(Bloomberg) -- A satellite merger between France’s Eutelsat Communications SA and Britain’s OneWeb relies on an unusual power-sharing arrangement that will test the two nations’ cooperation on industrial strategy, the European Union and Russia.
The two government-backed businesses agreed to combine on Tuesday, only after the French satellite operator got the green light from President Emmanuel Macron, according to a person familiar with the discussions. A representative for the French presidency declined to comment on its involvement in the deal.
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The $3.4 billion combination will create a European satellite operator that can compete with projects from the likes of Elon Musk and Jeff Bezos to blanket the earth in a new kind of low-earth orbit or “LEO” broadband.
LEO technology -- which works via constellations of small satellites that are closer to the ground and provide faster connections than Eutelsat’s existing geostationary system -- has become a geopolitical battleground, with operators promising governments surveillance, intelligence and command mission capabilities.
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“Governmental and military uses are really key,” Eutelsat Chief Executive Officer Eva Berneke said in an interview with Bloomberg on Wednesday. “We have some very big American competitors, we will probably have some very big Chinese competitors, and we’ll probably also have some Russians, once they get their space industry back together.”
The EU and Macron have earmarked billions for investment in space and satellite programs, and Eutelsat is aiming to win a role in European Commissioner Thierry Breton’s planned LEO project, according to Berneke and a French government official.
However, Britain’s role could cause complications. A golden share granting specific rights to the UK, which left the EU in 2020, may not qualify for Breton’s vision of a sovereign constellation free of any control from a third country, according to an EU official, who asked not to be named because they aren’t authorized to speak to the press. It’s up to private entities to explain how they comply with the criteria, the person said.
Christophe Grudler, the parliamentarian in charge of the EU’s constellation project, said using OneWeb-Eutelsat seems “impossible” in a statement. “The European Union needs to be in complete control of its satellites, without risking being hampered by an outside actor,” he wrote. “Europe will not compromise on this point.”
“The European Union needs to be in complete control of its satellites, without risking being hampered by an outside actor,” said Christophe Grudler, parliamentarian in charge of EU’s constellation project. “Europe will not compromise on this point.”
Berneke said the specification for the EU constellation hasn’t been confirmed, but she thinks it will be possible to carve out a specialized unit in the combined business to satisfy these criteria.
Since it left the EU, the UK has been cut out of the secure layer of the bloc’s GPS-like satellite system Galileo, leaving it to study ways of building its own positioning and timing system.
Stakeholders have also considered the risk UK Brexiters balk at the perception of selling an important asset to the French, said one person involved with the discussions. Former UK science minister George Freeman tweeted to say the deal could “hand over another key industrial asset to UK competitors” unless Britain’s rights were protected.
A representative for the European Commission said that the Commission assesses any party that wants to participate in future procurements “for the preservation of the security, integrity and resilience of operational systems of the union,” and declined to comment further on the investment decisions of private companies.
A spokesperson for the UK government pointed to an earlier statement in support of the deal and declined to comment further.
The UK and France will each have board seats in the combined company, and France will have sway over 10% of voting rights through BPIFrance. Britain will have 11%, plus a separate golden share in OneWeb, which gives it national security controls.
The parent business will be Eutelsat, and it will be headquartered and primarily listed in Paris. CEO Berneke and Eutelsat’s chair will continue in their posts, while OneWeb’s Executive Chairman Sunil Bharti Mittal will act as vice president.
Russia will be high on the new board’s agenda. The Kremlin is holding 36 OneWeb satellites hostage after the Russian space agency pulled support for a planned launch in Kazakhstan. That’s raising concern in the European Commission that Russia may have had the opportunity and ability to compromise the satellites’ systems, a person familiar with the body’s thinking said.
The UK had refused to accede to Russian President Vladimir Putin’s demand to give up its shareholding in OneWeb and pledge not to use the satellite company for military purposes.
Eutelsat will have to balance efforts to recover OneWeb’s satellites with its business selling broadcasting services into Russia, which accounts for about 6% of revenues, according to analysts at Berenberg. The company has said the deal won’t lead to any material deterioration in sales to Russian customers.
Then there’s the Chinese. China Investment Corp., a Beijing sovereign wealth fund, is one of Eutelsat’s biggest shareholders. British leaders, including the candidate for Prime Minister Rishi Sunak, consider China a top threat in technology.
A Eutelsat spokesman played down concerns, saying the Chinese fund holds under 4% of the company’s stock in a passive stake, which will be diluted down below 2% after the deal.
The Russian state space corporation, Roscosmos, didn’t immediately respond to an email requesting comment. A representative for OneWeb declined to comment.
The tie-up also revives questions about who will make new spacecraft, a political prize of high-tech jobs and industrial capacity.
OneWeb’s “Gen 1” satellites have been made at a factory in Florida in a venture with Franco-German aerospace giant Airbus. That factory probably won’t make “Gen 2” because Airbus has secured other orders for the facility, Berneke said.
OneWeb executives previously raised hopes Gen 2 would be made in the UK, but the contract is up for grabs, Berneke said.
On Tuesday, the UK said its golden share in OneWeb will continue to grant it “first-preference rights over domestic industrial opportunities” like “preferring businesses in the UK for future procurement for manufacturing on a commercial basis.”
The UK also said it would be “a preferred location for future OneWeb launches.”
Until recently, they’ve all been sent up using France-backed Arianespace, making OneWeb that company’s most frequent client.
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