A cloud of uncertainty is hanging over parts of the nascent HAPS market as one of its most high-profile and well-funded ventures winds down. Alphabet’s (NASDAQ:GOOGL) Loon is flying away as terrestrial mobile towers become increasingly cost-effective and LEO constellations ramp up.

Despite a number of technical feats, MNO partnerships and regulatory progress over the last decade, Loon CEO Alastair Westgarth said the venture failed to close a viable business case for providing balloon-based connectivity from the stratosphere.

“While we’ve found a number of willing partners along the way, we haven’t found a way to get the costs low enough to build a long-term, sustainable business,” said Westgarth, who has led the group for the last four years.

Loon was unable to secure more funding for the venture after spending all the cash it had raised from an external investor in 2019, reported The Information in November 2019.

The venture, which graduated from the internet giant’s experimental ‘X’ unit in 2018 to become its own company, was reportedly burning through an estimated US$100m a year. Loon has not commented on its financials.

Japanese telecoms giant SoftBank (TYO:9984) injected US$125m into Loon in early 2019 through its stratospheric unit HAPSMobile, Connectivity Business previously reported.

“While Loon is a strategic partner, we do not see this affecting our HAPS business,” a HAPSMobile spokesperson said.

“We’ll continue to work toward our goal of developing a commercial HAPS business and collaborate with Loon until its business closes.”

Traction gained

Announcing plans to wind down, Westgarth hailed a range of technical contributions it has made over the years, ranging from stratospheric communication payloads that can connect to a variety of devices on the ground to constellation-managing software.

The venture’s operational successes include providing connectivity in Puerto Rico in 2017 after Hurricane Maria destroyed terrestrial infrastructure, in partnership with telcos AT&T (NYSE:T) and T-Mobile (NASDAQ:TMUS).

Trials in Brazil, New Zealand, South Africa, and Sri Lanka eventually led to its first commercial deal last July in Kenya, where it helped provide 4G LTE with local telco Telkom Kenya.

In early 2019, Loon put together an advisory board filled with heavyweight telecoms veterans to help strike MNO partnerships around the world. Founding members included Craig McCaw, credited for stitching together the first wireless network in the US that was eventually sold to AT&T in 1994.

One of Loon’s greatest contributions over the last few years has been catalysing the formation in February 2020 of the HAPS Alliance, an ecosystem of organisations working on providing connectivity from the stratosphere, an X spokesperson said.

Executive members comprise Airbus (EPA:AIR) and HAPSMobile – which are developing fixed-wing vehicles, Loon, AT&T, Finnish vendor Nokia (HEL:NOK) and satellite operator Intelsat.

“While Loon’s path to commercial viability didn’t work out we still believe in the potential of HAPS technology in addressing the connectivity challenge,” the X spokesperson told Connectivity Business.

“Over the coming months Loon will work with the other leaders of the Alliance to ensure a seamless transition of leadership positions which are currently held by Loon employees.”

HAPS Alliance’s board said Loon will remain a HAPS Alliance member as it closes operations over the next several months. Loon head of project management Ken Riordan will continue his role as president of the organisation.

“The HAPS Alliance Board will meet soon to determine the next steps for ensuring a seamless leadership transition while driving the organisation forward,” the group stated.

“We’re excited about the future of the HAPS Alliance and the impact the organisation will have on the industry as we execute our 2021 initiatives.”

The group declined to comment.

Westgarth said he hopes some of Loon’s technology will find uses elsewhere.

“The world needs a layered approach to connectivity — terrestrial, stratospheric, and space-based — because each layer is suited to different parts of the problem,” he said.

Connectivity winners

Loon was partly set up to be an alternative to cell towers where deploying terrestrial infrastructure is challenging.

But technology innovation consultant Rich DeVaul, a Loon founder who left Google in 2018, was quoted saying that towers becoming more cost-effective in more parts of the world faster than anticipated helped diminish the need for Loon.

Towercos have exploded on the back of surging demand for connectivity, and analysts expect 5G’s densification requirements to continue to drive their expansion.

Global aggregate wireless capex spend should grow 4% this year, after only rising 1% in 2020 as pandemic-related delays weighed on expansions, according to a recent Credit Suisse analysis.

MNOs are also increasingly turning to infrastructure structure sharing and sale and leasebacks to drive down costs.

SpaceX’s rapidly expanding Starlink LEO constellation, currently in beta tests, could also have been a factor in Loon’s decision.

Starlink has nearly 900 satellites in orbit and plans to provide ‘near-global’ coverage this year, although it remains unclear how it will meet sustainable price points.

Other challenges for Loon included the tens of thousands of dollars it would take to replace each of its balloons, which would only last five months at a time.

Many people in rural areas also can not afford 4G-capable phones to access the service, or are interested in them, technology experts have said.

Loon’s closure follows a decision by Ordnance Survey, the UK’s national mapping agency, to shut its pseudo-satellite project Astigan.

Facebook (NASDAQ:FB) also had a solar-powered drone venture called Aquila before winding down in 2018. Google, which had a similar project called Titan at one point, has reportedly become more abstemious after Ruth Porat joined as CFO in March 2015. Other recently cancelled projects with uncertain monetisation prospects include kite-based renewable energy group Makani and seawater fuel venture Foghorn.

Regulatory issues that were compounded by COVID-19 challenges were also reportedly a factor in Loon’s demise.

HAPS impact

Of the 40 or so HAP programmes in development, Loon was seen as the most advanced balloon-based solution, and a poster child for how far the technology has come.

But although high altitude connectivity solutions might look a little dimmer now that Google has thrown in the towel, Northern Sky Research senior analyst Shivaprakash Muruganandham pointed to other opportunities that remain strong.

“For pseudo-satellites, it might throw into question some of the programmes that are targeting this kind of commercial communications business model,” Muruganandham said.

“But there are very few … In the case of balloons, the biggest use cases – apart from what Loon could have been – are usually in the scientific community, which has been strong for a long time and that’s going to continue.”

Prospects for remote sensing and ISR-type applications such as intelligence and surveillance also remain strong, in balloons and pseudo-satellites, and will also likely continue.

Progress and investments in connectivity ventures based on drones and other parts of the HAPS market have also been on the rise. Autonomous drones have been helping to deliver 'contactless' medical supplies during the pandemic.

Meanwhile, satellite ventures aiming to provide connectivity directly to existing mobile handsets have also been gaining traction, with AST & Science (NASDAQ:NPA) recently joining the SPAC bandwagon to generate about US$540m in capital and an equity value of US$1.8bn.