Musk's strongest rival in satellite business falls: Sun Zhengyi burned $3.4 billion after repeated support, and was still launching satellites last week. Affected by the new crown, he had no choice but to file for bankruptcy

Qian Mingyuyang from Aofei Temple
Quantum Bit Report | Public Account QbitAI

It was launching satellites last Saturday, and filed for bankruptcy this Saturday.

The news of bankruptcy of OneWeb , the biggest competitor of Musk's SpaceX Starlink , caught everyone off guard.

Why did he fall at this time?

According to the Financial Times, the last straw that broke the camel's back for this commercial satellite company, which had raised nearly $3.5 billion , was that its financial sponsor, SoftBank, was unable to take care of itself in the face of the coronavirus and could no longer pay.

SoftBank has been plagued by a series of bad investments since last year. The Vision Fund reported that SoftBank lost $8.8 billion in the third quarter of 2019.

The situation has become even more serious after the outbreak of the new coronavirus pneumonia epidemic.

The coronavirus pandemic and resulting market turmoil broke down talks between OneWeb and SoftBank on a $2 billion investment, people familiar with the matter said.

As a result, the company laid off its employees and filed for bankruptcy.

Of the promised 650 satellites, only 74 were launched into space in the end.

The lack of funds is undoubtedly the direct cause of OneWeb's collapse. But the fundamental reason is:

They spent too much money but the technology didn't keep up, it was basically a "bottomless pit".

Musk's Starlink project rivals

As one of only two companies that have officially deployed low-orbit communication satellites in batches, OneWeb has always been regarded as a strong rival of Musk's SpaceX.

OneWeb was founded in 2012 by technology entrepreneur Gregory Thane Wyler, who was once named the "most influential person in telecommunications" in the United States.

In its original conception, OneWeb planned to operate at least 650 satellites to cover the world with its broadband service.

In 2015, OneWeb received $500 million in financing from investors including Qualcomm, Virgin Group, Airbus, and Coca-Cola.

In 2016, SoftBank Group under Masayoshi Son joined the game. In this round of financing led by SoftBank, OneWeb received another $1.2 billion in funding, of which SoftBank's investment amount was $1 billion.

In 2017, OneWeb began manufacturing its first satellite.

In 2018, OneWeb completed another round of undisclosed financing, with a financing amount of US$450 million.

In February 2019, OneWeb successfully launched six satellites for the first time.

In March of the same year, the company received a huge investment of US$ 1.25 billion led by SoftBank, Qualcomm, Grupo Salinas and the Rwandan government , bringing the total financing to US$ 3.4 billion.

With money burning high, OneWeb is also full of confidence: it plans to launch satellites monthly starting in December 2019 and quickly build a satellite constellation, hoping to achieve customer demonstrations in 2020 and global service in 2021.

As OneWeb's largest financial backer, SoftBank Group President Masayoshi Son also commented that OneWeb is a "very exciting company."

SoftBank Group Chief Operating Officer Marcelo Claure said OneWeb "is expected to become the world's largest and first truly global communications network."

However, compared with SpaceX's stable launches after May 2019, which sent five batches of satellites into orbit, with about 60 satellites in each batch, OneWeb only started launching satellites in batches at the beginning of this year.

In February 2020, 34 satellites were launched, and just last week (March 21), another 34 satellites were launched. So far, OneWeb's low-orbit constellation network has a total of 74 satellites.

In addition, in September 2019, OneWeb was also involved in a litigation dispute: Intelsat SA filed a lawsuit against OneWeb and SoftBank in New York State, accusing the two companies of breach of contract, fraud, and conspiracy to steal confidential and competitively sensitive information.

Intelsat and OneWeb have reached an agreement: Intelsat will use OneWeb's low-Earth orbit platform to supplement its geostationary orbit satellite services. As a supplement to the agreement, Intelsat invested $25 million in OneWeb in 2015.

Intelsat said the investment gave it exclusive global distribution rights to OneWeb in its aviation, maritime, oil and gas businesses.

But in 2019, when Intelsat was promoting exclusive distribution rights for OneWeb’s satellite capacity in four national markets, it received a cease-sale notice from OneWeb.

OneWeb and SoftBank said negotiations with Intelsat for exclusive capacity allocation rights had never been concluded.

In 2017, SoftBank tried to broker a merger between OneWeb and its competitor Intelsat. However, the $14 billion merger plan ultimately failed because it did not receive enough support from Intelsat's creditors.

After raising $3.4 billion, OneWeb went bankrupt

OneWeb's bankruptcy filing is not actually breaking news.

Under the impact of the new crown epidemic, the global economy has fallen into a downturn, and many investment institutions have tightened their purse strings.

This is undoubtedly a further blow to OneWeb, which has high operating costs and plans to launch satellites in large quantities, which will lead to a sharp increase in costs.

On March 20, Bloomberg quoted people familiar with the matter as saying that due to cash shortage, OneWeb is considering its next move.

There are two paths before them: one is to apply for bankruptcy protection, and the other is to "find other solutions."

