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October 10th, 2018
October 10th, 2018
We began Kepler in 2015 with a singular mission to build in-space telecommunications infrastructure. Like the railroads that helped settle the western frontier, we believe connectivity infrastructure is an intrinsic good that will be needed to expand humanity into space. As we set upon this Mission, there were early indicators suggesting this future was not so farfetched nor distant.
The Great Thickener
Satellite launches were growing at 30% year-on-year. New companies were forming that would provide in-space services. The cost of launch was poised to crater as companies developed new capabilities. All of this was happening against the backdrop of an investment community with a voracious appetite to fund new space companies. The industry, it seemed, was blooming.
But time is the great thickener of all things. About 50% of the satellites predicted to launch in the last 3 years actually reached orbit. In-space service companies have experienced hardships; some have turned off the lights, others have effectively done so through acquisitions. A floor remains on the per kilogram cost of launch. And while small launchers can deliver satellites to orbit quicker, the industry is realizing that this comes at the detriment of poorer economies of scale and drives per kilogram launch prices higher. Better, faster, or cheaper, you can only pick two.
As time has lifted the haze of speculation blanketing the Newspace industry, the investment community has become far more diligent. New investments in the industry have begun to plateau, and the bulk of investments are now being made in later stage companies. Investors have, for the most part, picked their horses and are now intent on seeing them across the finish line.
If the changes in the Newspace segment of the space industry is the small island that forms from seismic activity, then the changes for traditional players in the space industry is the towering volcano spewing hot lava and ash high into the atmosphere.
High-throughput satellites (HTS) systems have completely changed the game. With a single HTS now capable of delivering 10-100x the capacity of a broadband satellite, the world is caked in cheap bandwidth. As supply dwarfs demand, bandwidth pricing has plummeted around 50% across the board. The days of $3,000/MHz are an artifact of the past, and powerful customers are driving prices below $1,000/MHz. Double-digit revenue drops for operators are the norm as they reduce prices to stay competitive and maintain acceptable fill rates. The unwavering laws of supply and demand appear to be holding steady.
And all the while, far on the horizon and difficult to discern through miles of hazy atmosphere, is the atomic bomb that is non-geostationary HTS (NGSO-HTS) systems – OneWeb, Starlink, LeoSat, Telesat, and to a certain extent O3B. Regardless of their economic viability, these networks could profoundly impact the market. An increase in global satellite bandwidth supply from around 500 Gbps to 1 Tbps because of the introduction of HTS systems has led to a 50% drop in prices. What then can we expect to happen if networks promising 10s of Tbps of capacity suddenly come online?
It is with regretful irony that I allocate only a single paragraph to ground equipment. It seems that like most of the satellite communications industry, I have foolishly minimized the importance of these critical components. The reality of ground equipment is simply that if NGSO-HTS systems wish to be viable, flat panel antenna technology will need to improve. A $50,000 price tag for a single unit is a far cry from mass-market acceptance. Ashok Rao of SES said it best on a recent panel discussion, “I don’t care what [flat panel antenna] technology is out there, it is not going to beat a 74-centimeter VSAT for the next 20 years. There is nothing that can beat a $25-30 piece of metal.” There are nuances here that can only be glossed over in a short paragraph, and likely a topic for a future article, but the general sentiment is that monumental advancements need to happen on ground equipment technology for NGSO-HTS systems to have a fighting chance.
Three years prior when founding this company, the space industry looked substantially different, and it will likely look stranger still three years hence. Kepler’s Mission will endure throughout the ebbs and flows of the industry. We are hardwired to explore and sustained exploration demands infrastructure.
But we must be pragmatic optimists. The immutable laws of business will not yield. We began this journey by identifying niche markets that are underserved by incumbents, and we are now starting to deliver great products that solve real customer problems. Earnings from these products will be reinvested to novel innovations that will allow us to deliver even greater products to grander markets. We must not forget to continue taking risks on promising technology and making sure that we stand at the forefront of communication innovations, both on the ground and in the sky.
There are indeed challenges for us on the horizon. We must transition to being truly product-centric through quality control mechanisms and customer service processes. We must build a robust distribution network, and improve our ability to manage our supply chain. All of these will be necessary if we are to deliver real products to real customers with real problems. And of course, we must be ever vigilant to the changing landscape that is the space industry.
Knowing the Destination. Charting the Road.
There is a profound distinction between knowing the destination, and charting the road. While the Kepler Mission is to build the Internet in Space, the road traveled to this destination is both winding and opaque. Simply knowing our destination does little to tell us of the valleys, rivers, mountains, and wild animals that we may encounter along the way. If we should be so bold as to plunge heedlessly ahead towards our destination without concern for the road traveled only to find ourselves laid up in a swamp, well then what good did it serve us to know our destination?