March 30, 2023

The Right Approach to Investments in New Space Enterprises

3 min

The United States is in the midst of incredible growth in the New Space sector, from new low Earth orbit (LEO) satellite constellations and Earth sensing satellites to the development of novel in-space servicing, assembling, and manufacturing (ISAM) enterprises. Private companies are planning space stations and lunar and Mars missions.

Aside from spurring economic growth, these new space initiatives will create novel legal issues, especially in the regulatory realm. Investment in these enterprises has shifted, after several very active years of momentum investing, to a more cautious approach with a focus on diligence and pricing.

What should investors now consider? Obviously, a close look at core competencies, technical performance, and the likely demand for a service are all important. And because space services by their nature are generally highly regulated, it is always important to consider the regulatory environment.

The success of New Space demands a whole-of-government regulatory approach, one that is reasonable, predictable, and streamlined. Spectrum allocations and licensing decisions must make sense for spacecraft that will traverse orbits and communicate as much in space as they do between Earth and space. Absent a national regulatory strategy where government authority is either placed primarily in the hands of one agency, or clearly delineated by Congress, the industry will suffer from regulatory burden and delay.

New Space services can differ from traditional satellite services. On an operational level, spacecraft and objects may not be placed into a specific orbital location, which traditionally has been the pathway for assigning shared radio frequency use. Rather, some missions involve moving through different orbits, such as to repair or refuel other spacecraft. Other missions are much shorter term than even small satellites with short life spans, such as space planes designed to resupply space stations and provide other in-space missions.

For these reasons, traditional licensing, regulatory fee, and spectrum management regimes do not always apply well to New Space activities. Bond requirements and other traditional satellite licensing requirements imposed in the U.S. by the Federal Communications Commission also may not make sense for missions that are shorter term.

The FCC will need to rethink its regulatory regime and develop new policies. It has begun this work, starting the process of establishing a new Space Bureau and considering more streamlined licensing requirements. The question is whether the agency will do enough, fast enough, to provide regulatory relief and certainty.

Complicating the issue is that regulatory uncertainty may continue, at a cost to those in the space business, as long as Congress does not act to clearly define the roles of the various agencies involved in the regulation of the U.S. space industry. While the roles of some agencies are clear—the Federal Aviation Administration's issuance of launch licenses, for example, or the National Oceanic and Atmospheric Administration's issuance of space observation licenses—other aspects of the regulation of New Space are not. One major issue is the management of orbit debris, which the FCC has traditionally assessed as part of its role in issuing radio spectrum licenses to space stations. However, no law specifically grants this authority to the FCC or any other agency.

Additionally, the two most recent presidential administrations have worked toward developing the Commerce Department's agency to manage space issues (the Office of Space Commerce). But at a time when conservative judges are looking for clear, specific delegations of statutory authority to uphold major agency actions, Congress has yet to grant clear authority to this or any agency to manage New Space.

Close analysis of a broad range of regulatory issues that could affect a New Space enterprise is more important than ever for cautious investors looking for opportunities. Please contact Laura Stefani if you'd like to learn more.