But the next day, OneWeb launched 34 communication satellites into space as usual. This was the third time it officially deployed satellites since its establishment.

It seemed to have "disproven" the report of Bloomberg's bankruptcy, but real-time evidence proved that this was just a flash in the pan.

Before launching the satellite, OneWeb released a statement that, while not directly addressing the bankruptcy rumors, acknowledged that the company had problems.

According to ArsTechnica, OneWeb said in a company statement that "increasingly stringent travel restrictions" and "global supply chain disruptions" have led to delays in launch plans and satellite manufacturing.

At the same time, they also "made a difficult decision": to focus on core business while laying off employees. At the same time, OneWeb's "other solutions" are more exposed - asking for help from major shareholder SoftBank.

But how can SoftBank, which has suffered a series of investment failures and has also been hit by the new crown, have the energy to throw money into this "bottomless pit"?

On March 23, Japan's SoftBank announced that it would raise up to approximately US$41 billion in the next year by selling assets such as Alibaba and Uber shares to replenish its cash reserves and repay debts.

Prior to this, there were also media reports that SoftBank might abandon its $3 billion acquisition offer for WeWork. According to SpaceNews, OneWeb may need $7.5 billion to deploy its satellite system.

SoftBank, which is wealthy, has considered investing in OneWeb. According to Wired, SoftBank had previously decided to invest another $2 billion in OneWeb, but the plan was aborted due to the coronavirus and market turmoil.

With its financial backers no longer able to provide support, OneWeb is left with the option of filing for bankruptcy.

Wired quoted people familiar with the matter as saying that it is still impossible to conclude what will happen to OneWeb's remaining assets after filing for bankruptcy protection.

A relatively accurate speculation is that OneWeb will retain some employees to continue operating satellites in orbit, but most of the company's 500 employees will be laid off.

However, the satellite system currently has only 74 satellites, including 6 test satellites, which is far from its initial goal of 648 and is obviously not enough to provide services globally or over a large area.

It is still unclear whether they will remain in orbit and provide services to limited areas. However, some analysts say that they should still be in orbit and are more likely to be scrapped when they expire.

Musk: SpaceX is trying not to go bankrupt

I don’t know if he heard any rumors in advance, but shortly before Bloomberg reported that OneWeb was considering bankruptcy, Musk gave such a conclusion at the World Satellite Conference held in Washington, USA:

Guess how many LEO constellation networks didn’t go bankrupt? Zero.

This is not alarmist talk, but a cruel reality.

Since the 1990s, some companies have taken action to launch satellites to build constellation systems and provide Internet services, but they all eventually went bankrupt.

For example, Teledesic, which was backed by Bill Gates, had only launched one satellite into space when it went bankrupt in 2002.

The reason for its failure is very direct: the cost of manufacturing and launching satellites is too high. But even if enough satellites are launched and able to provide services, companies that build constellation systems still face the problem of profitability. For example, Iridium failed in the face of commercialization.

In 1997 and 1998, Iridium managed to launch a constellation of 66 satellites that would also be able to provide service to cell phones on Earth.

But it still did not escape the fate of bankruptcy. Because it did not attract enough users to support the business, Iridium filed for bankruptcy in 1999 and then reorganized.

Some industry insiders have also given their analysis on the collapse of OneWeb.

Matt Desch, the current CEO of Iridium, said in an interview with Wired that building a large constellation system is a capital-intensive activity, and the returns will not come quickly, so investors must be patient.

Unfortunately, OneWeb's investors are impatient. In contrast, SpaceX is in a much better position.

The Falcon 9, which is capable of repeated launches, and Musk's own satellite and rocket construction factories have greatly reduced the cost and technical difficulty of building Starlink.

Just on March 18, two days before the news that OneWeb was considering bankruptcy came out, SpaceX used a Falcon 9 that had been reused five times to send a new batch of Starlink satellites into the sky.

So far, Musk's Starlink project has completed its sixth launch, with a total of 360 satellites in orbit. According to the plan, it can already provide satellite Internet services to parts of the United States and Canada.

After that, after launching 18 more batches of satellites, when the total number of Starlink satellites reaches 1,440, it will be able to provide services worldwide.

Despite this, Starlink's future is still full of uncertainty.

On the one hand, more funds are needed. In February this year, Musk also expressed his intention to spin off the Starlink business and raise funds through a separate IPO.

On the other hand, it remains unclear whether it can find enough customers for its internet satellite service to sustain its business.

There is no shortage of ambitious players on the road ahead, but there is also no shortage of tombstones.

In the uncertain future, even for Musk, who is full of ambition and never stops making shocking statements, and even though he has launched hundreds of satellites, Starlink is already able to provide services.

All "Iron Man" can say is: the goal we are working hard to achieve is "not to go bankrupt."

Reference Links:

https://www.ft.com/content/8695c459-effd-4b54-8d96-69d8e614f6b4

https://www.wired.com/story/spacex-competitor-oneweb-is-reportedly-bankrupt/

https://arstechnica.com/science/2020/03/oneweb-launches-new-satellites-amid-questions-about-its-fiscal-health/