By Drew FitzGerald and Andy Pasztor
Amazon.com Inc.'s plan to spend more than $10 billion on a
constellation of internet-beaming satellites has left industry
insiders guessing about which customers the company plans to
serve.
The e-commerce company's space venture won Federal
Communications Commission approval last month to launch more than
3,200 low-Earth-orbit satellites over the next nine years. The
proposed network, called Project Kuiper, takes a well-worn path
pursued by rivals including billionaire Elon Musk's Space
Exploration Technologies Corp., OneWeb and other companies that
have tried to take satellite broadband service mainstream.
Those companies got a head start on Amazon, which has yet to
launch a single satellite. Mr. Musk's company, known as SpaceX, has
launched dozens of satellites this year. The closely held company
has tapped the private market several times to fund its rocket
business and the new communications network, called Starlink.
SpaceX and Amazon both promise their technology can provide more
internet bandwidth at a lower price than existing satellite
operators.
"Technologically, it can be done," said Gabriel Rebeiz, a
wireless-communications professor at the University of California,
San Diego. "It's really a financial thing. Once you build it, is it
economically viable?"
Amazon is under less pressure than other satellite companies to
show investors its service will turn a quick profit. The Seattle
company, which generated nearly $90 billion in revenue last
quarter, said in a blog post last month that it plans to steer more
than $10 billion toward Kuiper over the coming years as it posts
hundreds of jobs for the unit.
Amazon told regulators its satellites could help bridge the
digital divide by bringing high-speed broadband to areas that lack
competitive internet service. Amazon spokesman James Watkins
declined to specify the company's expected customer base but
confirmed that the network will serve households as well as
businesses.
The company promised in its FCC application to "leverage its
considerable engineering resources, global operational capabilities
and cost-conscious approach" to give customers "an affordable,
high-quality broadband experience."
Amazon isn't the first big tech company to try bypassing
traditional internet providers. Google owner Alphabet Inc. and
Facebook Inc. have launched projects that deliver connections over
fiber-optic cables, solar-powered drones and lighter-than-air
balloons, with mixed success on a small scale.
Some industry officials say the Kuiper effort comes with
significant technical hurdles, high costs of deploying so many
satellites and a steep drop-off in potential markets because of the
coronavirus pandemic.
Project Kuiper is designed to cut latency -- the time it takes
for the machines to communicate back and forth -- by maintaining an
Earth-hugging orbit that circles the globe much more quickly than
other satellites. That close-to-home real estate forces the system
to maintain thousands of satellites to ensure customers on the
ground are constantly in range.
The FCC approval followed the bankruptcy of OneWeb Global Ltd.,
widely seen as one of the leaders in seeking to provide global
internet connectivity through a constellation of satellites.
Financed largely by Japan's SoftBank Group Corp. and European
aerospace giant Airbus SE, OneWeb succeeded in mass-producing small
satellites faster and cheaper than any company before. Still, the
business plan suffered as its overall project costs surged and the
development of inexpensive ground equipment faltered.
Months before its bankruptcy, OneWeb jettisoned its initial
concept of pursuing consumers and small businesses in developing
regions in favor of serving cruise-line, aviation and other
established markets able to pay higher service fees.
Those potential markets are now reeling from the pandemic.
Veteran space-industry consultant Roger Rusch, who has criticized
low-orbiting constellations as exceedingly expensive to deploy and
typically in need of replacement within a few years, said Amazon's
project appears to take an approach similar to earlier efforts by
committing to huge upfront investments before revenue starts to
flow.
"I haven't seen anything that differentiates it," he said. In
the past, he added, proponents of such projects "got into trouble
because they didn't fully understand the magnitude of what they
were trying to do."
Amazon Chief Executive Jeff Bezos personally owns a rocket
company, Blue Origin Federation LLC, which could help keep a lid on
launch costs. Mr. Watkins said the company is considering all
options for launch services.
Steve Collar, chief executive of Luxembourg-based satellite
service provider SES SA, said the "eye-watering" cost of launching
orbiters and making new home receivers will probably limit the
profitability of low-Earth-orbit satellites outside the U.S.
"Jeff Bezos, I'm sure, has a business plan," Mr. Collar said in
an interview. "But you certainly need to have a very long time
horizon. Because $10 billion isn't where it stops."
Mr. Collar previously led O3b, another satellite company founded
to connect the Earth's three billion people without access to true
broadband. High costs led the company to focus on a smaller
customer market before it merged with SES.
SpaceX's satellite-internet service has struggled with delays
and high costs. The broadband service had initially planned to go
online as early as 2018, according to internal documents previously
viewed by The Wall Street Journal. A SpaceX spokesman declined to
comment.
Project Kuiper has so far only secured U.S. approval for its
satellite network and will need other regulators' assent before it
can provide service in more countries. The system's design would
cover most of the U.S. except for parts of Alaska.
Some telecom industry insiders assumed Amazon would use its
satellites to connect far-flung data centers and offer fat data
pipes to major customers in the corporate world and government
sector. Prof. Rebeiz said Project Kuiper, like other satellite
companies, will probably sell a large amount of its network
capacity to military clients. Amazon's cloud-computing division
already holds a unit devoted to serving data-center resources for
military and aerospace clients.
Viasat Inc. Chief Executive Mark Dankberg said his company,
which serves about 600,000 broadband customers from satellites
stationed at higher orbits, offers the best model for consumers
demanding more data capacity above all else. He said Amazon's
low-latency connections will appeal more to businesses.
"Amazon can fund whatever they want in this," Mr. Dankberg said
at a recent investor conference hosted online. "On the other hand,
they also tend to be pretty rational. They don't waste capital. So
I don't think they will underprice bandwidth that they bring to
market."
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Andy
Pasztor at andy.pasztor@wsj.com
(END) Dow Jones Newswires
August 13, 2020 07:14 ET (11:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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