For stock investors, a new risk is orbiting the satellite market: By trying to preserve competition, antitrust regulators could end up placing even more power in the hands of a privately-owned behemoth—
‘s Starlink.
On Monday, British satellite telecommunications company Inmarsat reported that earnings before interest, taxes, depreciation and amortization, or Ebitda, grew 17% in the third quarter relative to the same period of 2021. Between January and September, the free-cash flow margin was a fat 22%.
California’s
announced a $7.3 billion takeover of Inmarsat in late 2021, making it a centerpiece in the long-awaited consolidation of the satellite market. Yet, despite the deal being cleared by the U.K. government for national-security purposes, Britain’s Competition and Markets Authority recently placed it under intense “Phase 2” scrutiny, on the grounds that it would reduce the number of players in the high-growth in-flight Wi-Fi market.
Shooting down the deal could achieve the exact opposite of what the regulators hope.
Large, expensive satellites placed 22,000 miles above the Earth’s surface, such as those owned by Viasat and Inmarsat, are being overtaken by constellations of small spacecraft in low earth orbit, or LEO, at altitudes of 1,200 miles or less. U.S. officials expect the total number of satellites to increase almost 10-fold by 2030. The Starlink network built by Elon Musk’s SpaceX is on a path to dominance, with more than 3,000 satellites already in orbit and aspirations to take that number above 40,000.
subsidiary Kuiper Systems wants to build a further 3,000, and there are smaller LEO players such as Britain’s OneWeb, as well as sovereign competition from China and Russia.
The LEO threat is forcing incumbents to burn money in pursuit of economies of scale before it is too late. Viasat and Inmarsat are about to launch new large satellites, and the latter aims to build a LEO constellation from 2026. Canada’s Telesat is investing in LEO too, and France’s
recently announced a combination with OneWeb.
Against this backdrop, the CMA’s concerns seem misplaced. A combined Viasat-Inmarsat would only be the third-biggest global in-flight Wi-Fi player, with a 20% market share, Euroconsult data shows. And that is before new competitors join the fray: Starlink has already made inroads at U.S. airlines such as
and
If antitrust officials have something to fear, it is Starlink’s might. Big LEO constellations are superior because they are closer to the ground and thus provide latencies akin to fiber optic. Also, they involve thousands of small satellites hovering above oceans and unpopulated areas at all times, so it doesn’t make sense to look at in-flight Wi-Fi or any other segment in isolation anymore. Even if Starlink and Kuiper initially focus on rural broadband, it is certain they will end up catering to ships, planes and anyone else, because not doing so would leave resources idle.
Inmarsat mainly serves ships and governments, whereas Viasat has a big foothold in residential broadband. Yet even this merged company would struggle against the overwhelming amount of capacity that SpaceX and Amazon.com—giants with other sources of profit—are scheduled to bring online.
If anything, antitrust action could reduce efforts to combat the might of these entrants. Satellite firms such as Eutelsat and Inmarsat are known for their reliable cash flows, and the latter’s results underscore that it is still a money spinner for its current owners, a consortium that includes private-equity firms Apax Partners and Warburg Pincus. If they fail to sell the business to Viasat, they may pressure management to stick to an “investment-light” model at the expense of long-term prospects.
Publicly traded satellite firms are at an existential crossroads. Officials shouldn’t push them the wrong way.
Write to Jon Sindreu at jon.sindreu@wsj.com
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