UK government ignored civil service warning of no benefit in acquisition of OneWeb

It was to the surprise of many when, on 3 July 2020, the UK government revealed that as part of a consortium, it would provide $500m to take co-ownership of bankrupt satellite technology provider OneWeb – and now it would appear that decision was taken against the advice of government advisers.

In what is a rare step for such issues, a ministerial direction on 26 June regarding the purchase from Sam Beckett, acting permanent secretary and accounting officer at the Department for Business, Energy and Industrial Strategy, cast doubt on the rationale for the deal. His assessment was that he could not satisfy himself that the investment met official value-for-money requirements.

In his letter to secretary of state Alok Sharma, Beckett noted that given the time and data available, HM Treasury had not subjected the deal to the scrutiny of a full Green Book compliant business case, including considering whether alternative options for investment might provide a better return.

He said there were other wider considerations in the overall strategic case that could not currently be captured in the financial model. He also warned that there remained a very broad range of uncertainties and possible outcomes around the deal and that it was hard at the time to be confident in the underlying assumptions or the likely returns.

Established in 2012, OneWeb develops what the government claims is “cutting-edge” satellite technology from its bases in the UK and the US. Emulating Elon Musk’s Starlink project, it aims to implement a constellation of low-Earth orbit (LEO) satellites with a network of global gateway stations and a range of user terminals to provide an affordable, fast, high-bandwidth and low-latency communications service, connected to internet of things (IoT) devices, and a pathway for mass adoption of 5G services.

It is also the developer of a positioning system rivalling GPS and the EU’s Galileo satellite navigation systems, the latter of which involved the UK until it left the EU in January 2020.

In 2017, OneWeb was the first LEO constellation to receive approval to provide connectivity services in the US from telecoms regulator the Federal Communications Commission (FCC) in its first processing round for Ku/Ka-band systems. Since then, OneWeb has progressed in the build-out of its system, having launched 74 satellites to date and developed what it says is a significant portion of its ground network.

In August 2019, OneWeb met the requirements of the International Telecommunications Union and succeeded in bringing into use its global priority spectrum rights in the Ku- and Ka-band.

In May 2020, it submitted a modification request to the FCC to increase the number of satellites in its constellation to 48,000. This larger constellation is designed to allow for greater flexibility to meet what OneWeb regards as “soaring” global connectivity demands. However, OneWeb filed for bankruptcy in March 2020 after failing to find private investment.

In addition to the UK government, the consortium buying OneWeb is led by Bharti Global, which is also committing $500m. The partners say the bid is designed to capitalise the company sufficiently as a going concern to effectuate the full end-to-end deployment of the OneWeb system. Bharti will provide the company with commercial and operational leadership and bring a revenue base.

The UK government claims that the deal signals its ambition for the UK to be a pioneer in the research, development, manufacture and exploitation of novel satellite technologies through the ownership of a fleet of LEO satellites. It follows the formation of the UK’s first-ever National Space Council to consider how space policy can enhance the country’s prosperity and place in the world, as well as wider national security interests through secure communications.

The deal is subject to US court approval and regulatory clearances and is expected to close before the end of the year.

But in addition to the UK civil service, many industry analysts have questioned whether any commercial opportunities will be realised from OneWeb. Speaking to The Guardian newspaper just before the deal was confirmed, Bleddyn Bowen, a space policy expert at the University of Leicester, said that fundamentally, the UK had bought the wrong satellites.

“OneWeb is working on basically the same idea as Elon Musk’s Starlink – a mega-constellation of satellites in low-Earth orbit which are used to connect people on the ground to the internet,” he said. “What has happened is that the very talented lobbyists at OneWeb have convinced the government that we can completely redesign some of the satellites to piggyback a navigation payload on it. It’s bolting an unproven technology on to a mega-constellation that’s designed to do something else. It’s a tech and business gamble.”

Such misgivings were also flagged in Beckett’s letter. He asked Sharma to recall that, following earlier discussions, he asked the UK Space Agency (UKSA) to procure a separate independent technical assessment. The reported highlighted what Beckett called the “the substantial technical and operational hurdles that OneWeb would need to overcome” in order to become a viable and profitable business.

He noted that UKSA considers there is a high likelihood of further investment being required to complete the constellation and encourage user uptake of the services, increasing the risk that further UK government investment would be required in order to realise the potential benefits. As a result, UKSA’s judgement was that the independent technical assessment further illustrated “considerable uncertainties” in the modelling done for the Treasury, he said.