Satellite partnerships promise new revenue opportunities for operators

A new report from MTN Consulting argues that intense competition and a harsh funding climate mean satellite operators are moving deeper into the telecoms space for new market opportunities. It says in particular satellite operators are pursuing broadband internet, direct-to-device (D2D) and IoT market segments to find new revenue streams.

But, says the analyst company, satellite operators are more likely to be a partnership opportunity than a threat to communications service providers (CSPs)in traditional telecoms markets.

Arun Menon, Principal Analyst at MTN Consulting, says there are three key reasons why satellite providers will not emerge as an alternative to telcos. First, the potential offerings of satellite operators in their current form are focused on addressing coverage gaps rather than performance delivery. Satellites cannot match the network performance and speed of CSPs’ 5G connectivity offerings, he says.

Second, the number of satellites and spectrum holdings of satellite operators are not enough to provide coverage and performance at a similar scale to CSPs. And third, they face stringent regulatory oversight, “which is a big headache for satellite operators who plan to operate at broader global scale compared to telcos”, Menon says.

Instead, Menon and Lluc Palerm Serra, Principal Analyst at satellite research company NSR, agree that satellite operators provide enormous opportunities and benefits for CSPs.

“Through partnerships, the potential offerings of satellite operators, particularly D2D and IoT, allow telcos to optimize their infrastructure investments (capex and opex) for deployments in areas with limited coverage or cellular dead zones. Another plus for telcos is the enhanced customer experience supplemented by a network providing ubiquitous coverage,” Menon says.

He adds: “In addition, there is a sizeable revenue opportunity for telcos that could be leveraged through partnerships with satellite operators in D2D and IoT market segments. For instance, GSMA Intelligence estimates a total incremental D2D revenue opportunity for telcos of over $30 billion by 2035, spread across consumer, enterprise (B2B/IoT) and government client segments.”

MTN says “the battle for space” has gained momentum in the past few years. As of May 2022, about 4,700 active LEO satellites had been launched – 16 times the number deployed a decade ago, as can be seen in diagram below [source: MTN Consulting].

Benefits of ubiquitous coverage

From a global perspective, Palerm Serra says: “I don’t see satellite competing with terrestrial telcos. Satellite is always going to be the best technology for remote areas, but that covers maybe the last 3% of the network. Today, satellite represents about 1% of the total telco ecosystem. If that grows to [up to 5%], it’s a massive opportunity for the satellite industry,” but would still have a relatively small impact on the telco segment.

Palerm Serra cites certain, very specific, areas where satellite providers might compete, such as in the case of a CSP that specializes in rural coverage and does not have the capacity to invest in fiber, for instance.

Menon points to two potential areas where satellite operators can compete with telcos in future: connected cars and D2D. Here, he points to examples such as the Chinese automaker Geely, which is deploying nine low-earth orbit (LEO) satellites for self-driving vehicles, while Elon Musk plans to connect Tesla vehicles via Starlink satellites in future. In terms of D2D, companies such as AST SpaceMobile, SpaceX and Lynk are targeting this area. 

“But a major consideration would be how cost- and performance-effective will these satellite offerings be compared to telcos,” says Menon.

Palerm Serra also notes that for larger CSPs with a national footprint satellite is going to play a key role in future. “We see a lot of new use cases being opened up by the new technologies coming to the satellite world, such as rural coverage,” he says. In the US, for example, Palerm Serra says 94% of the population is covered by terrestrial telco networks but only 40% of the territory.

“That means there is a huge opportunity for applications like IoT” in areas such as agriculture, transportation, energy and more. “We see these [as] win-win use cases between satellite and telcos,” he says.

Menon agrees that telcos are increasingly collaborating with satellite operators to provide enterprise IoT offerings. Here, he cites Deutsche Telekom’s partnership with Skylo and Intelsat, while Telefónica is collaborating with Sateliot.

“For telcos, providing IoT services to enterprises in remote locations is not financially viable, as it is expensive to build out capital-intensive infrastructure including miles of fiber and several towers in remote areas,” says Menon. “Through partnerships with satellite operators, telcos can address connectivity gaps where 5G is poor or yet to be built out. Enterprises can switch to a satellite network seamlessly instead.”

But Palerm Serra does have one warning for CSPs: keep an eye on what your peers are doing in the satellite space. “They need to think about their satellite strategy,” he says. “If your competitor is using satellite better than you, that’s a competitive advantage for your competitor…and it might become a differentiator in the coming years.”