TechNotes – Top 10 issues for the satellite industry

“Space is commercialising. The legal system needs to catch up.”

The Economist, 20 July 2019

1. Outdated and fragmented legal framework: The Outer Space Treaty of 1967, the Space Liability Convention of 1972, and other treaties from the same era, continue to frame the duties and liabilities of space actors. These treaties have not adapted to recent significant growth in satellite and other space traffic and developments in technology. By their nature, they assume generally that nation states are the principal actors, whilst commercial exploration of space by commercial operators and other private actors is booming. In this context, countries such as the UK and the UAE have developed national space legislation focused on regulating the activities of commercial operators, leading to a fragmented legal landscape.

2. Barriers to entry: Whilst the cost of space travel has decreased sharply, satellite projects inevitably still require significant capital expenditure, pre-revenue, to get off the ground, limiting the market to government-backed projects and those with ready access to financing. Launch costs should come down through the proliferation of smaller rockets and satellites and other initiatives. But even once launched, a satellite system has work to do to secure spectrum. Under International Telecommunication Union (ITU) rules, a system must transmit signals uninterrupted for at least 90 days to be granted rights to use the relevant spectrum band.

3. Nation state regulation and policy: Satellite constellation projects can face obstacles in the form of onerous national regulations and regulatory procedures. The process of applying for approvals for space and ground-based systems and services will often be slow and expensive. Requirements for satellite communications to be subject to national content filtering requirements, or for ground infrastructure and data to be maintained within a country’s borders, can add time, cost, and complexity and have a material impact on system architecture and service provision.

4. Protecting intellectual property: Protection and exploitation of IP is critical in an industry which is highly technical and striving to innovate at the frontiers of science and discovery. Patents (which require disclosing new inventions to the world) may not always be the answer. It may be more appropriate to protect new technology as a trade secret or confidential information, especially where defence, military or national security considerations apply. In any case, robust contractual protections must be put in place with personnel, and IP protection principles and policies entrenched within businesses, to ensure trade secrets and new innovations do not “leave the building”. The prospect of high profile IP disputes could also increase with the rise in private market entrants. There are also fundamental issues over whether the existing IP legal framework (jurisdictional in nature) is suitable for innovation and exploitation in outer space (which is not controlled by anyone).

5. Data: security vs. utility: Satellites collect, process, and disseminate huge volumes of data. Satellite communications are easier to intercept than traditional broadband connections, making them vulnerable to hackers. Prioritising and investing in security measures, including high encryption standards, in satellite, ground, and network infrastructure are, obviously, essential. This needs to be balanced, however, against the drives to obtain higher data transmission rates so as to compete with cable and other technologies, and to reduce “latency” or delay of data transfer to enable other technologies like autonomous transport systems.

6. Strong players in the supply chain: Some companies are vertically integrated across the industry supply chain, from the operation of launch facilities, through the manufacture and commercialisation of satellites and the operation of ground stations. But, many are not, instead focusing on one layer only of that value chain. A firm’s ability to access the different levels may be important for them to be able to provide a competing offering. Any company with a very strong (or unique) position in key parts of that chain will need to ensure that they do not withhold access in a way that makes it harder for others to compete. Otherwise, competition law issues may come into play.

7. Collaboration: Collaboration is part and parcel of innovation in the satellite industry, providing access to new technology, pooling of resources, and speedier access to market. Recent high profile examples include the Galileo global navigation satellite system, and the joint venture between Airbus and OneWeb. As in other sectors, these collaborations often will be complex and require carefully thought through governance structures to balance stakeholders’ interests and aims, optimal structuring, IP sharing frameworks, and arrangements on exit. Collaboration, including between public and private sectors, is common, raising competition and state aid issues. Depending on the players involved in these collaborations (or wider M&A activities below) and the purpose for which the satellites are being used, governments may seek to intervene on public policy grounds to vet whether projects raise national security concerns (the scope of which concept has been broadening recently). Appetite for such interventions seems to be increasing.

8. Corporate Deals: The satellite industry is reasonably new; still in ‘start-up’ phase. As with any new industry there are incumbents who will consider ‘bolt-on’ transactions to secure people or assets (e.g. technology or IP), whether outright, JV or minority stake, and there will be start-ups who engage in funding rounds, attracting key investors (e.g. incumbents, financial sponsors, Governments or SWF’s), debt financings (generally or asset backed), potentially IPO or (e.g. Inmarsat) be taken private. Each will require structuring to reflect the commercial drivers and to protect the relevant interests.

9. Insurance: The high cost of developing, launching, and operating a satellite system should make launch and other types of space insurance a serious consideration for operators. The relative youth of the industry has led to uncertainty and instability in the pricing of premiums, leading some to leave their projects uninsured. There have also been reports of major insurers exiting an under-performing space market, which could place upward pressure on premiums. Prospective operators may need to balance the rush to market against the need for appropriate insurance coverage.

10. Debris: There are concerns that near-Earth space is already filling up with debris from the (albeit short) history of satellite and other space activity. International guidelines for mitigating the risk of debris are not legally binding, although the ITU is looking at establishing new rules on debris and liability. Specialist developers of technologies like “harpoons”, “tethers”, and “nets” are stepping in. Regulators and commercial operators will want to avoid debris becoming a new barrier to entry.

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