OneWeb’s bankruptcy rescue changes the competition for Elon Musk’s SpaceX Starlink

OneWeb’s satellite operations center in McLean, Virginia on February 13, 2019.

Sarah L. Voisin / The Washington Post / Getty Images

Satellite internet company OneWeb is back in the space broadband race against SpaceX’s Starlink network, thanks to a late $1 billion bid that should rescue the former from bankruptcy.

OneWeb’s new owners, pending court approvals of the sale later this year, will be the U.K. government and Indian telecommunications conglomerate Bharti Global — which each have committed $500 million in capital to finance OneWeb’s return from bankruptcy.

It’s an “improbable turn of events,” according to Quilty Analytics founder Chris Quilty, who explained to CNBC how OneWeb’s return after its “near-death experience” will change the competitive landscape for its biggest rival.

“If OneWeb had vaporized into Chapter 7 [bankruptcy] and gone away forever, then SpaceX would have been number one, they would have had the ‘priority rights,'” Quilty said. “They’re no worse off than they were prior to OneWeb going bankrupt, but they lost an opportunity.” 

Elon Musk’s venture is the leading player among companies looking to use hundreds or thousands of small satellites in low Earth orbit, or LEO, to beam high-speed internet anywhere in the world. These capital-intensive projects have bankrupt ed companies in the past, with OneWeb the latest victim. 

Quilty’s boutique research and investment firm often focuses on the satellite communications sector, which he founded after leading Raymond James’ coverage of the space industry for 20 years.

OneWeb’s return from bankruptcy means that it will retain the “priority rights” it has to the Ku-band of satellite spectrum, Quilty explained. Spectrum is managed by government regulators on a first-come-first-serve basis, Quilty said, so the company that “files first has priority rights” to that band of spectrum. While regulators expect companies to share use of the spectrum, he said the company with priority rights gets to essentially “set the rules” for how it uses the spectrum.

“It’s not crippling [to SpaceX] but it’s a hindrance to the performance of their system,” Quilty said. “Elon Musk is not only challenging OneWeb for a LEO broadband business, he’s also challenging them for the exact same spectrum in the Ku-band — and he filed second. The fact that OneWeb has been revived means they’re still stuck in this sort of junior position.”

OneWeb would have eventually lost its priority spectrum rights had the company dissolved, due to regulatory changes made by the United Nations’ International Telecommunication Union in January. The new ITU rules essentially set deadlines by which companies must launch a certain number of satellites. Companies with spectrum licenses must launch 10% of their satellites within two years, 50% within five years and 100% within seven years, or risk losing the right to launch more satellites.

“It was those rules that that prompted OneWeb to launch its last batch of satellites two days before they filed for bankruptcy, because they wanted to hit the 10% milestone and keep their options open,” Quilty said. “But if OneWeb doesn’t get up half their satellites by June of 2023, their license gets squashed.”

OneWeb currently has 74 of its planned 648 satellites in orbit. It’s unclear how quickly OneWeb might be able to resume production, as Quilty noted that the company fired most of its employees, including the entire technical staff, down to a skeleton crew.

Meanwhile, SpaceX continues to make progress launching its Starlink satellites, with more than 500 currently in orbit. SpaceX said last month that testing of the network will begin later this summer, with direct-to-consumer internet service planned to begin in the northern U.S. and Canada before the end of the year.

SoftBank’s loss

Before OneWeb filed for bankruptcy in March, lead investor SoftBank had pumped about $2 billion into the company. With the bankruptcy hearing ongoing, it is yet to be seen how much OneWeb’s equity holders and creditors receive from the company’s sale. But Quilty estimates SoftBank will recover just 8% of its total investment when OneWeb’s existing stakeholders are paid, another heavy loss for the Japanese-American technology conglomerate.

Quilty expects the U.K. and Bharti consortium, known formally as BidCo, will look to use about $110 million of its financing to fund OneWeb’s operational costs through the remainder of its time in bankruptcy. According to Quilty, production delays are costing OneWeb between $10 million and $15 million a month. Getting production back up and running will be critical for OneWeb to meet its next regulatory milestone, a feat that Quilty estimates will require most of what’s left of BidCo’s $1 billion in capital after the company emerges from bankruptcy.

“It remains speculative, as they’ve just been given a new lease on life,” Quilty said.

The other wrinkle for SpaceX is that OneWeb’s new owners include the U.K. government — which is naturally the regulator for satellite licensing in Britain. But that “is where things get screwy,” Quilty said, because if SpaceX wants to offer service in the U.K., the government regulator also owns Musk’s competitor.

“Do they have to play by the rules?” Quilty asked.

Assuming there are no regulatory delays, OneWeb’s sale to BidCo is expected to be completed in late November.

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