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Summary
- The UK MPs started an inquiry into the government's investment of $500mn (£400mn) in OneWeb, amid an expose from a top official.
- As part of the post–Brexit strategy on space programmes, the government along with Indian telecommunication major, Bharti Global bought a stake in the ailing startup.
- OneWeb would still require additional funding to become a viable and profitable entity
The concerns regarding the UK government’s decision to spend $500mn (£400mn) to buy a stake in the satellite company, OneWeb, earlier this month has resurfaced. In a recent turn of events, the UK’s members of parliament have started an inquiry into the government's investment, in the midst of an expose that a top official had cautioned that it could be a taxpayer’s loss.
Commenting that all the money put forward could be lost, Sam Beckett, a leading civil servant in the department for business, energy and industrial strategy (BEIS) said that in one of the possible scenarios there is a chance to generate 20% return, though the central case is marginal with considerable downside risks. In Sam’s view, such venture capital investments do not lead to success with loss of entire equity value.
In accordance with the UK Space Agency’s review on the deal, Ms Backett said going forward OneWeb would require more money to be pumped in to carry on with its operations, technological innovation, competing with other industry players before ultimately becoming a viable and profit-generating business.
Ms Beckett further stated that the government plans to gain long-term geopolitical advantages in matters of foreign policy and empower the country with its own satellite fleet, remains uncertain regarding the deal clearing Whitehall's guidelines. Alok Sharma, business secretary, however, brushed aside the concerns of Ms. Beckett’s arguments and said that the government proceeded to sign the deal.
Government’s take on the OneWeb deal and its technology
The government sees prospects in OneWeb’s technology and expects it to substitute the EU's Galileo programme, which the UK had to leave as Brexit came into effect in January 2020. After exiting from Galileo, the UK government eyes OneWeb’s satellite navigation system for the broadband network across the country. Some industry experts also feel that the UK is looking at developing positioning technology to match as well as give competition to the American GPS system.
Though, the company has licences for substantial broadcast spectrum, experts are of the opinion that its present technological infrastructures are not suitable for navigation purposes and much of the technology remains to be proved. Some critics have even said that the company is more into communication rather than positioning services. The government recently said that the chancellor, Rishi Sunak, will chair its National Space Council, when the US President, Donald Trump, visits the country to discuss the requirements for space of different Whitehall departments. Heading the project would also allow Sunak to control spending on space projects.
Diving deep into the deal
As part of the post–Brexit strategy on space programmes, the government along with Indian telecommunication major, Bharti Global bought a stake in the ailing startup OneWeb that had filed for bankruptcy earlier in March 2020. The deal was seen as a necessity in the light of UK’s loss of membership from Europe’s Galileo satellite-navigation system.
Despite the UK being able to access the Galileo's free and open signals, the country could not use PRS, a highly secure and specifically built for military and government agency usage. As Galileo’s PRS is available only to the member states only, the UK government focused on developing an indigenous system.
The government had to hold the UK Space Agency’s initiatives started in 2018 to offer traditional global navigation satellite services due to mounting expenditure, and OneWeb with its cutting-edge satellite navigation systems presented a way forward.
Both the UK government and Bharti will own an equity stake of 45% each in the new operation and would be investing $500 million each. Rest 10% would remain with the existing shareholders. The UK government looks to govern decisions on any future sale, and a final say on who could access OneWeb’s platform. OneWeb would use Bharti Global’s networks as a testing ground for new products, services and applications.
As part of the new arrangements, the satellite company may move spacecraft production or at least some of it to Britain, which is currently at Florida in partnership Airbus, which welcomed the deal.
Bharti’s interests in OneWeb
As part of the deal’s arrangement, Bharti will help OneWeb with commercial and operational leadership. A leader in the mobile telephony, Bharti aims to connect billions of users through a fleet of satellites besides kickstarting the 5G mobile network race. This is in addition to proving easy and affordable internet access to remote and rural areas. Bharti has also stated that the Indian Space Research Organisation’s (ISRO) capabilities could be leveraged for OneWeb’s operations.
In 2015, Bharti was one of the members in the consortium comprising of Virgin Group, Qualcomm and Airbus that invested in OneWeb. Bharti while holding a minority stake, had planned to distribute OneWeb’s broadband services in India, Bangladesh, Sri Lanka and Africa.
OneWeb’s past and the bankruptcy proceedings
In March-end 2020, OneWeb filed for Chapter 11 bankruptcy in the US Bankruptcy Court as it failed to raise money from existing investors due to market being turbulent in the wake of Covid-19 pandemic. With a conservative approach, it had become difficult to generate or build on investor’s interests. OneWeb aimed to use the bankruptcy proceedings to go for a sale and increase company’s valuations.
SoftBank, the largest investor with $2billion investment in the company, allowed OneWeb to file for bankruptcy in its efforts to reduce losses. Several experts estimate that OneWeb would require an additional $3bn to achieve its complete constellation target.
If OneWeb was dissolved, it would have lost its priority spectrum rights, given the changes introduced by the United Nations’ International Telecommunication Union in January. The changes define time by which companies must launch a specific number of satellites. OneWeb launched its last batch of satellites just two days before filing for bankruptcy. Most importantly, the company’s license will expire if it does not meet the target of launching 50% of its satellites by June of 2023.
The company raised about $3.3bn in debt and equity from various investors including SoftBank, Qualcomm, Intelsat Airbus, Grupo Salinas and Coca Cola. With ongoing bankruptcy hearings, it remains to be seen the share that equity holders and creditors would get from the sale money.
Competitors landscape
The financial and technical feasibility of the broadband mega-constellation project is yet to show substantial results. Several leading players are working on similar programmes. Elon Musk’s SpaceX is creating a bigger network and currently has 500 of its Starlink satellites moving in the orbit. Its direct-to-consumer internet service will be tested by summer and scheduled to operate by year-end in northern US and Canada. Jeff Bezos’ Amazon, the e-commerce and web service giant, is also working on project Kuiper to offer broadband internet access across the world by putting 3,236 satellites in orbit.
Conclusion
The sale is likely to be completed by November 2020, and OneWeb plans to pull back staff laid off earlier and resume operations. Experts expect that the new owners will focus on increasing operational activities so that the company meets the next regulatory deadline. It would be interesting to see how OneWeb completes the targets and the changes that would unfold in the industry due to the $1bn investment in the company. Satellites involve major efforts and expense and call for an ongoing commitment for maintenance and technological innovation. These aspects further stress that taxpayer’s money is at risk. But as OneWeb's network could potentially act as a satellite-navigation service, the UK's Satellite Applications Catapult is working to present a white paper to show how the initial OneWeb constellation could be used for power, telecom, and finance industries.
