Artist’s rendition of satellites orbiting the Earth – rottenman/123RF Stock Photo

It’s was announced yesterday that OneWeb, the satellite internet broadband firm partly owned by the UK Government, has signed a Memorandum of Understanding with the French company Eutelsat Communications to support the merger of the two companies.

This is an interesting development for the UK Space Sector.  The UK Government’s original ÂŁ400m investment decision to rescue OneWeb out of bankruptcy, alongside the Indian company Bharti Global Limited, was driven by a desire to deliver UK’s sovereignty in space. Due to Brexit, the UK is frozen out of using part of Galileo, Europe’s Global Navigation Satellite System, and the plan was to use OneWeb’s satellites to provide the UK with a shortcut to our own navigation system; despite the fact that OneWeb’s business is a completely different sector.

Industry experts suggested the costs of using OneWeb to develop a navigation solution would be prohibitively high, and this was confirmed by a Government report in September 2020 – three months after the purchase – that led the project to go quiet. Following this, the partners in OneWeb have sold off part of their ownership over the last couple of years. This sell-off included to Eutelsat who, over a number of deals, have acquired a 23% stake in the company.

Interestingly, a new alternative for a UK navigation system arose last month when Inmarsat activated a UK “space-based augmentation system” (UKSBAS) to offer a more precise, resilient and secure GPS solution. It adds an additional overlay signal onto the US based GPS solution, making it less vulnerable to interference and gives accuracy down to centimetres rather than metres.

Synergies For OneWeb and Eutelsat?

Earlier this year, Eutelsat announced a distribution arrangement offering OneWeb’s services to their customers, and now there is the proposed company merger. In business terms, the mergers offers Eutelsat the opportunity for growth into the burgeoning satellite internet broadband market, whilst OneWeb needs further investment to help it complete its satellite constellation of approximately 650 satellites – this will also be positive for UK taxpayers who were previously on the hook for at least part of this investment.

It is also hoped that the new company will have the clout to rival, and compete with, Starlink, even though Starlink is way ahead in terms of satellites launched. OneWeb currently has a fleet of just over 400 satellites in low Earth orbit, compared to Starlink’s more than 2,000. Whereas, Eutelsat has just 36 satellites in geostationary orbits, meaning there could be synergies within the two businesses. However, it is ironic that the company the UK bought to deliver UK infrastructure in space after we left the EU, will now be enveloped within another EU company!

OneWeb Merger Terms

It’s reported that following the merger, the UK Government will retain:

• Approximately a ten percent stake in the new company
• A seat on the Board with priority voting rights
• UK’s exclusive rights over the use of OneWeb, and
• First preference rights over the industrial opportunities with OneWeb in terms of manufacturing and launching satellites.

The French Government will also have a seat on the new company’s Board, a similar 10% stake to the UK Government, and the merged company will remain listed on the French stock market.

In pure monetary terms it is suggested that the UK Government has done well on the deal, with the merger valuing OneWeb 20% higher than when it was originally purchased.

Challenges Ahead

Whilst the merger intention has been announced, there are still a number of points to be resolved before the merger can go ahead, including:

• UK National Security Infrastructure concerns given that one of Eutelsat’s other shareholders is a Chinese investment fund, and concerns have previously been raised, with Huawei, in allowing Chinese firms to be involved.
• OneWeb also owns a firm in the US that provides services to the US Intelligence services, which could lead to issues within the US because of the relationship with China.
• Eutelsat currently provides broadcast services within Russia, including for state-owned TV channels, which again could proved politically awkward given the strong stance the UK has taken with Russia over the war in Ukraine.

Finally, Eutelsat shareholders will have to vote to approve the deal, which is expected to take place in early 2023. Given that shares in Eutelsat dropped over 16% the day after the merger was announced, this may not be straightforward either.

There is a long way to go on this company merger, but it could have significant implications for the future of the UK Space Sector.