Future of the space communications industry, by AlixPartners

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What does the future hold for the space industry, especially the space commercial-communications industry? AlixPartners, the global consulting firm, has released a report with these six predictions:

Amazing Technological Advances – Five years from now, we will likely see multiple satellites in orbit with terabyte capacities and the vehicles used to launch them could be routinely reused. With so much entrepreneurial interest—$5 billion in venture capital investment in space opportunities over the last five years— fast-paced advancements will continue. The downside, of course, is that today’s systems will become obsolete quicker.

Some Planned Constellations May Not Get Off The Ground –  Current FCC applications for non-geostationary orbit (NGSO) constellations total an estimated 16,000 spacecraft, with AlixPartners estimating $50 billion to $100 billion would be needed to develop and deploy them all. With the worldwide industry currently at $20 billion, the size of the investment needed makes it unlikely all constellations will be funded.

Average Revenue Per Unit (ARPU) Might Remain Flat At Best – Even with exciting new markets like driverless cars, the Internet of Things, and commercial airline connectivity increasing demand for satellite broadband, AlixPartners predicts ARPU will most likely remain stubbornly flat over the next five years. The number of bytes consumers transmit and receive will greatly increase, but the price per byte will decline.

Competition from Terrestrial Providers Will Remain Fierce – Communication service is largely a commodity, and price will rule. Current satellite broadband service in the U.S. costs $2 to $10 per megabit per second per month. By comparison, terrestrial services from cable or fiber optics are often less than $1 with no data limits. Unless satellite providers match price, they’ll be relegated to customers of last resort.

Satellite Bandwidth Capacity Could Outpace Demand  – Even though bandwidth demand will increase over the next five years, those increases could be smaller than projected, due to price sensitivity and other factors. For instance, demand for commercial aircraft broadband service will likely be dampened by customers’ unwillingness to pay more than $5-$10 per flight, according to AlixPartners’ estimates.

Billionaire and Sovereign Investors Will Continue To Pressure Commercial Providers – Rich individuals and sovereign investors will continue to invest in the industry, not necessarily for short-term financial return but based on interest. Because these investors are willing to ride out lower returns for longer periods, they will likely increase competitive pressure on commercial providers.

All of these factors could lead to major industry changes, including consolidation or restructuring or even exits. Companies need to focus on affordability. Even 5% to 10% cost reductions could make them much more competitive. Companies also must offer more than generic capacity, and additional services that can’t be offered by other players.

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