Lightspeed faces supply chain delay, but Telesat ‘bullish’ about satellite constellation’s future

Telesat is facing a supply chain issue that will likely affect the launch of its new satellite constellation, and associated financing agreements. The Canadian firm's most recent regulatory filings note that after conversations with manufacturer Thales Alenia Space, Telesat estimates the Lightspeed satellites are expected to have longer construction and service due to "global supply chain constraints on the availability of certain components." "This development has delayed our ability to finalize financing agreements with certain export credit agencies, which may also negatively impact the timeline," Telesat said in the filings Tuesday (Nov. 9) with the U.S. Security and Exchange Commission. Telesat did not name the involved agencies in the filings, or discuss the expected length of the delay. The company further warned that delays in design, construction or launch "could have a material adverse effect on Telesat Corporation's results of operations, business prospects and financial condition." One of the risk factors Telesat cites in that regard includes the limited number of manufacturers Telesat deems capable of building the 298-satellite constellation, who would also provide support in case of anomaly during operations. Telesat president and CEO Dan Goldberg extensively discussed the delay during the company's Friday (Nov. 5) quarterly results conference call with analysts. "We're working with Thales right now to get a better sense of the magnitude of the delay, whether there are steps we can take to mitigate the delays, and whether there are any further optimizations we should consider for the Lightspeed design if we have a little more time," he said at the beginning of the call. Goldberg also pointed out that at least some of the competition is also dealing with supply chain issues induced by the pandemic, which has affected everything from global shipping schedules to manufacturing facilities – which may have to shut down or reduce staff periodically for safety reasons. Earlier in November, for example, several media reports indicated that SpaceX's giant Starlink constellation – which eventually plans to have tens of thousands of satellites – is struggling to fulfill orders for Internet kits due to the ongoing semiconductor shortage that has also affected industries ranging from gaming consoles to mobile phones. "These global supply chain issues are having impacts across almost every segment of the economy right now," Goldberg said. "It's certainly the case that the Telesat Lightspeed program is requiring all sorts of components that are getting caught up in those global issues. I think this is fundamentally an issue of timing. And as I said, we're engaged with Thales right now just to fully understand what the impact of that's going to be in terms of funding." Telesat has estimated Lightspeed will cost $6.3 billion, according to multiple media reports, and it appears that export debt financing will be responsible for roughly $2.65 billion of the amount. (That figure is an estimate from adding up the amounts of the various financing announcements Telesat made in association with Lightspeed, as of Aug. 12.) In the Nov. 5 conference call, Goldberg said Telesat is still anticipating seeing financing from the export debt financing eventually; Telesat's Aug. 12 update indicates this financing will form the balance of contributions after several other funding announcements in Canada. The disclosed announcements as of Aug. 12 include Telesat making a roughly $1.7 billion cash contribution to the effort, the Canadian government offering $1.44 billion, the Ontario government $109 million, and the Quebec government $400 million. Telesat also gave an update on its plans to go public, saying it will likely happen by the end of 2021. The company is jointly owned by Loral Space (at 63 percent ownership) and PSP Investments (at 37 percent). Telesat announced in November 2020 that it would eventually become a public company, under an arrangement that will see Telesat Canada and Loral become subsidiaries of a new company called Telesat Corp. The new company will be publicly traded and Canadian, with the majority of its board being Canadians as well, Telesat said at the time. As for financial results, the company posted a net loss of $42 million in the third quarter ending Sept. 30, 2021, compared with net income of $107 million in the same quarter the year before. Telesat says the change was mostly due to a non-cash foreign exchange loss this year, compared with a gain last year. Revenue also decreased slightly, as the company posted $192 million in Q3 2021 and about $182 million in Q3 2020. "The revenue decrease was primarily due to a slight reduction of service for one of Telesat’s North American DTH [direct-to-home] customers, the reduction or non-renewal of certain services in the enterprise segment, including as a result of the COVID-19 pandemic, and lower consulting revenue, partially offset by an increase in revenue associated with short-term services provided to another satellite operator," Telesat said in its Nov. 5 press release announcing the results. Despite the delays with Lightspeed, and the fact that big competitors including SpaceX, OneWeb and Boeing already have at least some satellites in orbit, Goldberg says Telesat maintains that Lightspeed and broadband service will be "the most promising segment of the market" and that Lightspeed will have "significant competitive advantages." On Aug. 12, the company said Lightspeed will be the first and only low-Earth orbit network able to serve several customer segments at once, including telecom, government, maritime and aeronautical. The company also had some indications as to the market opportunity it foresees in the Nov. 9 SEC filings. "Telesat Lightspeed has the potential to transform global satellite and terrestrial communications industries, dramatically increasing the Company’s addressable market from approximately US$18 billion [$22B CAD] to approximately US$365 billion [$453B CAD] and significantly expanding its growth potential," the filings state. Some of the unique attributes of Lightspeed, the filings add, include hybrid (polar and inclined) orbits allowing for global coverage, advanced phased array antennas, the ability to provide data processing in space, and optical intersatellite links that can adapt to demand surges or to infrastructure disruptions due to natural disaster, among other things. Telesat is also gearing up for a possible expansion of Lightspeed to more than 1,600 satellites, which would involve moving into the V-band along with currently allocated Ka-band and C-band spectra. Telesat joined many other companies (Amazon, Astra, Boeing, Hughes Network Inmarsat, Intelsat, OneWeb and SpinLaunch) in asking the Federal Communications Commission last week for access to the V-band spectrum, according to CNBC. The applications came in response to a deadline the FCC imposed, which closed Nov. 4, to process fresh proposals. Spectrum is one of the key challenges for companies looking to offer broadband services, as there are strict regulations having to do with allocating enough bandwidth for individual companies while also preventing interference between frequencies. "It would be foolhardy of us to not make sure that we've got the ability to scale our constellation in response to a market that's growing in response to demand," Goldberg said during the conference call with investors. "That's what we've done here and that's what we did in [an] earlier V-band round … that's what our competitors are doing as well. It's what we need to do to make sure that we've got the authority to scale our constellation as required." Despite the challenges with construction, Goldberg said the company remains "bullish" that they will both be able to go public and to secure full funding of Lightspeed "in the near term." He further promised analysts updates in the near future about the constellation's financing, expected costs and "directional information about our views on the size of the market."