Any satellite fleet operator with publicly traded stock or debt knows the feeling. You’re on a road show and realize many investors and analysts have been following your industry for only a short while, and they have little understanding of it.
They need to be educated as to why the financial stresses of one fleet operator don’t automatically bleed into your business, and why a debate over a low-Earth-orbit constellation might not affect your future revenue stream.
In recent months, sky-is-falling forecasts have multiplied at industry conferences: The supply-demand balance will force a collapse of satellite bandwidth prices. Woe unto those who enter the market!
SES Chief Executive Karim Michel Sabbagh begs to differ. If you want to get a rise from him, say that bandwidth is bandwidth, a mere commodity. In this commentary, Sabbagh says differentiated capacity will find new markets and keep the industry as relevant as ever.
There has been an oversupply of ‘oversupply’ stories. Some senior executives in the industry have even gone so far to pin mishaps in their business on this theme. Maybe it is time to step back and think through some important questions.
Why is public discourse on this issue confusing?
Commercial satellite operators have framed their business in terms of new satellites they build and deploy over regions for too long. This enables stakeholders to view the business through the simple lens of connectivity, and to focus solely on capacity demand and supply ,along with the associated price points.
This may have worked for a time, but this lens is ill-suited to the multiple applications, technologies, and business models that are shaping the present and future markets. Failing to fathom these dynamic and highly adaptive market developments has led the public discourse in our industry to zoom in on an over-simplistic explanation of oversupply in capacity and increasing price competition.
Is this confusion self-inflicted?
The short answer is ‘yes.’ Until very recently, senior executives and analysts were defining success through the lens of pure-play capacity build-up. Competitiveness was literally measured as a function of which operator was building the largest capacity (measured in GHz, MB and even TB). I have always found this logic difficult to follow, particularly when coming from the telecom world where such a theory was entertained at the height of undifferentiated mobile network deployments, and was proven wrong after a few billion dollars’ worth of investment.
In my first address to SES investors in June 2014, I said that in the medium- to long-term, winning in our industry will require two things: first, a capability-based model that can be scaled globally and is adaptive in nature (including the satellite fleet and the innovations that go into each and every spacecraft). Second, such a capability-based model will need to be increasingly customized across the value chain (and not just on the satellite) in order to best serve the targeted market segments.
What is a reasonable development path?
There is simply no place or rationale in the aforementioned logic for grandiose plans about new constellations (in any arc) that are defined around monolithic and closed technologies, and positioned as a panacea for all connectivity shortfalls.
“Our industry can evolve for the better, not because of oversupply and not because of deep pockets.”
Each new development project — and SES has had its fair share of these — must start with a statement of the desired markets we can best enable, the differentiated capabilities we can build to do so, and the evolutionary and scalable path we can embark on. Short of these three ingredients, a development project will run into a combination of three problems: underestimating overall timelines, underestimating resourcing required, and underestimating the evolution of markets and alternative offerings.
The flipside is that, when done right, new developments in our industry can have a transformative effect. But to do that, the model has to be adaptive and scalable, both technologically and operationally, focused on market enablement and patiently managed. There are no shortcuts.
This is why O3b is the only transformative development in our industry to date. What is often forgotten is that behind the SES decision to acquire O3b earlier this year was six and a half years of seeding this business, working with a uniquely talented management team and a great group of shareholders. While SES decided to keep its stake in the business under 50 percent during these years, we diligently worked towards setting the company up for success. Author Malcolm Gladwell’s formula of 10,000 hours of practice and hard work to achieve greatness would pale compared to what went into our development of O3b. I can personally attest that there were no shortcuts.
Will the structure of the industry evolve?
The short answer is ‘yes’. There will be a growing pull to aggregate capabilities at a global level, either through tie-ups, acquisitions or mergers. And there will be an increasing need to focus on specific market segments, building capability-based systems around them and throughout the value chain, either through tie-ups with industrial partners or the development of downstream competencies. This position dates back to 2014, when I first addressed the SES investors, and is a very different logic from the one presented in recent months around the consolidation of generic infrastructure plays, which will only perpetuate the oversupply discourse.
Our industry can evolve for the better, not because of oversupply and not because of deep pockets. It can evolve because some of the players will adapt their business to the fascinating new markets that are emerging, transforming and innovating along the way, and they will play the long game far away from the headline-grabbing mega-constellation announcements and oversupply confusions.
Karim Michel Sabbagh is the president & CEO of SES, and the chairman of its executive committee. He is also the chairman of SES ASTRA, and is a member of O3b’s board of directors and risk and audit committee.