Report: Large LEO Satellite Constellations: Will it be Different This Time? (McKinsey 2020)

Source: McKinsey


More than 2,500 active satellites now orbit the Earth, and amateur astronomers and other observers are seeing more every month. Historically, satellite communication involved geosynchronous (GEO) spacecraft-large systems that have become increasingly capable over the years. But now nongeosynchronous-orbit (NGSO) communications constellations, including low-Earth-orbit (LEO) and medium-Earth-orbit (MEO) satellites, are taking to the skies, and their number could soon soar. If current satellite internet proposals become reality, about 50,000 active satellites will orbit overhead within ten years. Even if the most ambitious plans do not come to pass, the satellites will be manufactured and launched on an unprecedented scale.

The ambitions for the large LEO concepts may recall the 1990s, when several companies tried to provide global connectivity. Globalstar, Iridium, Odyssey, and Teledesic had impressive plans. In the end, however, all but Iridium scaled back or canceled their intended constellations because of high costs and limited demand. All suffered financial problems. After that experience, many industry analysts and investors remain skeptical about the viability of large LEO constellations. The recent failures of LeoSat and OneWeb reinforce that impression.

But much has changed over the past 20 years. Satellite technology has advanced; demand for bandwidth has soared, with no slowdown in sight; and companies have developed creative business models to generate profits from connectivity. Moreover, both tech companies and investors now have much larger stores of capital to invest, making it possible to fund large constellations-although this capital clearly does not have infinite patience.

These changes could well make satellite connectivity 2.0 a success. Our analysis, however, indicates that companies planning large LEO satellite internet constellations still need to reduce arange of costs significantly to ensure long-term viability. Lowering launch costs is one part of the equation, but it will be equally or more critical to reduce the cost of manufacturing spacecraft, ground equipment, and user equipment. If suppliers and constellation providers can achieve these cuts, they could unlock enough demand for large LEO constellations to transform both the B2C and B2B communications markets.

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