• Is Big Tech Looking To Steal More Than Half Of Telecoms’ Internet Market?

Is Big Tech Looking To Steal More Than Half Of Telecoms’ Internet Market?

12 July 2017

By Christian Goetz | 10 July 2017

Big tech companies are taking to the skies, as the market for small satellites keeps growing. Their ventures could revolutionise internet access – but hold potential dangers for telecommunication companies.

“In a sense these projects are a threat to telecoms – especially in areas that are less developed, infrastructure-wise. That includes growing markets like parts of Asia and Africa. However, I will be interested in seeing if they can compete with existing broadband / mobile offerings in places already covered by traditional technologies,” Christian Göetz, Partner at Corporate Finance BDO Germany and telecoms industry expert, says.

Today, the answer to that is a definite no. A few years from now, a couple of new projects might make it an even fight.

Going above Google and Facebook

According to UN figures, half the world’s population does not have regular internet access. This statistic is a big part of the reason why we have projects like Google’s Loon and Facebook’s Aquila. The math behind the projects is straightforward: give people internet access and you expand your potential market.

Two new projects are looking to one-up Google and Facebook by going even higher. SpaceX and OneWeb both plan to wrap the planet in a blanket of low orbit satellites delivering global internet infrastructure. That takes many satellites. Space X’s project alone involves more than 4,000, each weighing around 390 kilogrammes and the size of a VW MINI car. The satellites will fly in an orbit around 1,100 to 1,300 kilometres above earth’s surface.

M&A rumblings

Following the ‘smart money’ shows that several big companies are betting that these ventures become successful. Airbus, Coca-Cola and Virgin Group have invested $500m in OneWeb. The company plans to launch 648 of its satellites by 2019. SpaceX has received a round 1 billion dollars from the likes of Google and Fidelity. It also plans to launch its first satellites by 2019. Satellite start-ups are also receiving funding. Matrix Partners China’s $14.5 million investment in TianYi Research Institute, a Chinese commercial microsatellite start-up, illustrates that interest in small satellites is not just a US phenomenon.

Space market research and consultancy company NSR projects market revenue to grow alongside launch rates, with a cumulative $7 billion in manufacturing and launch revenue by 2025. According to NSR senior analyst Carolyn Bellethere has also been increased M&A activity.

“A combination of new satellite operators acquiring existing players and existing players making moves to consolidate market share and access to diverse data sources are driving forces. The market has also seen analytics companies being acquired by satellite operators as the operators seek to develop a robust data platform. These trends are expected to continue as competition heightens,” she says.

Examples of such deals include Urthcast acquiring DeimosSpeedcast acquiring WINS and Planet acquiring RapidEyeand Terra Bella.

‘Speeding’ through space

The main advantage of delivering internet through space is doing away with the need for expensive infrastructure like mobile phone masts and miles upon miles of cables. Instead, a broadband signal can be beamed down to phased-array antennas mounted on a wall or a roof and from there onto the users.

The kicker, according to SpaceX at least, is that your ‘space-internet’ will likely also be faster. The company plans to deliver internet connectivity with speeds of up to one gigabit per second. This dwarfs the global average internet speed, which according to a recent edition of Akami’s ‘State of the Internet’ report, is 7 Mbps second — around 150 times slower.

Time for telecoms to worry?

So do SpaceX and OneWeb’s satellites, as well as Google’s balloons and Facebook’s flying wings ‘just’ want to ‘steal’ half of telecom’s potential future market – internet connectivity for developing countries and / or rural areas? Or are they aiming for much more?  

When looking at where the satellites are heading, and what a company like SpaceX is saying about its plans, answer could be ‘much more’. It is talking about the skies over North America, and SpaceX has explicitly mentioned a wish to give people in urban areas the option between their services and those delivered by other internet providers, like big telecoms companies.

That should be worrying for telecoms, as internet connectivity is becoming an increasingly important cornerstone for their service portfolio, as the demand for traditional services like landline phones dwindles. Furthermore, they are probably still smarting from the memory of what companies like Skype and WhatsApp have done to their phone and messaging revenue.  

Explosion to limit fallout

However, I do not think that the new competitors should necessarily worry telecoms. The main reason is the speed of so-called exponential technologies, like driverless cars, AI and robotics. There is a lot of justified talk about how they are about to revolutionise our societies, jobs and daily lives. Something that sometimes gets lost in the conversation is that they are almost all heavily reliant on internet connectivity. As these technologies keep evolving, so does our need for that connectivity.

“In many ways the low Earth orbit communications constellations proposed would be complementary to existing telecom infrastructure, both satellite and terrestrial. As data demand continues to balloon and remote areas become connected, a blending of terrestrial, LEO, MEO, and GEO networks will be required to optimally deliver services,” Carolyn Belle says.

Telecoms in space

It is also worth noting that telecoms seem to be increasing their presence in the small satellite space. For example, Japanese SoftBank (of $93 billion tech fund fame) has invested heavily in OneWeb, as well as Intelsat.

“Other companies, such as AT&T, have partnerships with satellite operators and service providers to cross-market services and deliver an end-to-end solution that may result in M&A moves,” Carolyn Belle says.

For example, Canada’s Telesat and Saudi Arabia’s Arabsat are both planning to launch low orbit satellites.  

Part of the reason could well be that in spite of increased demand for internet connectivity and services, telecoms do not want to risk small satellites, balloons and flying wings doing similar things to their revenue that Skype and WhatsApp have been doing for the last few years.