Fears about overinvestment, overcapacity, plunging capacity prices and market share disruption happen periodically in many businesses, and within the last couple of decades have devastated large portions of the telecommunications industry.
That is about to happen again in the satellite business, but in a way that resembles the overinvestment in capacity in the undersea and terrestrial backhaul businesses during the telecom boom and bust from about 1997 to 2002 or so.
In that instance, huge amounts of capital were invested in long haul networks to support the explosion of Internet companies requiring capacity.
Too much, as it turns out.
Many will not remember Globalstar, Iridium or Teledesic, all using business models based on huge fleets of new satellites, using low earth orbit, not the geostationary satellites that are the industry mainstay.
The huge unmet need back then was voice communications, since mobile service at that time was expensive and lightly purchased by consumers. The problem, as outlined by David Burr, O3b Networks VP, was that mobile service unexpectedly caught fire with consumers, closing the LEO-based business market window.
Simply, mobility fulfilled market demand for voice communications, at the expense of fixed networks and LEO providers alike.
Rapid mobile adoption basically killed the earlier generation of LEO business plans and companies, argued David Burr, O3b VP, essentially absorbing the demand the earlier LEO connectivity providers had hoped to serve.
“Where is that danger now?” Burr asked. Some of us might argue the answer is the same as last time: mobile service providers.
Some veterans of those ventures continue to work in the satellite industry, and were again speaking from the podiums at Satellite 2015. Firms such as OneWeb, O3b and LEOSat, plus others such as SpaceX were there, suggesting the new wave of potential LEO constellations that could disrupt business models and pricing across much of the satellite industry.
To be sure, different business models are being floated. Some providers plan to attack the consumer Internet access retail market. Others will focus on enterprise or business user segment.
Still others will seek roles in backhaul, either “conventional” backhaul for mobile operators, for example, or less traditional backhaul that competes directly with undersea capacity suppliers.
It’s too early to say how it will all play out. But it is clear that industry capacity and latency performance will be challenged, starting about 2017, if LEO capital and launch plans remain on track.
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