Direct-to-cell connectivity could be a gamechanger for both satellite and telecom industries, yet the paths to getting there, and making money, could be quite different.

Constellations spoke with Chris Quilty, partner in Quilty Analytics, about the growing list of companies that have announced plans, including SpaceX and T-Mobile, Globalstar and Apple, Iridium, along with startups AST SpaceMobile and Lynk Global. Quilty discussed the breakthrough potential as well as the financial, technical and regulatory challenges of the different approaches.

For an industry historically “cursed” by low volume, Quilty said satellite to cell is by its very nature a scale business. “If the industry can figure a way to tap into the billions of handset users that have smartphones in their hands and make even a little bit of money off those customers, it's big news for the space industry.”

But he made clear that the matter of connecting directly to cell phones from space is quite different from say, Earth Observation, where just about anybody can “acquire a camera mounted into a bus, get a NOAA license and boom, you're in the satellite imagery business.”

It’s All About the Spectrum

Any discussion about the direct-to-device markets, Quilty said, starts and ends with spectrum. “If you're talking about the bus design or how many satellites, you're talking about the wrong thing.” To understand the direct-to-device market, Quilty compared the two approaches of those who have spectrum with those who don’t.

Pros and Cons:

Satellite operators like SpaceX, AST SpaceMobile and Lynk, who’ve made high profile announcements, don’t own any spectrum. But according to Quilty, they don’t need it; they’re partnering with the mobile network operators (MNOs) who already own it.

The second advantage is that those constellations are able to connect directly to unmodified cell phones. Because the spectrum is already incorporated into existing handsets, “The device is the device, it needs no modification.”

The downside, he added, was that that spectrum was never intended to be transmitted from space. The fundamental challenge for those companies, he pointed out, is to convince regulators like the FCC that they can transmit from space in a coordinated fashion without causing interference.

But he believes that regulators will, “play nice because they want to see more people connected, and because of the compelling nature of these services.” Partnering agreements with telecom should further help the cause. But, he noted, “That doesn't absolve them of the responsibility of making sure that these services don't cause massive interference. I think the regulatory issues are probably solvable within the next year.”

The other approach Quilty explained is being taken by companies like Globalstar and Iridium, referred to as the traditional mobile satellite services (MSS). Because they grabbed spectrum at auction back in the 1990s, their advantage is to already have been approved by the FCC to transmit in these spectrums. Plus, they have deployments in hundreds of countries around the world.

While “that's great for them,” he noted the problem with that approach is that those spectrums are not intrinsic to the smartphones deployed today.

“Your Google, Android, and Apple iPhones, they don't have an Iridium or a Globalstar compatible chip.” Nor do they have antennas that have been modified to work with the satellites, he added.

“And so the big challenge is how do you get this hardware upgrade to the mobile market?”

Noting the various technical and regulatory hurdles, Quilty said, there are advantages and disadvantages of both, and probably room for both models to succeed.

Where’s the Money?

Along with those differences, the paths to profitability may differ too.

As an example, he described how satellite-enabled cellular backhaul, a market that has seen strong growth the last five to 10 years, could be impacted. Where network providers using existing satellite systems could put up a VSAT antenna and modem, buy capacity and distribute it to a remote village, now, the systems by SpaceX, AST, and others are being purpose-built for this type of connectivity.

Quilty said these operators have presumably looked at the capital costs of their LEO constellations and the size of the market, and feel like they can hit those price points, even where the average revenue per unit is lower than a typical cell bill.

While that could eat into mobile network operators (MNOs) on the one hand, Quilty believes it could benefit them on the other. Satellite could help them extend their universal service coverage to rural areas without needing to build more ground infrastructure.

”A Vodafone may find it way cheaper to do a 50/50 revenue share with an AST to reach those underserved individuals in remote locations, without the capital outlay to build a string of microwave towers,” Quilty said.

That, he believes, would be a win-win for both the MNO, providing a cheaper way to reach people, and for the satellite operator, which now has access to a large install base of customers.

But if people can now connect directly with their phone would that be bad for a satellite operator who sells lots of capacity to cellular backhaul sites, he asked about the possibility of cannibalizing backhaul revenue.

“If you can talk remotely on your iPhone anywhere, do you need an Iridium satellite phone? The answer, I think, is it's a different market when you look at the dedicated satellite phone user. The folks who use those satellite phones need something that has long battery life, that can work in certain weather conditions or is ruggedized.

“It'll depend on the price point of those two solutions, and there may be room for both to survive and prosper on a go forward basis.”

Ultimately, Billions at Stake

With some estimates of the direct-to-cell market ranging up to $60 billion of cumulative revenue over 10 years, Quilty noted that there is still disagreement among analysts and investors around how big the market potential could be.

“With billions of potential users, these are not numbers satellite operators normally deal with,” Quilty said, and that an operator, “whether a SpaceX, AST, Lynk, Globalstar, or Iridium, may find an entirely new revenue source or market that does not exist today.“

“If you can tap into that and it turns out to be an exceptionally large, incremental, new opportunity, then yes, there is a pot of gold to be had here.”

But he acknowledged, no one really knows which services are going to be successful, which ones may not work well, nor what the adoption rates might look like.

“I feel optimistic that if you do nothing to your phone and a message pops up and says, ‘will you pay five bucks for your phone to work off the grid today?’ I think people will use that service and I think it'll be successful.”

To hear more about the disruptive impact of satellite direct-to-cell connectivity and the unfolding dynamics between the satellite and telecom markets, click here to listen.