Viasat: Strategic Planning in an Emerging New Landscape

The global broadband market is on the order of $1 trillion annually – and growing. Satellite broadband is now around $10 billion – about a 1% share. Satellite can grow to low- to mid- single digits– or $10’s of billions per year. We aim to lead that market. Since facilities-based telecom services are capital intensive, we focus on return on capital. Broadband return on capital depends on three main factors: delivered value, geographic market selection and competitive intensity. Success is determined not just by technology (fiber, cable, mobile, satellite, etc.), but also by physical asset location (geography) and competitive intensity. Customer value depends on delivered speed, volume, price and latency. Our experience for over a decade is that customers are willing to pay more for speed and volume than for low latency. Third-party research affirms this.

 The relative value of speed, bandwidth and price versus latency is the fulcrum between geosynchronous (GEO) versus Low Earth Orbit (LEO) broadband satellites. GEO has much lower cost of useful bandwidth, while LEO has less latency. Successful GEOs focus on payload integration learning curves, flexible beam location and more throughput per satellite. LEOs focus on low cost satellites, lots of satellites and low launch costs. Superficially LEOs may seem cost-effective: GEOs have more capacity (over 1,000 Gbps versus 10 – 20 Gbps for a LEO), but LEOs cost less per satellite (say ~$1 million each in orbit, versus a GEO at ~$400 million). But, there are other critical factors determining cost effectiveness and risk: 1) useful life, 2) geographic coverage and 3) space safety. GEO useful life is about 3x to 5x longer. GEOs (like ViaSat-3) can focus bandwidth on attractive markets with more demand, less competition and/or higher ability-to-pay customers. LEO’s geographic markets are determined by their orbits. LEOs spend little time over good places and much more where there’s little or no demand (e.g. oceans, deserts, tundra or markets inaccessible for regulatory reasons). GEOs can use ~100% of capacity (especially with beam-forming). LEO’s capacity is typically used ~10% to 20% of the time. Net, we expect a 3x to 5x advantage for ViaSat-3 versus a mega-LEO in Mbps – Months per $ (which measures bandwidth cost in the same way it’s sold in the market).

Mega-constellations face other challenges as well.  Some systems may not meet potential new license regulations for the U.S. or other markets. In particular, the FCC recently proposed new space safety rules to reduce the risk of LEO collisions:  from 1 per thousand (10-3) per satellite to 10-3 per constellation. While collision analysis is complex, the reason for reducing collisions is simple. If each satellite has a 10-3 probability, and is considered separately, then the expected number of collisions for (say) 40,000 satellites would be 40 over a 3 to 5 year lifetime – untenably high, and even worse for a 15-year license term. The proposed rule substantially reduces that risk. Collisions are highly dangerous because they cause debris fields that can cause more collisions in an avalanche effect, leaving orbits useless for decades. Regulating collision probabilities does not limit the size of constellations, but it prevents proliferating unreliable satellites that, while tolerable for a particular operator, are bad for everyone else. Avoiding this “tragedy of the commons” is one of the goals for the proposed new rules.

Viasat already builds LEOs, LEO payloads and ground systems. But, as we explained above, we believe most broadband markets value bandwidth over latency and that’s why we invest in GEO solutions. If low latency were more valuable for a large-enough market segment, we would build at LEO. The FCC will award $20.4 billion over a 10-year period via a subsidy called Rural Digital Opportunity Fund (RDOF) using a two phase reverse auction. Auction rules give a big advantage to bidders offering latency below 100 milliseconds, even compared to much more speed and bandwidth at a lower price. That makes the RDOF subsidized market different than virtually all others we serve.

On May 19, 2020, the FCC released proposed RDOF Phase I rules excluding all satellites (including LEO) from eligibility in low latency bidding. While satellites would be disadvantaged compared to terrestrial, they would all be evaluated equally for speed, bandwidth and price compared to each other (GEO versus GEO, or LEO). Viasat competed successfully versus low latency terrestrial bidders in the prior Connect America Fund II auction.

The FCC left open the possibility of satellite eligibility for low latency in RDOF Phase II.  We want to be prepared for this.  So we filed an application to modify our licensed Ka/V-band Medium Earth Orbit (MEO) constellation to LEO altitude. Viasat’s LEO application is optimized for RDOF and, we believe, more efficient for RDOF than other LEOs. Each satellite would support 5x to 10x the capacity of other licensed LEOs – so many fewer satellites are needed. Less than 300 in total could have as much capacity as thousands of other satellites, and would comply with proposed space safety rules. Fewer satellites can be more reliable, with a longer life, boosting efficiency. Complexity is shifted to the ground network, reducing costs, improving asset life, with fewer satellites in disadvantaged places, enabling rapid upgrades, and better addressing attractive geographic markets.

We believe if LEO is eligible for the low latency tier in Phase II, or if the proposed Phase I rules, when adopted, are changed, Viasat’s LEO can compete very effectively. We estimate the cost for our LEO could be comparable to the winning bid value for eligible RDOF locations. Our modification request is consistent with FCC rules and precedents for similar NGSO modifications previously granted.  A modified LEO constellation would enter service by 2026. The constellation would be available globally and could complement ViaSat-3 services. Just to be clear, we do not believe we need a LEO constellation to compete successfully globally.  ViaSat-3 and GEO successors will offer much more affordable speed and bandwidth. RDOF represents an opportunity to improve LEO cost effectiveness, while helping the FCC further its objective of greater availability of low latency broadband to challenging locations.

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