Feds putting $1.44B into new tech plan
Government kicks in to back plan for LEO satellites with business clients
Telesat's long-serving CEO Dan Goldberg must have sighed with relief this past week when the federal government finally confirmed it would be sinking $1.44 billion into his company's next-generation constellation of satellites known as Lightspeed. Timing was one consideration. Goldberg wanted this item cleared up in advance of a federal election, which was called on Sunday.
But the federal contribution — which will come in the form of a $790-million loan with $650 million in preferred equity — is just one of a series of complicated transactions that Telesat must negotiate before it can bring Lightspeed to life. And such is the competitive state of the satellite communications industry, that getting everything done as quickly as possible is a priority.
Telesat Lightspeed, a network of nearly 300 low Earth orbit (LEO) satellites, is designed to provide broadband service to a wide variety of businesses, from fixed and mobile carriers to aerospace and marine companies. The network's speed, capacity and latency (i.e. distance-induced signal delays) are all expected to be considerably better than Telesat's current technology — a constellation of 15 satellites in high orbit over the same geography. Satellites in the LEO network, by contrast, are designed to move to areas where communications traffic warrant.
Goldberg has been putting the pieces together for ages. Development of Lightspeed began more than five years ago. A test LEO satellite was launched early in 2018, but the first launch for the live network is not expected until early 2023, with full global service forecast in 2024.
That timetable puts Telesat more or less on par with Amazon's plans to launch an LEO constellation of its own. On the other hand, Elon Musk, through his company SpaceX, has already launched more than 1,500 LEO satellites that form its Starlink network. Amazon and SpaceX have each budgeted more than US$10 billion to build their LEO infrastructure, and are aiming at the market for consumers.
In sharp contrast, Telesat is focused on businesses.
Developing the Telesat network is expected to be considerably less expensive.
Loral Space & Communications — which last December owned 63 per cent of Telesat's equity but less than one-third of its voting stock — recently estimated the costs of developing Lightspeed at US$5 billion or $6 billion in Canadian currency.
Goldberg said this week that, courtesy of the federal government's largesse, Telesat now has financing arrangements in place to cover roughly $4 billion of Lightspeed's costs. This includes the $400 million contributed by the province of Quebec earlier this year — split equally between loan and preferred equity — as well contributions over the year from Telesat's cash flows.
Telesat's second-quarter results, published Friday, confirmed its financial health, at least in terms of operations.
The company reported net income of $60.8 million on revenues of $187.9 million. Equally important, the net cash generated from operations was a very solid $153.8 million.
Courtesy of Quebec's financial infusion, Telesat committed to hiring an additional 600 workers in the province, nearly half to be based in a new operations centre in Gatineau.
Nevertheless, that still leaves a few more financial deals for Goldberg to finalize. A key one revolves around the company's plans for an initial public offering — Telesat last November unveiled its intention to do so but such is the complexity of this highly regulated and risky industry, the process takes a while. Goldberg on Friday said he expects his firm will become publicly listed next month or in October.
Not only would the IPO itself produce funds for the company, but a listing on Nasdaq allows for future trips to tap public investors. Goldberg's other option is to increase his debt.
In its annual submission to the U.S. Securities & Exchange Commission, Loral lists 25 pages of potential risks to its Telesat investment, ranging from technical and financial to regulatory. Loral pointed to the “significant and intensifying competition” in the market for satellite services. It also noted the “numerous risks and uncertainties with the planned Lightspeed constellation.” Among these, Loral noted, were Telesat's ability to establish operations and know-how unique to the LEO network.
And, not least, Loral warned of Telesat's dependence on a handful of customers. While it has more than 400 customers overall, the top five account for nearly two-thirds of total revenue and 89 per cent of Telesat's contracted backlog.
So why go ahead with Lightspeed? Loral, and Goldberg of course, are convinced it will substantially widen the potential market for Telesat's communications services and that Telesat's decades-long experience in the industry will help it negotiate the risks. Besides, there's really little choice in matters of technology — staying still would put Telesat in a death spiral.
That's how it is at this level of competition. There are always risks. Now Canadian taxpayers will be along for the ride in a big way.