Closing Bell - Manifest Space: Co-opetition, Connectivity & Acquisitions with Viasat Chairman & CEO Mark Dankberg 4/27/23

Episode Date: April 27, 2023

While the most powerful rocket ever built didn’t reach orbit last week, SpaceX’s back to launching its other super heavy-lift rocket. A Falcon Heavy will carry the first of Viasat’s newest satellites for its next constellation as early as Thursday night. Morgan discusses the mission with Viasat co-founder & chairman Mark Dankberg—alongside the business of connectivity, cybersecurity following its Russian hack last year and its pending merger with Inmarsat. For more Manifest Space, listen and follow here: https://link.chtbl.com/manifestspace

Five, four, three, two, one. Last week, SpaceX's Starship lifted off from Texas and flew for almost four minutes before exploding mid-flight. The most powerful rocket ever built didn't reach space, but it did mark a milestone. As SpaceX rebuilds the pad and assesses the data, the company's launch cadence continues. Up next, the Viasat-3 Americas mission, set to lift off as soon as Thursday from Kennedy Space Center, using an expendable Falcon Heavy rocket to carry the first of three new satellites for broadband services provider Viasat. It'll give us a lot more bandwidth. This one satellite will increase the amount of bandwidth we have available in the Americas by about a factor of three or four. On this episode, Viasat chairman and co-founder Mark Dankberg rejoins me to discuss the latest launch,

the burgeoning business of connectivity, and the pending merger with Emarsat. I'm Morgan Brennan, and this is Manifest Space. Well, the VISAG-3 satellites, there'll be three of them altogether. This is the first of them. And they're really important to us and to our customers because they'll give us a lot more bandwidth. This one satellite will increase the amount of bandwidth we have available in the Americas by about a factor of three or four altogether, at least. And then it also gives us a lot more coverage, which is really valuable to our

in-flight connectivity customers, maritime government customers. So those are the two things that it really will bring to us. Okay. And so you said this is the first of three. What is the timeline for the next two? They're roughly on about six months centers, as much as you can predict, given launch schedules, as we can see. But it should be about six months till the next one. And then that'll cover Europe, Africa, Middle East. And then the next one will cover Asia Pacific. That'll be about six months later, late spring next year. All right. And Boeing's making the satellites.

Yeah. Boeing is the integrator and the prime contractor for the satellites. We actually built the payloads for those satellites ourselves, which is pretty unusual in this business because the way these satellites are built has never been done before. And so we had to create a lot of new technology to do that. And we did that in-house. Oh, that's fascinating. I guess what went into that process then in terms of development

and what did you want to be able to create that hasn't existed before? Well, one of the things that we really emphasize with data satellites, that are broadband data satellites, is really optimizing the amount of bandwidth that we can get and where we can put that bandwidth. And that's really an issue of frequency reuse, which is very similar to how cellular networks work on the ground. So to get the kind of reuse, that is to reuse the spectrum that's granted to us over and over and over again,

we really developed the first almost completely solid state satellite. And it was a lot of device integration and miniaturization, which we've talked about a little bit in the past, but it's on a scale that's never been done for these types of satellites. And so that was it's it's a it was a big investment for us. It took us a little longer than we expected, but things are looking really promising to get the value out of that. And it's going to launch to this first one is going to launch to space

with SpaceX and a Falcon Heavy rocket. Why the decision to go that route? Well, actually, we had acquired one of the very first commercial Falcon Heavy launches, I think back in about 2016. And unfortunately, it wasn't ready in time for Viasat 2. So we continue to work with SpaceX. The Falcon Heavy is a very high performance rocket. One of the good things, one of the advantages of that rocket is the time from launch to getting into its orbital position will be quite short, only about two weeks,

which is a big improvement over most other kind of medium to heavy lift rockets. Oh, interesting. All right. Are you going to use, I guess, Falcon Heavy for future launches? And just as importantly, how closely did you watch that Starship test flight last week? So our next launch will be on ULA and it'll be an Atlas launch. We're still working on the launch contractor for the for the third launch. The launch contract we had for that one, again, won't quite be ready for that time frame. And so we're negotiating a new one. And sure, I think everybody that's interested in space, you know, watch the Starship launch.

And, you know, it's a pretty powerful beast. So I think there's more work to be done, but it'll be something when it is. Yeah. It was definitely a very intense week last week covering that launch and all the details that came out afterwards. Let's talk a little bit about, I guess, business advice that in general and specifically the competitive landscape

because we could talk about, you know, the rockets that SpaceX makes, but they're also launching their Starlink broadband constellation to orbit, too. So how does it speak to how how the competition is evolving right now and what it means for Viasat? Well, sure. Yeah. You know, when we entered the satellite services business, which was just over 10 years ago,

