Breakingviews - OneWeb is flying into a financial asteroid field

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LONDON (Reuters Breakingviews) - The likelihood of successfully navigating an asteroid field is approximately 3,720 to 1, the automaton C-3PO tells Han Solo in “Star Wars: The Empire Strikes Back”. With enemy spacecraft in tow, however, the Millennium Falcon pilot has no choice but to continue. OneWeb Chief Executive Adrian Steckel can probably sympathise.

The London-based startup is blasting a constellation of broadband-beaming satellites into space. It ran out of money in March after backer SoftBank Group pulled funding with just 74 of the planned 648 satellites in orbit. The UK government and Bharti Global, a division of the Indian conglomerate, bought the business out of bankruptcy in July, investing $500 million each.

That infusion is probably insufficient for Steckel’s first job of completing the constellation. Each satellite costs $1 million to build, while research firm Quilty Analytics estimates the price of each launch at roughly $1.5 million. Just getting the rest of its satellites into orbit could therefore set OneWeb back up to $1.4 billion, not including the cost of its ground operations. The UK government is unlikely to invest more, according to two people familiar with the matter, though outside investors may inject fresh equity.

Cash wouldn’t solve Steckel’s next problem: how to make money from a broadband network that may be no better than what’s available on earth. OneWeb could hawk high-speed internet connections to airlines, sea vessels and people in hard-to-reach locations. But it’s hardly a massive market, and deep-pocketed rivals like Elon Musk’s SpaceX have the same idea.

Steckel will also have to chart a course that pleases both the UK government and other shareholders. The motivation for Britain’s investment seems mostly political: OneWeb could in theory help to furnish the country with a home-grown system for positioning, navigation and timing (PNT) services, used to track military ships and jets. That could replace Europe’s Galileo system, which the United Kingdom can no longer access after Brexit.

It’s less clear, however, that Bharti and any future financially motivated investors should support building a PNT network. It could cost another $1 billion, according to a person familiar with the matter, but wouldn’t necessarily open up a big commercial market.

Bankruptcy at least wiped out OneWeb’s crushing debt load. That boosts Steckel’s odds of success. Even so, he will need all of Han Solo’s skill and luck to avoid another crash.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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