Thinking big and small(sat) satellites
The Huffington Post recently identified “Top 10 Tech Trends Transforming Humanity.”1 The first of these transformative tech trends was labeled “we are hyper-connecting the world” and the Huffington Post cited five independent drone-based or satellite-based projects that promise to bring broader and faster internet service to the globe.
But large-scale projects such as these are not the only exciting developments in the commercial space industry. Startup companies are also shaping the industry with disruptive new technologies and innovative business models. Many startups are drawn to smallsats, which can be manufactured, launched, replaced, and built out into constellations for a fraction of the cost and time of larger, more traditional satellites. Thus, satellites are now viewed as another platform (along with terrestrial and drone systems) that can be deployed to address a variety of earth-based problems including those related to tracking and logistics, emergency and humanitarian response, environmental monitoring, machine-to-machine communications, and others.
Given the nature of these smallsats, many systems are launched as pathfinder programs at relatively reasonable cost, to test out the system, market, and desired characteristics before launching of a full constellation. The growth of the smallsat industry has given rise to a parallel market for launching smallsats on either small launch vehicles that have been developed and/or planned, and/or ride-sharing on larger vehicles (or in combination with many other smallsats). This sort of cost-effective launch market has only started to come into its own over the past several years.
Beyond the startups, the traditional industry players as well as those from Silicon Valley continue to invest in drone technologies, but are also investing in improved satellite technology. For example, the new high throughput satellites (HTS) offer vastly increased capacity. Improved capacity from these and other HTS has the potential to unlock new technical solutions and business models, similar to the revolution in smallsats. Advances in computing power and efficiency are driving investment in on-orbit data processing. Many of the new businesses in the satellite sector feature the data processing and data analytics so critical to producing the useful information that customers are demanding. Some satellite companies are providing the entire ecosystem for such big data applications but others are relying on existing satellite-system agnostic platforms to serve customer needs, and yet others are teaming with other providers (including other satellite systems) to deliver the best suited applications sought by customers in different market segments.
Advances in robotics and 3D printing have also made on-orbit manufacturing a real possibility, and even manufacturing of satellite and launch components on a less costly basis. In the spring of 2016, NASA entered a US$20m contract, which aims to demonstrate the ability to perform on-orbit, additive manufacturing capable of creating large, complex structures by 2018.
The space industry is driven by technological advances and there are no shortage of those advances in 2017. Below, we summarize the recent key business, regulatory, and legal developments that will shape aerospace, defense, and government services (ADG) companies’ abilities to harness these exciting opportunities.
U.S. Government-commercial convergence on smallsat platforms
U.S. Government interest in commercial platforms is at an all-time high, attracted by the joint opportunities of exciting new technologies and potential cost savings. New RF-detection solutions, for example, will bring to the market new technologies that promise to locate pirates and human traffickers by identifying “dark ships” that hide from traditional location-monitoring systems. Rapidly refreshing geo-imaging systems, will support the ability to observe floods, forest fires, refugee crises, war zones, and other hotspots with improved accuracy. Other companies implementing space-based aircraft tracking are anticipated to complement the Federal Aviation Adminstration’s ongoing Automatic Dependent Surveillance-Broadcast program. And by combining these and similar advances with innovations in data analytics and artificial intelligence, smallsat technology can unlock possibilities we are only beginning to imagine.
U.S. Government funding comes in all shapes and sizes. In 2016, smallsat startups received funding from a range of U.S. Government sources and programs. One such program was NOAA’s weather data pilot program, which in September 2016 awarded two contracts, totaling over US$1m to secure radio occultation data on atmospheric temperature and humidity. The pilot program is expected to lead to further use of commercial data by NOAA in its weather forecasting systems. On the defense and intelligence side, the National Geospatial-Intelligence Agency’s (NGA) recently entered into a US$20m commercial contract with a commercial imagery provider to gain access to a global imagery refresh every 15 days. In June, it was announced that an investor group including a strategic investor for the U.S. defense and intelligence communities would contribute to a Series B round of over US$20m in a geospatial data company focused on satellite and unmanned aerial vehicle imagery. This level of mixed investment from private equity and venture capital, side-by-side with U.S. Government investors, is by itself an interesting and important development.
Some of these investments are part of the “Harnessing the Small Satellite Revolution” initiative, announced by the White House’s Office of Science and Technology Policy in late 2016. As part of the initiative, the Department of Defense, NASA, and other agencies committed to spending over US$110 m over the next five years. NASA’s participation will include up to US$30m: US$25m for purchasing smallsat data from non-governmental sources and US$5m to advance new smallsat constellation technologies. NASA will also create a central repository for smallsat technical know-how, to be called the Small Spacecraft Virtual Institute, at NASA’s Ames Research Center, in Silicon Valley. The NGA’s role in the initiative, in addition to its ongoing commercial contracts described above, will be to partner with the General Services Administration to develop a more efficient process for all government customers to obtain earth-imaging data and related services—these efforts are referred to by the acronym CIBORG. If CIBORG is able to achieve commercial off-the-shelf (COTS) status for earth-imaging, it could drive growth in the industry, particularly in the U.S.
