Report: US LEO satellites face headwinds

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Low Earth Orbiting (LEO) satellites are being positioned as a solution to bridge the US digital divide, as they will be able to reach remote parts of the country, promising fibre-like data speeds. A new report, LEO Satellite Broadband Expectations Need to Come Back to Earth, from co-operative bank CoBank’s Knowledge Exchange division, identifies significant headwinds the industry will contend with before its full potential might be realised.

“Globally, there’s a very large market that’s gone untapped as nearly 4 billion people don’t use the Internet, with lack of access being the biggest factor,” notes Jeff Johnston, lead communications economist with CoBank. “There’s reason for optimism that LEO satellites can deliver on their broadband promise, but the path to commercial viability is littered with uncertainty and challenges.”

Satellite research and analytics firm Quilty Analytics has a bearish view on venture capital-backed satellite companies in light of Covid-19. Out of the six space sectors the firm believes are most vulnerable, it cited the LEO segment as having the highest risk. Access to private funding is critical to develop the technology and network ecosystem.

Competition in the broadband market represents another challenge. Being able to penetrate the urban and suburban markets may well be an important consideration for the LEO satellite broadband business case, but this will not be easy. Incumbent broadband networks are highly motivated to maintain their market share.

The Federal Communications Commission (FCC) has displayed scepticism and plans to limit satellite operators to lower speed and higher latency tiers in the upcoming Rural Digital Opportunity Fund (RDOF) reverse auction. According to CoBank, this is a setback for the industry, as it suggests the FCC is unconvinced that LEO satellite operators will deliver on their speed and latency claims.

Amazon has yet to share much detail regarding its LEO satellite ambitions. According to Johnston, if there is a market for LEO satellite broadband networks, Amazon is currently in the best position to succeed. “Unlike firms that rely on venture capital for funding, access to capital is not an issue for Amazon,” he suggests. “As Amazon branches out beyond its core Internet business, bundling satellite Internet with other services could offer value and be a differentiator.”

In the enterprise market, satellite broadband could be bundled with Amazon Web Services. A connectivity and cloud offering would be an attractive bundle, especially in rural markets where cloud adoption is low. On the consumer side, Amazon has several services it could bundle.

“Cable operators have demonstrated that bundling can help new entrants take market share,” added Johnston. “We believe the market could have a similar response to an Amazon bundle that includes satellite broadband. But a market for LEO satellite broadband network would need to develop first.”


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