Eutelsat-OneWeb deal gives UK's "sovereign" space play a French flavour
Chinese stake in Eutelsat may jeopardise deal on national security grounds.
Two years after the British government bailed out failing satellite company OneWeb to deliver "UK sovereign space capability" the company is in merger talks with France's Eutelsat; already a large shareholder.
Eutelsat on Monday confirmed the talks after a weekend of rumours. If the merger proceeds the combined entity would create a European rival to Elon Musk's Space X "Starlink" internet broadband service.
Eutelsat and OneWeb's shareholders would each hold 50% of the combined group, with OneWeb shareholders receiving newly issued Eutelsat shares, if OneWeb's other shareholders agree to the deal.
Eutelsat said "The combined entity would be the first multi-orbit satellite operator offering integrated GEO and LEO solutions and would be uniquely positioned to address a booming ~$16bn (2030) Satellite Connectivity market" (GEO refers to geostationary orbit, LEO to low earth orbit satellites.)
OneWeb satellites: LEO firm eyes fleet of 648
OneWeb currently has 428 LEO satellites in orbit out of a target 648. Eutelsat has a fleet of 36 GEO satellites serving broadcasters, video service providers, telecom operators, ISPs and government agencies
Bloomberg estimates the deal as valued at more than $3 billion.
A March 2022 deal had already seen the two sign a global, multi-year Distribution Partnership Agreement (DPA) that lets Eutelsat commercialise OneWeb's offerings across key verticals which it highlighted as including maritime, aviation, enterprise, telcos and government. Eutelsat had exercised a call option one a OneWeb funding round in October 2021, investing $165 million and taking its shareholding from 17.6% to 22.9%
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Eutelsat currently holds around 23% of OneWeb’s shares, behind Indian steel magnate Bharti Mittal’s 30%, and ahead of the British government’s stake of 17.6% – which it acquired as part of a bail-out in 2020, when business secretary Kwasi Kwarteng overruled civil service advice and invested $500 million into the satellite firm.
HMG had rescued OneWeb on the initiative of advisor Dominic Cummings, with an eye to its possible use as a carrier for a GPS navigation payload to replace EU's Galileo system, after Brexit pushed Britain into "third-country" status on the European location service, which is used by both commercial and military customers.
The deal would give the UK government a nominal 20% return on its investment and, according to the FT, include a seat for HMG on Eutelsat’s board falongside the French government, which owns a 20% stake.
The UK government would also retain its “golden share”, giving it veto rights over national security issues, and rights over OneWeb’s headquarters. While OneWeb is nominally based in the UK, much of its work is done in the US, with its satellites being manufactured in Florida – although the UK does have “first preference” rights to any manufacturing opportunities which could be fulfilled by British firms.
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National security concerns may prove to be the biggest challenge to the deal, as one of Eutelsat’s other shareholders is a Chinese sovereign wealth fund, with a 5% stake. OneWeb owns TrustComm, a Texas firm which provides services to the US intelligence sector – and a potential link between the Chinese government is unlikely to be well-received, no matter how realistic any security concerns are.
Eutelsat also provides satellite broadcast services within Russia, including for state-owned Russian TV channels, and concerns have been raised about British government involvement in these activities.
But the backing of OneWeb by Eutelsat would allow the group to offer stiffer competition to Starlink in the increasingly-competitive satellite broadband market. Starlink is by far the market leader, with around 2,700 satellites – while OneWeb is currently working on completing its initial constellation of 648 satellites.
Eutelsat made it clear the deal was still a work in progress: “There can be no assurance that these discussions will result in any agreement. Eutelsat will inform the market as soon as soon as there are any new developments.”