Other global governments are similarly exploring and developing strong innovation, accelerators, and legislative and financial support, including the UK (e.g., Catapult), Luxembourg, and the European Space Agency.
Large satellite defense manufacturers, meet the smallsat community: Successful teaming arrangements require creative problem solving
If trends continue, we expect 2017 to see an increase in creative teaming arrangements. Teaming arrangements between NewSpace entrants and traditional space companies can be a win-win for both parties. Potential benefits range from simple cost savings, to access to technology, to expanded networks both in and out of government, and others. For the NewSpace partner, joining up with a traditional company can provide access to legacy platforms and capital beyond what could be achieved with a typical seed or Series A funding. And for the traditional space participant, teaming with a NewSpace company can be a means to enter a market without competing with its existing customers, or being perceived as threatening to other legacy companies. Teaming with a NewSpace partner also provides an opportunity for cross-cultural interaction and exposure to disruptive thinking. Even teaming arrangements between two NewSpace participants brings potential cost-savings, shared learning opportunities, leveraging of innovative developments, and a win-win to each business plan.
A successful teaming arrangement requires mutual understanding and creative problem-solving from both sides. One potential pitfall is that small company partners are often at risk of being overwhelmed by their larger investors, such that the small company ends up orbiting the large company, responding to its needs and unable to pursue its own business plan. To counter this, a strategic investor’s role should be limited as much as possible to a normal customer role, and the transaction should be structured to preserve the smaller company’s ability to earn a decent profit—even on sales to the strategic investor. Another potential issue is that a typical startup is often focused on the short-term: how the proceeds of an investment will be applied and what milestones need to be met before the next funding round. Traditional companies tend to be more focused on the long-term investment, such as how the NewSpace company or a jointly-developed technology will fit in with the investor’s long-term strategic objectives. Traditional companies are also wary of the risk that a NewSpace partner will suffer continuous shortfalls, and as a result will keep coming back to the strategic investor for more money, time, and support. A NewSpace company should be aware of these concerns; it should also be prepared to provide a more detailed roadmap and to be subjected to more extensive due diligence than it may have experienced in prior investments. In all cases, each company must work to ensure that the deal structure and documentation preserves its core business rights and essential flexibility.
Innovative NewSpace technologies create regulatory uncertainty
Innovative NewSpace technologies have pushed dated satellite-related regulations to the limit. Much of the technology emerging in today’s commercial space industry does not neatly fit within existing regulations. Activities such as asteroid mining, the launch and operation of large numbers of non-geostationary (NGSO) satellites, and mission extension services raise novel and interesting questions about the applicability of existing regulations and international treaties. While agencies stretch existing rules to accommodate NewSpace innovations, they are also pursuing regulatory solutions to better facilitate growth and development of the smallsat industry. The Federal Communications Commission (FCC), for example, recently published a Notice of Proposed Rulemaking proposing changes to existing rules to better facilitate and coordinate use of large constellations of NGSO fixed-satellite service systems (IB Docket No. 16-408) and announced its intention to act on such applications this year. The FCC has also stated its plans to initiate a rulemaking to determine a regulatory framework to facilitate the development for smallsat systems. Others are exploring creating new agencies or new authorizations to regulate NewSpace technologies, including the grant of mission authority to the FAA, whereby the FAA would authorize all space missions, including non-traditional activities, such as asteroid mining, via a process similar to the existing payload review process.
Public-Private Partnerships form to facilitate development of smallsat systems
To facilitate the growth of the commercial smallsat sector and government interest in promoting commercial space development, public and private stakeholders have voluntarily come together informally to form the Commercial Smallsat Spectrum Management Association (CSSMA). The goal behind the CSSMA is simple: by working together to streamline the current frequency coordination process, CSSMA participants can facilitate commercial access to shared spectrum and minimize interference among all users. The CSSMA meetings have brought together representatives from the FCC, NASA, NOAA, and NTIA and numerous smallsat operators. Attendees participate in a wide range of discussions on issues smallsat operators are facing at the FCC and internationally, and also share experiences, lessons learned, and best practices for spectrum coordination efforts with government agencies.
Exciting new technologies and innovative business models are opening many new opportunities in the commercial space industry. But, as with all cutting-edge industries, the satellite industry is also shaped by business risk and regulatory uncertainty. As you develop your own plans in this sector, be sure to involve a multidisciplinary team that can help to identify risks throughout the life of the program, as well as opportunities for new sources of revenue. And regardless of the size of your company, consider creative, strategic teaming arrangements that can lower your costs, provide access to a partner’s technology, and multiply your opportunities to develop even more innovative products and services.