MSCI Making Pitch for Telecom Financing

The recent announcement by Microsat Systems Canada (MSCI) CEO David Cooper that his company is “launching a new initiative” to build a constellation of 78 small, relatively low-flying satellites designed to relieve internet and smart phone congestion and provide broadband access in rural locations, highlights the differences between small space focused Canadian firms and their larger commercial satellite and internet service provider cousins.

I’ve never seen as strong of a market pull as I’ve seen with the demand for this sort of product” said Cooper. “From the Canadian perspective, this market is undeniable and every other nation knows this” he states unequivocally.
Cooper refers to the “market pull” or business need to address the growing requirements for smart phone and broadband network bandwidth, an area where demand seems to grow exponentially whenever a new feature is added to a cell phone, online school courses are made available or someone downloads a Netflix movie.
But if you think broadband access is generally available throughout Canada except for small, northern and rural communities you might want to think again. According to the January 20th, 2011 Winnipeg Free Press online edition article The ‘digital have-nots’ of Winnipeg, many local communities within walking distance of major Canadian cities simply lack access to internet broadband.
Cooper points to recent indications that the Canadian Radio-television and Telecommunications Commission (CRTC) might require Canadian internet and phone providers to improve rural service as described in the February 3rd, 2010 Globe and Mail article CRTC may require Internet providers to improve rural access.
The article quotes Michael Hennessy, the senior vice-president for government and regulatory affairs at Canadian telecom giant Telus as stating:
“The CRTC’s question, at essence, is: Shouldn’t Canadians all have access to broadband service? The problem for everybody is, that’s a nice idea, but who is going to pay for it? You’re talking about hundreds of millions of dollars if you’re going to extend wire line, broadband Internet to rural communities.”
Hennessay isn’t saying that something is impossible. He’s just telling us that he doesn’t think his company should have to pay for it.
Others question the CRTC’s ability to even ask that question or influence the final decision.
For example, the December 10th, 2010 Globe and Mail article Internet regulation outside CRTC jurisdiction: expert quotes Ian Lee, a frequent telecom consultant and professor at the Sprott School of Business at Carlton University as stating that the CRTC has “no legal authority to force Internet service providers to expand high-speed broadband to rural areas.
Of course, CRTC officials disagree with Professor Lee and the final decision is likely going to be dependent on federal government intervention. But for every expert like Mr. Lee that the CRTC disagrees with and we hear about, it’s quite likely that the large telecoms and service providers can corral ten more expects with similar opinions.
And this is where we get to the difference between MSCI and some of the larger Canadian telecoms.
MSCI is essentially an engineering firm focused on solving technical problems. It has a strong history developing micro-satellites such as the Micro-variability and Oscillations of Stars (MOST) micro-satellite telescope and the Near Earth Object Surveillance (NEOSSat) micro-satellite.
So if I wanted to go somewhere to find out if a 78 satellite constellation providing internet “backhaul” services (the portion of the network that comprises the intermediate links between the core network, or backbone, of the network and the small sub-networks), then I’d likely go to MSCI, or a place just like it to find the answer.
That’s their area of expertise.
But that’s not the question on the table. The question on the table is who is going to end up paying for this new capability.
The large Canadian telecoms have the lobbyists and public relations flacks on the payroll who can present their answer to the Federal government in a far more easily digestible format than MSCI seems able to do right now.
That’s the difference between small, space focused Canadian firms like MSCI and their larger commercial cousins. Unfortunately, at this point, the larger firms have the advantage.
Of course, David Cooper also makes the point that, while Canada has 700,000 people without broadband access there is also another three billion people without broadband access in the rest of the world. Cooper feels that this larger untapped market is also looking for the solution that his company can provide and some of them are also more than willing to pay.
But until MSCI has a specific answer to the question of who will pay for these new services and demonstrates the capability to effectively present their solutions to governments and other stakeholders, the 78 satellite MSCI constellation is just an engineering study waiting for an investor.
The ball is now in Mr. Coopers court.

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  1. I don’t understand the alleged problem. Virtually all Canadians have access to broadband — even if you are in a location without cable TV, landlines, or cell towers (and this is a very small proportion of the Canadian population) then you can sign up with one of the several satellite broadband vendors and get 1Mb/sec. download at less than $100/month. So you’ll pay a bit more per bit than someone in a wired-up city, but I don’t see how this means “communities within walking distance of major Canadian cities simply lack access to internet broadband.” Currently these remotely situated users just have less choice in how they get their broadband and they pay slightly more for it.

  2. Mr. Sokoloff makes an interesting point. Does the existing system even need an upgrade?
    There is an interesting article at which also assesses the Commstellation plan positively and says yes, their is a growing market internet services but also finds many questions that still need to be answered before the plan can move forward.

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