceX cannot build satellites with a reliable propulsion system, that would reinforce concerns expressed by FCC Commissioner Rosenworcel in SpaceX’s license grant that “the FCC has to tackle the growing challenge posed by orbital debris.”

09.18.18

420,000 km. Funding secured!

Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX, Spectrum at 7:32 am by timfarrar

Yes I know it’s only 384,000 km to the Moon, but just like Elon, I decided to round up. After all, it’s apparently “better karma”!

Last night’s SpaceX event raised a lot of questions for many observers, not least because it “caught some SpaceX employees off guard” and was rushed out so fast that some of the promotional imagery was incorrect. However, I suspect that the reason for this surprise announcement was to distract from impending bad news about the Starlink project, namely that the project has for all intents and purposes been put on hold.

We already knew that there was a significant reduction in hiring in early July, but I’m told the cutbacks went much deeper, with a significant fraction of the Starlink team departing. SpaceX was also looking to develop a more concrete business plan for the project in Q2, but I believe it proved impossible to come up with anything remotely close to the ludicrous forecasts from 2016 reported by the Wall St Journal that suggested the project would have over 40M subscribers and $30B in annual revenues by 2025.

Ironically enough, the principal mention of Starlink last night was as a source of funding for the BFR development. It makes no sense whatsoever to think that Starlink will generate profits to fund a $5B+ BFR development between now and 2023, so the only logical conclusion is that money raised for Starlink will now be diverted to the BFR. Another hint that Starlink is going away was the statement that BFR is expected to consume the majority of engineering resources after the commercial crew development has been completed for NASA next year, despite Starlink supposedly costing more to develop than BFR ($10B+ compared to ~$5B) over the next 5 years.

However, without Starlink to support the business plan, SpaceX will face significant challenges in sustaining its reported $27B valuation, as it grapples with an expected reduction from 28 to 18 launches next year, which will very likely cause overall revenues to decline in 2019. It’s also notable that when Viasat decided to contract with ULA (seeking a US launch provider so as to support its upcoming expected request for Ex-Im Bank funding), it reportedly did not even invite SpaceX to bid, presumably because of a lack of confidence in the future of Falcon Heavy (since the upgraded Falcon 9 Block 5 will now suffice for most GEO satellites).

It’s only natural that SpaceX would look for a replacement market that can be projected to generate billions of dollars of profitable revenue, and the company now appears to have settled on space tourism, as previewed by Gwynne Shotwell last week, when she suggested that it “will probably be the majority of our business in the future, flying people” with “7 billion potential payloads“.

However, the critical question is whether investors will remain sanguine about such a dramatic transformation in where over 80% of SpaceX’s future revenues are supposed to come from. Do investors that thought they were investing in the future of connectivity, really want to invest in taking rich people to space? And does the checkered track record of space tourism give them confidence that Elon’s promises will actually be realized, especially as it will take 5+ years and $5B+ of additional investment (even by Elon’s optimistic estimates) before the BFR is ready to transport passengers to the Moon?

03.19.18

Will Silicon Valley go three for three?

Posted in Broadband, Eutelsat, Operators, SES at 4:44 pm by timfarrar

At Satellite 2018 last week it was interesting to note how after dominating some recent conferences, the role that Silicon Valley companies might play in rolling out new global broadband satellite networks was barely even mentioned. That’s probably because betting on these companies to anchor new satellite systems could now be said to have cost two industry leading CEOs their jobs, and it remains conceivable that the same could happen to a third.

Back in October 2015 Michel de Rosen took the decision to step down as Eutelsat CEO after his spectacular embrace of Silicon Valley’s T-shirt culture at Satellite 2015 only led to a modest partnership with Facebook for capacity on Amos-6. Facebook ultimately didn’t invest in Eutelsat’s Africa Broadband satellite and even the initial partnership disintegrated after Amos-6 was lost in the Falcon 9 launchpad explosion. So Eutelsat was left to go it alone with much reduced expectations for its broadband data business.

Then last month, SES announced that Karim Michel Sabbagh was stepping down as CEO, after his decision last year to skip Satellite 2017 because of the “number of exciting things we are working on”. At that time he suggested that “Some of these will come out in early April” but in fact the major announcement was delayed until early September, when SES ordered the O3b mPOWER satellites from Boeing.

In the interim, SES had been working to secure an anchor tenant from Silicon Valley, highlighting its collaboration with Google to provide backhaul for Project Loon in Peru and pointing to its deal with Facebook in Africa as an example of its redefined enterprise market strategy. SES even went so far as to select Boeing’s much more advanced and expensive architecture for O3b mPOWER in an attempt to convince prospective partners that the system would meet their future needs, but was forced to go ahead without the partner that SES’s board had expected to see in order to justify their investment commitment, undermining Sabbagh’s position.

Now it appears that Telesat is seeking partners for its own NGSO satellite project, which its CEO was very bullish about at Satellite 2018. We hear that Telesat may also be looking to Silicon Valley for an anchor tenant commitment to its new system, which it hopes to announce in the next few months. However, I have to hope that Dan Goldberg is not placing all his eggs in that basket, or else he may end up being the third satellite industry CEO in a row to suffer from the inability of Silicon Valley companies to commit to major investments in satellite connectivity projects.

« Previous entries Next Page » Next Page »