11 years ago, we started our first satellite that we designed 15 years ago. And we brought that to market. It was really based on a value proposition that for data, which is quite different than the broadcast market, which is what the vast majority of existing satellites were designed to serve, that for data that was really important was being able to deliver a lot of bandwidth per unit cost for our customers. And so that's the mission that we've been on. I think that's one of the things that Starlink has been doing and we can see others are now really, really interested in is how much bandwidth can you deliver for a given price or cost for a customer, all things

considered. That's exactly been the strategy that we've been on. We think Viasat 3 is going to be very, very competitive in those markets. And we've been quite successful in the markets that we've been in. The big thing that Viasat 3 will do for us is give us a lot more bandwidth. We think of that as inventory. If you're in the connectivity business, you need inventory. And so the fact that it's been about six or five years since we've brought our last satellite into service has been kind of a constraint on our growth. But with Viasat 3 and then with two more launches coming in pretty quick succession, I think that'll really give us that inventory that we need for growth. The other thing that we've been working on is a greater emphasis

on mobility as a usage or application for our business. And well, that's been very, very successful for us. That's really the theory behind our Inmarsat acquisition is to kind of grow that business faster. And so we see really good growth prospects based on the launch of these satellites. I do want to get into the Inmarsat merger in more detail. But first, just in terms of this idea of inventory, where do you see the most demand for it? Is it on the government side? Is it on the commercial side?

I know you just inked a deal with Microsoft for Azure as well recently, too. Yeah, we think there's a very big market on the commercial side. We think that that is the biggest market. It's going to come in a number of different, you know, what people call vertical markets. And those include fixed applications for residential enterprise. Aviation's a very big market, both for commercial and for general aviation, private flights, and then maritime and multiple flavors. Those are all attractive markets. I think there'll be new markets that we're looking at for sure,

and we see interest in land mobile. That can include things like trains, buses, that are out of range of cellular networks, or travel cellular networks are overly congested or just don't work very well. We think those are the biggest markets. The interesting thing about it is that those markets tend to be very geographically concentrated.

So not too surprisingly, you know, they are very focused where people live. And I think ballpark, there's kind of a estimate that about 95% of the people in the world live on about 5% of the land. So when you think about these markets, they tend to be very much where people are. And that was one of the main objectives of our Viasat 3 series was to be able to put

most of the bandwidth in those relatively small geographic areas where people are, but then still to have enough global coverage to connect them. So when you have planes or ships, they're en route from one population center to another that we can give them really good service throughout that entire journey. But think of the space business as a lot like the terrestrial cellular business. If you want a cellular carrier, you can want them to cover the roads between the cities, but by far the densest coverage is going to be where the people are in those metro areas. That's a really good metaphor. I like that. I'm going to have to use it. So when we talk about this, we talk about this connectivity and we talk about all the data

that's moving through this process as well too, what does that mean in terms of securing it? This is a conversation, this is a topic that actually came up in a recent conversation I had with General Saltzman from the Space Force about how you protect that data, you know, when you're when you're when it's beaming down and coming back and forth from space. Yeah. So that is that is important. I mean, it's important to the individual users. It's certainly very important when you have platforms that are using it.

So, you know, I think we, as do most responsible satellite operators, invest a lot in our data security and our cybersecurity systems, which attract all kinds of attacks or pokes or explorations or whatever, in different forms. So that's one element. Another area that's also really important and that we work closely with the government on is protecting the satellite itself, which means how you command and control a satellite. That's important as well. Those are both areas that we focus on.

Yeah. You and I spoke, gosh, for this podcast, we spoke maybe well over a year ago now, and it was on the heels of the cyber attack on the Biosat network in Ukraine and parts of Europe as Russia was invading that country at that time. I mean, lessons learned from that process and what it has meant to the resiliency of cybersecurity of the network. Yeah, well, I think there's been a lot of disclosure around that. I think that there's just different ways, different types of attacks, just like there are with other networks. As threats evolve, some of those threats require different operating procedures, more hygiene. There's also the human element of it. We have to address all of those issues. I think one of the lessons learned that came out

of it was just the, think of it as the degree of importance of satellite networks in all walks of life, the amount of attention that those networks can attract and the importance of maintaining good cybersecurity processes and protocols. Those are, you know, those are things that not only we, but I think everybody takes to heart. But the, you know, the main thing is, you know, just like in almost any other cybersecurity situation, the attacker may have years to prepare, you know, may have specific target dates that they tend to exploit and so requires constant vigilance and i think that's that's you know we're up to that yeah um so let's go back to the acquisition

to the to the merger with marsat uh uk competition markets authority provisionally cleared the merger uh at the beginning of march uh we still have this review process going on with the European Commission as well, too. Where are we in the process? And is it likely that you close this deal this summer, assuming that you get final regulatory approvals? So we do think we're nearing the close. The CMA published its provisional results. They took comments. There were a few comments, and they said that they would respond to those comments within a few more weeks. I think that the European Commission has its own process that they go through. I'd say from our perspective, the

markets are either totally overlapping or highly overlapping. The facts around that are very, very similar. So we're hopeful they'll come to the same know, we think we're closing in on the end, but it's obviously very difficult for us to estimate what exactly, when that will be. Yeah. And I guess you touched on it a little bit as well, and just sort of this move into, more meaningful move into mobility, but just what this merger actually enables for the two companies combined together to be able to do and realize in terms of growth yeah there's several several opportunities number one one of the really good things about biaset and in marsat is we both have ka band networks and so that that creates an opportunity for uh the platforms that we serve to roam on to each other's networks.

