Last week, the Business, Energy and Industrial Strategy (BEIS) Select Committee called in satellite industry experts to probe the government's £400m purchase of a share in the OneWeb low earth orbit (LEO) system and its potential in comparison to what we have lost in the European Galileo system. Some commentators describe it as a 'gamble' and space industry experts politely say it is 'risky'. Is this a good use of public money?

The BEIS Committee Chair, Darren Jones, Labour MP for Bristol North West, established fairly quickly that One Web

will not meet the requirements of the UK military and security services, and the riskiness of the venture was exposed during the meeting.

Leaving the European Union (Brexit) means that Britain cannot retain access to Galileo, a European alternative to GPS, that we have been an active part of since the early 2000's. The government initially responded with a plan to build a UK version of Galileo, but the plan was dropped, possibly as a result of US pressure Instead, it moved last July to take a £400 million 'golden share' in a bankrupt satellite company, One Web.

The Prime Minister's Special Advisor, Dominic Cummings is said to have been instrumental in the OneWeb investment decision. The UK is part of a consortium with an Indian company, Bharti Global. The UK government and Bharti will each own 45 % of OneWeb. The UK's so-called 'golden share' allows it to control who has access to the system. One Web, headquartered in the UK but with substantial operations in the US, is looking for a total investment of just over $2 billion.

The decision to make the OneWeb investment was contrary to the advice of the Permanent Secretary of BEIS, Sam Beckett, who wrote in a letter to the Secretary of State, Alok Sharma, Member of Parliament for Reading West, on 26 June that :

"Having reflected carefully on the information provided, I have concluded that whilst there may be a commercial case for investing alongside other commercial investors if you accept advisors' assessment of One Web's business plan projections, as a standalone high-risk investment with a possibility that the entirety of the investment is lost and no wider benefits accrued, I cannot satisfy myself that this investment meets the requirements of Value for Money as set out in Managing Public Money."

Mr Sharma replied that 'even with substantial haircuts, OneWeb's base case ... would have a positive return". In the financial world, a 'haircut' refers to the difference between the market value of an asset and the amount that may be used as collaterial for a loan, expressed as a percentage.

Ms Beckett's letter revealed that the Treasury had not conducted a full 'Green-book compliant business case including considering whether alternative options for investment might provide a better return'. She added that the UK Space Agency's independent technical assessment "further illustrates the considerable uncertainties in the modelling done for HM Treasury".

OneWeb is already asking for an additional $1.5 billion and another investor, Charlie Ergen of the Hughes Corporation, a long-time operator of satellite based services in the US, has come in, diluting the UK government's share.

So what exactly has the government bought and what, if anything, might it bring for the public money invested?

One Web is designed to offer a broadband communications service and has no GPS capability. As established by the BEIS Committee, it has a quite different purpose from Galileo, which not only offers an alternative to GPS via its public services, but offers the military and emergency services a secure service that cannot be hacked or jammed. For military use, this is a specific requirement.

One Web is a system of mini-satellites the size of washing machines, that orbit close to the earth. It is technically known as a Low Earth Orbit or LEO system. The satellites are designed to operate like a grand mobile phone system in the sky, transmitting to and from phones and routers over the satellite signal. One Web aims to blast a network 648 satellites into space, and currently has launched 74

One Web claims to be ready to offer the new 5G mobile phone services. It is hoping to offer broadband services to an untapped market of 4 billion people globally, who currently have either no access to broadband, or very limited access.

However, there are many question marks hanging over LEO systems. The questions fall into two brackets. Firstly, whether the technical concept is viable? And secondly, around the market risk.

The LEO satellites are closer to the earth than a conventional geo-stationary communications satellite (they orbit at 2,000km compared with 35,000 km) and they also move in relation to the earth's surface. The lower orbit means there is less delay - or lag - but it also means they see a smaller portion of the earth's surface. Combined with the fact that they move, this raises a number of technical issues.

