On 7 February 2020, UK-based space company OneWeb successfully launched 34 satellites into outer space. OneWeb’s goal is to create a 648-strong satellite constellation to bring internet connectivity to the most rural parts of the world.
The UK Space Agency, responsible for granting the appropriate licenses, hailed this success with its Director of Growth, Catherine Mealing-Jones, saying:
“There is huge commercial potential for a cost-effective worldwide telecoms satellite system, and the UK space sector is playing a leading role in delivering it, building on our world-leading capabilities in satellite telecommunications, connectivity and data.”
However, just seven weeks later on 27 March 2020, OneWeb announced that it had voluntarily filed for relief from bankruptcy in the United States after launching only 74 satellites. OneWeb is hoping to use these court proceedings to “pursue a sale of its business in order to maximize (sic) the value of the company”.
What went wrong?
Despite $3.4 billion dollars of investment since its founding, including from established companies such as Airbus, Qualcomm, the Virgin Group and Soft Bank, OneWeb had reportedly been experiencing financial struggles since 2018 and was seeking to secure additional financing from its backers. OneWeb said that it had been close to obtaining this but laid the blame on “market turbulence related to the spread of COVID-19”.
It seems that not even outer space is remote enough to isolate completely from the effects of coronavirus.
What are the options for OneWeb?
OneWeb is not the first space company to seek protection from bankruptcy and, in such a high-risk arena, it will not be the last. Although outer space is a unique environment, the consequences of an insolvency have a distinctly familiar feel.
Analysts recognise that OneWeb has three options:
(1) raise additional capital;
(2) sell the company; or, if unsuccessful in the first two options,
(3) liquidate the assets.
Although OneWeb has recently written to the Prime Minister seeking an additional $2 billion of investment from the UK Government in exchange for increasing its operations in the UK, option 1 has been assessed as “dead on arrival” by analysts. So, selling the company or liquidating the assets seem the most realistic routes for the company.
What assets does OneWeb have to sell?
OneWeb already has 74 satellites in space. These are tangible and so it is easy to appreciate that they might have a value in any insolvency. OneWeb also holds the rights to several radiofrequency spectrum authorisations through licences granted in the UK by the regulator, Ofcom. Essentially, these permit it to use these spectrums to provide services for customers. But, as one would expect, the market for these assets is neither large nor is a sale straightforward, particularly because of strict new international rules that came into force in January of this year.
Under the newly adopted regulatory approach, systems like OneWeb’s are required to deploy 10 per cent of their constellations within two years from the end of the current period for bringing into use, 50 per cent within five years, and complete the deployment within seven years. On 31 March 2020, OneWeb’s lawyers told a New York bankruptcy court that it is looking to sell its international satellite spectrum licences within the next three months. Therefore, although OneWeb clearly feels the spectrum has value, any buyer would have to continue with OneWeb’s project or risk losing the right to use the spectrum:
“OneWeb’s 74 operational satellites have almost no value to a prospective buyer, except in the sense that they triggered the…10 percent Bring-into-Use (“BIU”) constellation deployment milestone. This creates a window of time for the buyer to hold the spectrum, either to ramp up deployment of a future constellation – or perhaps to forge an attempted strategic block.”
This makes any sale of the assets problematic with the value being estimated as anywhere between $10 million and $1 billion.
What impact will this have on the wider UK space industry?
Although OneWeb was UK-based, the UK does not yet have its own domestic launching facilities and OneWeb used a facility in Kazakhstan for the February launch. However, following investment from Virgin Orbit in 2019, OneWeb had a contract with Virgin Orbit to launch one or two satellites at a time once Virgin’s proposed base in Cornwall was up and running. What has befallen OneWeb will remind other UK-based space companies that the space sector is a high-risk industry and there are no guarantees. Those at risk are not only those involved in launching but those involved in the wider Scottish space industry such as manufacturers, engineers and other suppliers of components.
What will happen if no buyer comes forward?
As mentioned above, the UK granted licences for these satellites. It also informed the international community that it was the State of Registry. So, in terms of international law, the UK is ultimately responsible for them if no buyer comes forward. This demonstrates the need for a sound business plan before a licence is granted to ensure that the venture is likely to be a commercial success.
It also highlights the challenge for regulators to get the balance right in a nascent industry that they want to encourage but where the financial and technical barriers to entry make competition scarce and the risk of failure high.