And Inmarsat was one of the first and earliest to provide a global connectivity network for aeronautical and maritime service. But one of the exciting things about Viasat 3 is from a data capacity and data economics perspective, the amount of bandwidth that we can bring globally from a data capacity and data economics perspective, the amount of bandwidth that we can bring globally is far, far greater than what Inmarsat has. So we see a really big opportunity to upgrade the services that are available to Inmarsat's very large installed base.

And remember, Inmarsat started as a global company, so virtually all of their customers are global. Whereas when we entered the satellite services space, we did it as a regional operator, first in the U.S. and North America, Europe, and then we partnered in Australia and Brazil. And we've been very successful in all those markets, really based on this bandwidth value proposition that we talked about a few minutes ago so what we think is by bringing that bandwidth value proposition to the inmarcets customers and bringing the inmar sat satellite assets to ours which will augment what we have we think that's a really really strong combination the uh other thing that also comes into play is if you look at the technologies that we talked about that we we had to develop ourselves

and manufacture ourselves to give our satellites so much bandwidth and to be able to also focus that bandwidth in the areas where there's high demand One of the things that's becoming really, really interesting now is the application of Inmarsat's L-band network, which is considered part of mobile satellite services, which are now primarily used to communicate with special purpose satellite devices, whether handheld or platform mounted. What's really become interesting now is the potential to allow those satellites to talk directly to ordinary cell phones. And so the technologies that we've developed there, when combined with Inmarsat spectrum assets, and the fact that they can put those assets to use really productively now, that also creates a really interesting potential

for growth for the combined companies in a way neither of us had on our own before. What does this mean? For a consumer that's gonna have access to this newly combined network, I mean, what does that look like in terms of my connectivity on a day-to-day basis? Well, so remember, MRSAT's primarily mobility. So the one where people,

I think, would be most familiar with it is in-flight communications. So that's been, you know, one of the most exciting areas for us. And I think we've been really excited about the success we've had there in the U.S., working with American Airlines, Delta Airlines, United Airlines, JetBlue, recently starting with Southwest. And it's given us a really good business space there. But for the passengers, what it's meant is you can now stream video on the planes. I'm one of the most one of the I think I'm a sports fan. One of the most exciting things is if you want to watch a NBA game, an NFL game, and you've got a subscription to one of those services or Major League Baseball, you can do it. And lots of people do it on on planes uh that have our service so that's really

outside of where we provide service to we've entered europe we have some european customers that are also allowing passengers to do that uh qantas has in australia for many years actually that's they're really excited about that We've started doing the same in Brazil, but the combination of Viasat 3 plus Inmarsat's presence with the global airlines is going to bring that level of connectivity kind of worldwide. And in-flights, it's a really good venue for us to do that. We think there's going to be similar opportunities in maritime as well. You're starting to see more of that level of service on cruise ships, but also private boats that can be big or small.

That's that's another place where you get exposure to it. Finally, people don't travel as much on Amtrak in the US, but in Europe, where rail travel is very extensive, there's lots of places where cellular coverage is really poor. And so using the train's Wi-Fi, I think, will be kind of a similar level of experience there. Very cool. One question about Viasat specifically, there have been some reports about some cost cutting and some layoffs. Is that something that is afoot? Well, one of the things that we did do a few months ago was we did divest one of our government terrestrial anti-jam radio businesses, a tactile data links business to L3 Harris. And as part of that transaction, you know, we sold that business line and a large number of people went along with it. But that also meant that not all of the people that supported that business, especially those that worked indirectly associated with the business

in areas that L3 Harris would have its own infrastructure on, a number of those people were still at Biasat. So unfortunately, we did have to do a little bit of right-sizing to bring our workforce in line with the size of the company that remained. So it's on the order of $350 million worth of revenue that we divested. Then we also do have a transition services agreement with Harris to make sure that that division goes along there smoothly. But that will have a finite duration. And so some of the people that are providing work on there understand that that'll be temporary as well. Other than that, I think one of the things we are seeing is that there's economic consequences of the current overall macro economy that are weighing on companies. And every company is always going to have to assess what those mean for its performance.

Yeah. And I will just ask you that question. We have that conversation on CNBC every single day, the uncertain macroeconomic environment right now. How do you see it? And what does that mean, not only for the company, but for the space business in general over the coming years? Boy, from a business perspective, I think one of the, I mean, this is not surprising, but one of the biggest issues is with interest rates going up, you know, the hurdles for equity returns are higher. And those, you know, those can have impacts on every business's plans. And I think that's a lot of what we're seeing right now. The space business, it's in particular, you know, there's been a lot of investment in that,

but by its very nature, that tends to be very long term. And I think some of these early stage but long term investments are some of the most difficult to raise within the current interest rate environment. So I think it's not been a huge factor for us yet, but I think capital structure has always got to be an important consideration, especially for capital-intensive businesses like space. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.