The satellites have to be able to hand over the call as they move in relation to the user. From the user's perspective, this is rather similar to mobile phone masts handing over as you drive a motorway. Handing over calls between satellites raises special challenges, especially for broadband data, which does not travel as a continuous stream, but instead travels as a series of packets that are separated in transmission and put together at either end. (The traffic is routed using IP - Internet Protocol). In today's market the system would need to handle streaming music and video, otherwise it it likely to have limited consumer appeal. Due diligence should have revealed whether this challenge has been resolved.

If OneWeb were to be adapted to run a GPS positioning system, the user's phone would have to be in sight of four satellites at once, and the satellites would have to be equipped with atomic clocks. According to the expert testimony in the BEIS Committee, re-purposing the current fleet of 70 satellites to run a GPS system would be expensive and risky.

LEO systems are the object of a new space race. The giants in this race are Elon Musk's SpaceX, with its Starlink system, and Jeff Bezos' Amazon with Project Kuiper. Starlink has already launched 380 satellites and plans a total of 42,000. The costs for Starlink are stated as around $10 billion. Amazon is seeking permission to launch 3236 satellites. But as pointed out in this Bloomberg article, making money from satellite projects is rare.

When entering a market like this, due diligence is critical. Perceived markets can be fools gold. There is a lot that can be learned from the historical evidence.

Iridium was the one of three rival offerings around the turn of the century, and the only one that actually managed to get an operational service. ( Some background is provided by McKinsey). However, Iridium's delivery for investors was a long way off what the original prospectus promised. From what can be ascertained, it only achieved voice calls and it went into Chapter 11 proceedings for bankruptcy in 1999. It was rescued from bankruptcy in 2002, and in 2017, it began launching second generation satellites.

Iridium's competitors Globalstar and ICO Global Communications also went bankrupt. ICO was rescued from bankruptcy by the mobile phone magnate Craig McCaw, but from what can be acsertained, its system as originally planned, was never implemented. Certainly, its markets predictions from the late 1990s never came to reality, for voice or data.

At the pre-launch stage, these services were going for global market of millions, acting as in-fill for GSM mobiles in regions of (then) low coverage in Africa and Asia, as well as on the oceans. They were planning data as well as voice services. The figures for the prospective subscriber base were eye-watering but looked at in the cold light of day, the market was very limited. The market was never realised because the phones were too expensive and the predicted demand simply was not there ( from New Scientist ).

With hindsight, ICO could not have got the market more wrong. The thinking was that voice calls would be the lion's share of the market. Data was an add on to a system designed for voice, and the market forecasts were based on text emails and small document transmission, with Internet access for websites. Even in the timescale that they were trying to launch the system, that all changed.

The British government investment has rescued another LEO operator from bankruptcy, but can it sustain the nearly 20-year wait for a possible return? The historical evidence suggests that is how long it is likely to take. It needs deep pockets and patience. Whether our government - or the British taxpayer - has either of those, remains to be seen.

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Iptegrity is made available free of charge. You may cite my work, with attribution. If you reference the material in this article, kindly cite the author as Dr Monica Horten, Visiting Fellow, London School of Economics and Political Science , and link back to Iptegrity.com. You will also find my book for purchase via Amazon.

About me: I've been analysing analysing digital policy for over 13 years. I hold a PhD in EU Communications Policy as well as a Post-graduate diploma in marketing. For many years I was a telecoms journalist, writing for the FT among others. I was an early adopter of the Internet and followed the introduction of the Single Market in the telecoms sector. I am interested in the effects of Brexit and technology. I worked for two years at ICO Global Communications. I have a high regard for satellite engineers, and am in awe of their ability to transmit our voices via these relatively small machines miles up in the sky. Please get in touch if you'd like to know more about my current research.

If you liked this article, you may also like my book The Closing of the Net which discusses the backstory to content online policy and it introduces the notion of structural power in the context of Internet communications . Available in Kindle and Paperback from only £15.99!

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