Moonshot: can Eutelsat compete in a space race with Bezos and Musk?


French satellite operator Eutelsat and money-losing UK start-up OneWeb are going for the moonshot: a merger that stakes their future on being able to compete with Elon Musk and Jeff Bezos.

The deal, which was announced on Tuesday, involves an incumbent trying to stave off obsolescence by teaming up with a scrappy tech disrupter — all backed by the French and UK governments who will own 10 and 11 percent of the new group respectively. Both see the space race as a key to national sovereignty.

That all the disparate parties involved — two governments, Eutelsat, OneWeb and its private sector shareholders, India’s Bharti Global and Japan’s SoftBank — set aside often diverging interests to hammer out the merger shows how much pressure European satellite groups are under.

New challengers such as Musk’s SpaceX have upended the old order, betting big on cheaper smaller satellites that operate from low-earth orbit and disrupting a once-staid industry as barriers to entry and costs come down.

To cope, Eutelsat and OneWeb are joining up but analysts questioned whether it would be enough to compete effectively with Musk’s SpaceX, which already has a low-earth orbit network called Starlinkand Jeff Bezos’s Kuiper project, which is further behind but has ambitious targets.

Both are building low-earth orbit constellations that compete directly with OneWebwhich was a pioneer of the technology but now needs to upgrade its network to keep up.

Armand Musey, a longtime satellite analyst at Summit Ridge Group, said Eutelsat and OneWeb were making “a hugely scary bet” that would test their combined marketing knowhow and technical prowess.

“Best case: they get this constellation up, convert their customers to it, massively grow customer demand, and it all works out,” he said. “Worst case: they go bankrupt.”

He likened the situation to another sector that Musk shook up with his electric cars: “How long do you think it’ll take Renault to catch up with Tesla? This is a similar situation.”

Investors clearly have doubts: Eutelsat’s shares fell 30 percent in two days of trading after the deal emerged.

Another advantage for the tech billionaires is that they also have their own rocket launching companies, whereas OneWeb relies on Europe’s Arianespace and SpaceX to launch its satellites.

However other analysts suggested that Eutelsat and OneWeb would have some advantages.

The new group will bring together Eutelsat’s big geostationary satellites that are far up in space with OneWeb’s smaller, low-earth orbit satellites that offer better broadband connectivity. Together they will have an extensive “hybrid system” of 36 geostationary and 648 low-earth satellites.

“SpaceX will throw thousands of satellites at what OneWeb/Eutelsat can achieve by putting up a geo satellite where they need capacity,” said Chris Quilty of satellite specialist, Quilty Analytics. OneWeb also had a “big advantage” of priority rights in its licensed frequency for transmission.

The all-share deal unveiled on Tuesday aims to transform Eutelsat’s slowly eroding core business — beaming television signals around the world for broadcasters — which investors nevertheless appreciated for its margins and reliable dividends, into a faster-growing operator that can serve the expanding market for space-based broadband.

Eutelsat first took a 23 percent stake in OneWeb in 2021. Even then it had an eye on a possible acquisition, said one person familiar with its thinking.

Eutelsat was motivated by the fact that its main market is shrinking as more TV content is broadcast over the internet. “They genuinely think that they need to be in LEO satellite networks, and that they have to do this for the future of the business,” said one person involved in the deal.

For OneWeb and its backers — Indian billionaire Sunil Bharti Mittal whose Bharti Global was OneWeb’s biggest shareholder, the UK government, and Japan’s SoftBank — the rationale for the deal is much clearer. They get a deep-pocketed partner that can help them go to market more effectively.

Given that OneWeb has little revenue, the new company will rely on Eutelsat’s cash generation to finance upgrades to OneWeb’s constellation, which could cost roughly €3 to €4bn in the coming years.

The companies said capital expenditures were expected to be €725mn to €875mn a year from 2023 to 2030, far above the €280mn that Eutelsat spent in 2021. Eutelsat said it would suspend its dividend for two years to finance the buildout, and it remained to be seen what dividend will be when it resumes.

“It is obviously a relief for some shareholders that there are no obligations to fund the future of OneWeb,” said Bharti’s Sunil Bharti Mittal in an interview. “We knew we would come together — it was always just a question of when. To be honest it all happened quicker than we thought.”

Markus Kaussen, an analyst at Swiss asset manager BWM, a top-15 shareholder in Eutelsat, said it was difficult to value OneWeb or gauge the new company’s prospects. “I can’t tell you if [OneWeb] is worth $10bn or $1bn or nothing,” he said. “The fact that so many companies in that sector have gone bankrupt tells you something.”

Kaussen said that Eutelsat ought to have stuck with its minority stake in OneWeb until its prospects became clearer. “I still don’t understand why this deal had to happen now,” he said. “With the acquisition of the stake last year, Eutelsat had a foot in the door. It would have been better to leave OneWeb as an independent business and see if it is viable before acquiring the whole thing.”

One key question for the future of the group will be how the French and UK governments act as shareholders. Each will have one seat on a 15-member board.

The relationship between France and Britain has been strained in recent years by Brexit, so forging a consensus was not a foregone conclusion, said two people involved in the deal.

“Lately France and the UK can’t agree on anything. They are fighting over everything from fish to the border, so I was initially skeptical that this could be done,” said one of the people. But savvy negotiations by Eutelsat’s chief executive and Mittal, as well as constructive positions taken by French and British officials led to a breakthrough.

Britain saw the tie-up as a “no brainer” that would help OneWeb finance its development after getting a $500mn government bailout in 2020, said one British official.

Meanwhile the French supported the deal as a way to help Eutelsat become a European champion in a sector it sees as strategic, said a French finance ministry official. That made them willing to accept that the British side would keep its special share in OneWeb, which gives it a power of veto relating to national security questions.

That British-French harmony may well be tested if the group’s expansion plans go off the rails and it falls further behind in the space race.

“We’ve been pushing Eutelsat to look at the landscape of satellite constellations for years,” said Nicolas Dufourcq, chief executive of Bpifrance, France’s state-backed investment bank, which owns a 10 percent stake in Eutelsat and is heavily involved in financing. space technology in France.

But he insisted that despite Bpifrance’s support for the deal, the French government was “not at all” involved in making it happen. “There was zero communication between the two governments until the last moment,” he said, adding that his first communication with British government officials was only last Thursday.

“It’s absolutely not an intragovernmental agreement. It’s a business construction pushed by business people. . . the question of sovereignty has not been pronounced: it happens to be European.”

Additional reporting by Anna Gross and Jim Pickard



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *