Closing Bell - Manifest Space: Global Constellation Countdown with OneWeb CEO Neil Masterson 3/24/23

Episode Date: March 24, 2023

The stage is set for European satellite communications company OneWeb to complete the first ever completed global LEO constellation this weekend. Morgan discusses the historic milestone with CEO Neil Masterson ahead of the company’s launch from India, along with the company’s separation from its Russian rocket partnership last year, its planned $3.4 billion merger with French satellite operator Eutelsat, and the outlook for the company. For more Manifest Space, listen and follow here: https://link.chtbl.com/manifestspace

A major milestone for OneWeb. If all goes according to plan, the startup will launch its final 36 satellites to enable service globally this year. It's a move that would make it the first broadband satellite operator to complete a low-Earth orbit constellation. Ahead of Launch 18, which is scheduled for Sunday with India's space agency, CEO Neil Masterson says this will solidify OneWeb's position as a leader in satellite communications, as a, quote, wholesaler of connectivity. We distinguish ourselves from starting from a competitive standpoint in that we are a B2B business. We're not a B2C business. So our primary customers are telephone companies, existing satellite providers. In fact, other satellite companies, I'll come to that in a

second, as well as governments. So our approach is to make sure that we integrate our network into others' networks to extend their network and help them serve their customers better. In this episode, I speak exclusively with Masterson about the business model, the impact of the Ukraine war, and when OneWeb will officially be acquired by Udalsat. I'm Morgan Brennan, and this is Manifest Space. We're on the cusp of a major milestone for OneWeb. Talk to me about this upcoming launch and why it is so significant for the company. Yeah, we are super excited. This is launch 18 for us this weekend. We're launching with ISRO from India this weekend.

This launch is super important because this is the launch that gives us enough satellite coverage to cover the entire globe. And so it will enable us to roll out coverage progressively around the world during the course of this year. So in May, we'll cover the lower 48 states. Then in August, we'll get down to about 25 degrees north of the equatorial belt. And then by the end of the year, we will have global coverage around the the world whether that's on land uh sea or in the air so we're we're very excited it's been a long road to get here uh space is hard um and we couldn't play on our own there's been lots of collaboration and but we're very excited space is hard and geopolitics is hard the last time you and i spoke, Russia had just invaded Ukraine. You were essentially having to abandon satellites in Russia and find new launch partners and striking deals with SpaceX and with India as well. I guess walk me through that part of the past year, too, and what that's meant in terms of having to, I guess, recoup losses and pivot and try and, you know, make up for that lost time. Well, I think it's been a fantastic example of resilience from our team and also collaboration

across the industry. You're absolutely right. I mean, we got caught up in the geopolitical crisis involving the awful invasion of the Ukraine. And as you mentioned, we had 36 satellites on the launch pad ready to go in Baikonur and Kazakhstan. And we decided to suspend our launches with the launch provider. And we had to very quickly recruit. So we managed to manufacture the satellites within one month in order to replace them. And we very quickly found ways to find alternative launch partners. And you're absolutely right. And I guess I've got an advert for SpaceX behind me here.

We managed to secure three launches of SpaceX very quickly, and two with the Indian Space Agency, ISRO. And we have now launched 120 satellites with SpaceX, which we've executed in very short order and flawlessly. And 36 have gone off with ISRO. We have another 36 this weekend, which we're looking forward to complete. So, you know, I'm going to ask, how has it been to work with SpaceX since you guys are competitors and you're a customer? And I realize those are two different businesses, but we've talked about the rivalry before. So I would say it's been an absolute pleasure dealing with SpaceX. They've been incredibly, they have a wonderful can-do, get it done attitude.

And, you know, I think that we I mean, look, we operate and we collaborate with SpaceX and Starlink every day. Operationally, our folks are pretty close. And, you know, when it comes to space, we're all in this together. And I think there's been a great deal of collaboration together. So I can't speak highly enough of them, actually.

They've been a wonderful partner for us. When you say you collaborate with Starlink, what do you mean? Well, so we obviously operate, we operate, OneWeb operates, we operate the second largest constellation of satellites on Earth. And there's only two Leos in operation, and Starlink runs the other one. And so when we launch our satellites, we obviously have to fly through their constellations. So we spend time working with each other to make sure that we

operate together and that works smoothly. So there's lots of cooperation and collaboration that takes place. So let's talk a little bit about, and you and I have had multiple conversations now about your business model, but let's revisit that again. And I guess if to the extent you can disclose them, some of the numbers or some of the statistics in terms of, you know, your customer list and as you roll out service, how quickly you are bringing on more business. Yeah, sure. So again, I'm very encouraged by the progress the team has made. So we distinguish ourselves from starting from a competitive standpoint in that we are a B2B business. We're not a B2C business. So our primary customers are telephone companies, existing satellite providers. In fact, other satellite companies, and I'll

come to that in a second, as well as governments. So our approach is to make sure that we integrate our network into others' networks to extend their network and help them serve their customers better. And it's a different model from Starlink's. I'm not saying it's better or worse. It's just a different one. That's the path that we've chosen to pursue. And so we issued our first, so we are now operating in 15 countries. We, today our service is still sort of the US-Canadian border to the North Pole, UK, South Coast to the North Pole, and so on and so forth. And that's why the expansion is really exciting for us, because it enables us to enter new markets. We issued our first invoice last May.

So this company had been around for like 10 years. Last May, we issued our first invoice, and we now have $900 million in contracted revenue backlog. And that's been very significant progress over the last few months. So we're very excited by that. But I think importantly, this is a very important point. We now sell our capacity to three of the geo-satellite companies, the established industry, and who are incorporating our service into their service to better serve their customers. And we have a number of other discussions taking place with other satellite companies, as well as there's been some recent announcements with telephone companies, and you'll see more in the coming weeks and months. That's fascinating. So what does that

mean in terms of the quality of connectivity for businesses or enterprise customers or even consumers at the end of the day when you start to see all of these different layers of accessibility and connectivity come together? Well it should be, first of all it should be better. I mean, our approach is very much to, where there is no other source of connectivity, we can be the primary source of connectivity. And where there is other sources of connectivity, we can essentially be a backup.

And our approach is, again, somewhat distinguished from other participants in the marketplace, because we actually commit to committed information rates. Most internet services we know at home is a best efforts service. So you can see fluctuations in the capacity and the signal. Ours is consistent. We set service level agreements by that. We pay penalties if we don't adhere to those metrics. So it's very much intended to be a professional stroke industrial solution to help extend networks for our customers. Are you contracting with governments too?

Yes, we are. I won't go into too many details, but we do contract with governments and we see governments as a big opportunity for this business down the road. How are you thinking about security, whether it is in terms of the government contracting or in terms of all of that data that I would imagine is going to be accessible through your network? Well, the data is not accessible for our network because the network is encrypted end-to-end. And so it's very difficult to get into that. And in addition to that, our customers, if they choose to, over and above the encryption levels we have, they can put their own encryption over the top of that.

So we don't see the information that goes over our network. We know there's information going over it, but we are not able to see it, and nor do we choose to. Our customer's data is their data. So one of the conversations I keep having over and over again with different guests on Manifest Space is the fact that we are on the cusp of this major satellite boom that there could be, based on just the applications that we are on the cusp of this major satellite boom, that there could be, based on just the applications that are out there right now, up to 100,000 satellites that could

end up in low Earth orbit and different orbits around the Earth in the coming years. Now, I realize that number is probably very lofty, but I wonder how you think about that in this competitive landscape where capital is becoming more constricted. Yeah, so I think that. So let me address the number of satellites, first of all. And I can only speak to one of his intentions. So we expect our constellation to top out at around 640 satellites. We'll get to about 620 over the weekend. We may launch some. We will launch some spares. That's where we will top out our next generation of satellites, which we're planning, we expect to actually launch fewer, but more powerful satellites. So, you know, maybe 360 is where we'll be. And

then we can increase it depending upon customer demand. So our approach is because we fly higher than some of our competitors is actually to have fewer but more powerful satellites rather than having too many. I think you're absolutely right. Building LEO constellations as I have discovered is very difficult. And generally speaking, in addition to some significant capital funding, you need, broadly speaking, five ingredients. You've got to have spectrum, speaking, five ingredients. You've got to have spectrum, which is the frequencies. You need access to rockets. You need access to

satellites. You need to be able to build the satellites. And importantly, the ground network and ground equipment, which is often overlooked, is an incredible, very important part. And then there's the people. And there aren't that many people in the world who actually know how to do this. And so I think that means it's going to be quite difficult for others to get into the space. That said, there are some very well-funded competitors out there or potential competitors out there. Obviously, Amazon Kuiper is one of them. But it will take time for these constellations to reach fruition. It is difficult to launch these constellations for the reasons I've mentioned. What does all this mean for manufacturing? Because I know

OneWeb really kind of pioneered this ability to manufacture more quickly, lower cost, high production rate. I think about your operations down in Florida, for example. How is that cadence shifting and evolving now? So we were producing, it's very interesting. So we restarted the company during COVID and we immediately got the supply lines back going. And we can produce up to four satellites a day. We produce two a day. In fact, our production run has essentially come to an end at this point. I think that with modern technology, it's going to be possible to produce satellites faster and more cheaply as we go forward. But there are not many people who actually know, who have got the way of order to know how to do it, if you see what I mean.

It's still a very complex um a complex pro um process it's also very important to thoroughly test those satellites on the ground before launching them because once they're in space you know it's quite difficult to um you can do lots of software updates and that kind of stuff but mechanically you need to make sure the hardware is extremely robust before you put it in space. So again, I think what you'll see is that there'll be a relatively small number of satellite manufacturers around the world who will be able to do this at scale, and scale becomes incredibly important in any technology business. You mentioned the backlog before. As you get this final mission off the ground launched and you begin to roll out service to more parts of the world in a larger way, when do you start making money?

Yes, our prime goal, in many ways, we're quite a simple business. We sell connectivity. That's what we do. We're a wholesaler of connectivity. It just happens that our connectivity is delivered from space and the reason for that is actually it's much cheaper to do that when you're trying to provide connectivity into regions where there's no where there's no fiber or where you want to provide a independent backup to fiber and and so my expectation is i mean that is that is our model going forward there are other models we could we could do i do. Again, we fly a very large fleet

of satellites from a room sort of 100 feet behind me. There's very few places in the world that can do that. So we can fly other people's satellites for them if that's what they desire. We also have an extensive ground network around the world, which we can leverage for other reasons. But the core business is all about connectivity, providing connectivity solutions for business customers, for them to serve their customers better. That's really the core of our business. You're merging with Eutelstat.

I guess an update on that deal closing and what that's going to mean in terms of synergies and your ability to have more heft in this emerging market? Yes, so I would say, so let me deal with the deal timeline and we'll come to the synergies. So we expect the, we're sort of in the last lap now and I have to be cautious here because we're in the hands of regulators and our expectation is that we will close the deal at some point over the summer. I would say that I've been pleasantly surprised by the, this is a heavily regulated business, I've been pleasantly surprised by the pace of which we've gone through

the regulatory hurdles. I think we have regulatory approval in over 40 countries at this point. There's one or two more to go and we feel confident in getting through that. When we announced the merger, the industrial logic was very much about really, first of all, so three elements. First of all, customers had told us, actually they want LeoGeo services blended together.

And also that this is becoming a scale industry very, very quickly, very quickly indeed. And we need to scale up. And for us, it was all about accelerating the pace of OneWeb's growth. And actually, all three of those have proven, you know, are proving to be correct assumptions. So first and foremost, the fact that three geo operators have actually bought capacity from us and are including us in their propositions to customers, I think proves the point. And there's certainly more to come on that. Again, Utilsat is a very experienced organization, and we are working together already on developing the next generation of technology and blending those networks

together, which would be very, very important. So not just commercially, but at the technical level. Again, that scale point is proving out. So we're very excited by the prospect of bringing these companies together. And also commercially, it's going to be, rather than me having to, I mean, UserSat has a sales organization of two of around 200 people. I have 50. They operate in many countries around the world.

And as we expand globally, it's going to be I'm looking forward to be able to leverage their their infrastructure, their network, their sales force much more actively to to to to accelerate our growth. We've seen a wave of M&A coming to the satellite industry in general over the past year plus. I just wonder what you think over the coming months, over the coming years, what this industry is going to look like and how it's going to evolve. I think actually I was at the Mobile World Congress, which is the big telecoms congress

in Barcelona, I think three I was at the Mobile World Congress, which is the big telecoms congress in Barcelona, I think three weeks ago. And I think what was interesting was that, first of all, we had a lot of interest from telephone companies from around the world who are very keen to talk to us and to do business with us, which we're obviously very happy about. But I think more importantly, more thematically, that satcoms and telecoms is really merging. It's becoming it's just another connectivity tool and telecoms is really merging. It's just another connectivity tool for telecoms businesses. So I think you're seeing that. I think that, as I mentioned before, this is becoming a scale industry. Hitherto, satellite had been somewhat subscale. This is becoming a scale industry. So I think what you will see is a satellite industry becoming far more integrated with telecoms as a whole, and be larger, fewer and larger players in the industry as they scale up

and require, you know, capital resources to roll out larger constellations and integrate correctly with telecoms providers for the benefit of their customers. Neil, appreciate the time. Thank you so much for joining me today ahead of this milestone launch. Thank you very much. Neil Masterson of OneWeb. Thank you. That does it for this episode of Manifest Space.

Make sure you never miss a launch by searching Manifest Space wherever you get your podcasts. I'm Ma Brennan.