China’s Satellite Internet Ambitions

Developing and Reforming Satellite Internet in China

One of the most important entities in China’s state apparatus is the National Development and Reform Commission (NDRC, 国家发展和改革委员会). The NDRC manages parts of China’s economy, in particular industries that are primarily under control of SOEs. While the word “development” is fairly straightforward in definition—usually this refers to economic development—reform can be a bit trickier. In this context, reform can mean to open an industry to more competition/private investment, but it can also mean simply changing regulations surrounding a certain industry. Either way, given that a large percentage of China’s economy is still under control of SOEs, and given the NDRC’s role as overseeing much of this part of the economy, the organization’s power over economic development may be unparalleled in China today.

It was therefore big, big news when, in late April, the NDRC announced the addition of satellite broadband, 5G, and the Internet of Things (IoT) to the Commission’s “New Infrastructures” list. This addition did not, strictly speaking, change anything about these three technologies at the time, but rather, was a major endorsement by a very powerful body of satellite internet, IoT, and 5G, and a green light for China’s private sector to start shoveling money into these initiatives. And what shoveling we have since seen.

Break out the Shovels

The shovels have come quickly, and from diverse sources. The first evidence we saw of an impact from the NDRC ruling was when, about a week later, China Unicom Airnet—a partial subsidiary of China Unicom—announced several significant satellite broadband products, at the time mentioning the recent NDRC ruling as a driver for the development of the products. The company held a road show from 27-30 April 2020, during which time leaders from the company visited different potential customers from government and corporate sectors demonstrating the new services. Given the size of the parent company China Unicom (>300M mobile subscribers), there is clear scope for expansion of their efforts in satellite, should there be political will to do so. Luckily for those of us waiting for satellite internet courtesy of China Unicom, the ruling by the NDRC indicates a lot, lot of political will behind the concept.

Beyond the state-owned shovels, we have seen private companies start to pile into the satellite internet game. The most noteworthy thus far has been the large round of funding completed by Commsat just weeks after the NDRC ruling, with the company raising RMB 270M at a valuation of more than RMB 2B. Noteworthily, the company appeared to pivot at the time of funding round. Historically, Commsat has focused on a plan to build out a constellation of small satellites. The most recent funding round, on the other hand, was very specific to note that the money would be spent on satellite manufacturing facilities. Noteworthily, nowhere in the press release did the company mention plans for their constellation. In the mind of this correspondent, it seems clear that Commsat will focus on manufacturing small satellites at scale, for sale to an anchor client that wants a lot of satellites.

Finally, the recent ruling has seen the biggest shovels of all broken out by China’s biggest private-sector investors—the country’s tech majors. Earlier this week, Tencent, China’s most valuable tech company by market capitalization, announced plans to invest five hundred billion RMB (yes,  ¥500,000,000,000, or $70 billion) into China’s “new infrastructures”. Fortunately for us, Tencent’s recent announcement provides just a little extra bit of insight into the meaning of all this, that we may just be able to make sense of it all.

So What is China Building in there?
This is the part of the article that goes from fact to speculation, which makes it far more fun for the author, but also far more important for the reader to read critically. Anyway.

My speculation is as follows—the Chinese government has done a rather better job than the West at accepting that the new normal, possibly for the long-term, is going to be at least some degree of social distancing, some degree of work-from-home, and some degree of “everything moving onto the internet”. With that being the case, it is not at all a surprise that China would, a couple of months after Covid-19 gripped the world, announce the critical importance of developing technologies (5G, IoT, satellite internet) that, if implemented well, could combined provide nationwide/worldwide internet access at high speeds and low latency, while also allowing for “things” to be connected to the internet more easily.

If we assume that this is the calculus being pursued by the country’s top leadership, then the logic and ideal outcomes become very clear—China understands that they need to expand and upgrade their internet infrastructure, and rather than limiting the effort to the SOEs, the government has opened the doors to the private sector as well. With that being the case, the challenges moving forward will likely be ones of coordination, limiting inefficiency,  and ensuring that industries actually do “open up”. For example, industries such as 5G, IoT, and satellite internet fall on different cleavages between historical industries. One obvious example is satellite internet. If a Chinese company wanted to launch a constellation and sell internet access to Chinese people, would that company be CASC, the state-owned space contractor that would certainly build the satellites, launch them, and probably operate them? Or would it be China Telecom, which is far, far better-placed to sell connectivity to hundreds of millions of people—it’s what Unicom does every single day.

And, if the answer to the above is “it’s not really clear/it would need to be a combination of CASC and China Telecom”—which appears to be the answer given that the operator of the Hongyan constellation counts both CASC and China Telecom as shareholders—then this begs the question, how does one get two really big, really monopolistic SOEs to work together? This is especially true when they would be working together to create a new industry in China (LEO broadband) that would almost by definition cannibalize one business (China Telecom’s) while significantly helping another (CASC).

Ultimately, though, whether it is CASC, China Telecom, or some other entity, the recent ruling by the NDRC is clear—there is more high-level support for satellite broadband in China today than there was a few months ago. This may also enable greater involvement from private companies such as the aforementioned Commsat, and Galaxy Space, with the latter having recently announced completion of 5G testing on its recently-launched Q/V-band LEO satellite. Galaxy Space, incidentally, has raised much of its funding from Shunwei Capital, the VC of Xiaomi Founder Lei Jun. Lei, a long-time Beijing tech entrepreneur with deep ties to the city’s economy across many sectors, recently published a long opinion piece in advance of the National People’s Congress. The piece outlined a vision for broader government funding, broader commercial company involvement, and better integration of the two, as a way for China to accelerate the development of its satellite broadband industry.

What’s the key takeaway here?

So the NDRC has come out in support of satellite internet, and we now have a number of companies entering the fray. We are unlikely to have seen the end of the fray entrance, however, with the NDRC ruling having only taken place a month ago, and with several companies “due” for a new funding round in the coming months.

Moving forward, increased investment into satellite internet solutions by Chinese companies may pave the way for the country to export more turnkey satellite solutions, or indeed, to export solutions using Chinese satellites. For example, if China were to sell a high throughput satellite to some developing country, it would likely be a more compelling sell if China were to be able to demonstrate how a similar satellite in China was used to connect a few million people to the internet. Alternatively, by developing its own space infrastructure, China may find it easier to export services from Chinese satellites, i.e. China Satcom launching an HTS over a region such as EMEA and selling directly into countries that are geopolitically allied with China.

Either way, at a time when space was already hot in China, the NDRC’s ruling has simply turned up the temperature even higher, and at a time when there is more impetus and more incentive than ever to create solutions that allow people to stay home due to social distancing. We may well be seeing a recipe for a heck of a satellite internet industry being served up by the NDRC.