LeoSat is one of a number of new ventures that have dominated headlines over the past few months with grand announcements of large scale satellite constellations that will provide unprecedented amounts of connectivity to the world. The plans have met…
LeoSat is one of a number of new ventures that have dominated headlines over the past few months with grand announcements of large scale satellite constellations that will provide unprecedented amounts of connectivity to the world. The plans have met with a certain degree of scepticism over their long term viability from an industry that has been bitten before.
SatelliteFinance editor Ed Ansell sat down with LeoSat CEO Vern Fotheringham and CFO John Schilling to find out more about the project and why it is built on the back of sound business planning rather than dreams of what might be.
Ed Ansell: What is the LeoSat concept, its business plan and where we are with the project?
Vern Fotheringham: The company is a little over two years old. It was founded by two ex-Schlumberger executives, Cliff Anders and Phil Marler, and they have come up with the development of this satellite delivery system from the user perspective. It is the idea of let’s find a problem, people who know about gaps in the market place and start to investigate a solution that can address some of those real challenges.
So the concept is basically utilising the unique attributes of a LEO to provide coverage everywhere but also adding the capabilities and efficiencies that we’ve all enjoyed with the high throughput satellite industry, such as spot beam frequency reuse. But we are adding to that on-board processing and switching, so for the first time the communications can not only be switched inside each beam but beam-to-beam and more importantly with very high capacity inter-satellite links.
So from anywhere in the world you can uplink, carry across the constellation without ever touching the ground and reach the terminating location for the other end of that private connection. So it offers virtual private networks created point-to-point anywhere on the face of the earth. It is both very high capacity and secure.
This is not for the other three billion, this is for the top three thousand. Whether those are large enterprises, governments or scientific operations, it is an opportunity for us to provide communications services in addressable markets that we have identified as either unserved or under-served dramatically today.
EA: And what would those markets be?
VF: Clearly one of the leading ones is resources, exploration in the oil & gas and mining industries. And then scientific and research needs. There are massive amounts of activity above and below the Arctic Circle everyday that are generating tremendous amounts of data but cannot get connected. They are literately having to physically fly hard drives in and out of remote locations in many cases, simply because there is no way to move that data around efficiently. And much of that data is time sensitive.
Another would be government communications. Just think of the challenge of just connecting embassies around the world, where you have the need for secure communications in and out of any number of locations.
EA: Secure communications seems to be a key part of your offering, creating your own global VPN.
VF: This is industrial grade communications. Utilising the latest commercially available security capabilities to make sure that the links are protected and the information is encrypted.
EA: What will the size and structure of the constellation be?
VF: Each satellite will have about 2000 watts of power. They are currently conceived as about 80 satellites, though that may grow as some of the applications we’re looking at may mean we want to add some additional capacity and improve the look angle.
The system was initially conceived as fixed solution, I’m pulling hard on the potential to evolve the system design to also include some of the high value mobile applications that are out there.
The last three years when I was at Kymeta, what we were able to pioneer was the ability of how to take the new generations of electronic beam steering antennas and what traditionally were fixed services, whether delivered by a GEO or a LEO, and bring them onto mobile platforms. We are not squandering that experience. It’s going to be put to use here.
The big technical challenge question for us right now is the inter-satellite links. We would love to be able to do these optically, which would solve the bandwidth challenges, but developing the east west cross plain is as our CTO John Schuster called it ‘a pretty sporting requirement’. So whether we are able to leverage the lasers or use RF is one of the things we are working on.
EA: What will the cost of those satellites be as well as the total cost of the project?
VF: It is, ironically enough, essentially similar to Iridium’s (around US$3bn in total). The satellites are roughly the same class, although almost twice the power. We have been working with Thales Alenia Space, who have a great heritage in this area, on the initial system design, the feasibility analysis and the orbital architecture. They have done a tremendous job but we have not yet contracted for the constellation.
EA: So what happens next?
VF: The study is due to be completed towards the end of May, that will lead to discussions with Thales about the next phase, which is the detailed pricing and system design review. Then a year from now we go into the final design review, which then leads to the specific procurement for the constellation.
EA: And when are you looking to launch the system and go operational?
VF: We are working on some very difficult technical challenges that are new and novel so to put a specific date on it is difficult. If it take six months longer to make a decision on whether we are going to go optical versus RF then that is a worthy six months to invest, given it’s going to impact the performance of the system over ten years. So our aspirational date is to begin first launches in 2018.
EA: Where are you with the necessary regulatory and spectrum filings?
VF: We have filed through the French regulator for Ka-band rights in LEO. We hold the API (Advance Publication Information) slot.
EA: You said it will have a similar cost to Iridium’s constellation, how will you fund this? Are you considering export credit agency support?
John Schilling: So the initial founding group of investors is a small group of high net worth individuals but we are going to expand that significantly with institutional capital. We are starting to talk to people now and we hope to be closing our first round of that within the next six months.
There will probably be a couple of rounds of private funding during the design phase, leading up ultimately to the actual financing package of debt and equity that you would expect for a constellation of this size. This includes the appropriate export guaranteed finance. That kind of financing still makes a tremendous amount of sense and it is likely that it will continue to be available. The rates are good and while they are complicated financings, any financing that’s more than US$1bn is complicated, there are no signature loans available for US$1bn. At the end of the day, debt is cheaper than equity.
VF: You must also understand that the first investors that are coming in are largely investing in the technology development platform. So whether or not that satellite system ever actually even gets built, those investors’ investment is in a technology platform that has horizontal extensibility into other types of business that are deeply synergistic to the architecture of this kind of system. So we are not just shooting everything at what happens at the end of a LEO constellation. There is a technology development phase here that has its own merits.
JS: And because of the technological advances that will be pushed in this project and who the ultimate end customers are, the top three thousand, we expect to have significant interest from strategic investors who see great opportunities for them both as a participant at the back end as well as being able to have other monetisation opportunities as corporate investors for the technology development. The IP we develop will be very significant. So it will not just be pure financial investors looking for an exit down the line.
EA: So what kind of investors are you looking at for these forthcoming funding rounds, will it mainly be venture capital investors?
JS: Less likely VCs but more corporate strategic investors and sovereign wealth funds, not that we are ruling anybody out. The next round we raise will be sub-US$100m and the round after that will be more than US$100m. They will be staged in amounts that make sense with the risks and requirements for us over the next one to two years versus the next two to four years and then for the big lift.
We don’t think we are going to go out and raise US$3bn tomorrow, which is both unlikely and unwise, setting the hurdle that high so quickly. We have work to do on the technical development and so the funding we are now looking at will help with that. And on the back of succeeding in this stage, the cost of capital goes down for us and we can have access to more avenues of financing.
EA: A lot of new satellite ventures being announced recently have been described as field of dreams projects, as in ‘if you build it they will come’, how have you sought to address that with LeoSat?
VF: We are a lot more pragmatic than that. I think the types and kinds of customers that we’re building this constellation to serve are very likely to be early participants as strategic partners. Our pantheon of technology partners is in one quadrant, and our pantheon or service delivery and market facing strategic partners is in the other quadrant and we get the fish in both pools.
EA: Would you ever look to licence this technology to raise revenues in the interim?
VF: Potentially. To go back to the issue of the types and kinds of things that we’ll be working on for the for the satellite platform itself, plus the types and kinds of earth stations and integrated terminals that will exploit the ground segment, these have an awful lot of applicability.
EA: Do you see any potential rivals out there and who might they be?
VF: There really aren’t any that we have found. This is what appealed to me about joining forces with the founders. The niches, and they are big very specialised niches, are hugely valuable.
People in the industry have been talking about treating satellite bits as satellite bits and what’s your cost per megabit, the questions are so naive as to be almost painful to hear. In our world, the cost or value of a bit depends on where it is and what it is used for.
LeoSat is being crafted to deliver proprietary private networks to very high value added customers and the value of those communications is such that it is not being justified on consumer communications price points. It is being justified on industrial grade valuable communication price points. There is a tremendous difference in both.
It is an endeavour that has been interesting to me so far because of the lack of similar infrastructure or players.
