PARIS — Satellite fleet operator Intelsat has filed suit against startup broadband satellite constellation operator OneWeb and its key investor, SoftBank, alleging that the two companies conspired to steal Intelsat trade secrets with the intent of unilaterally ending a strategic cooperation agreement.
Intelsat’s lawsuit also alleges that SoftBank assisted OneWeb in the theft of confidential information because the Japan-based investor no longer believed in the OneWeb business and wanted to protect its previous investment.
The best way to do that, Intelsat alleged, was for SoftBank to help OneWeb pivot from its original business plan of providing global broadband service to a B2B model that relied heavily on the four markets that were given to Intelsat as part of the Intelsat-OneWeb agreement.
These markets — aero mobility, maritime mobility, oil and gas and government — are now the core of OneWeb’s business: http://bit.ly/2WwdaXM
Intelsat agreed to purchase a minimum of $100 million in OneWeb satellite capacity as part of the agreement between the two companies.
The root cause of the conflict is that OneWeb signed away an enormous piece of its future B2B business at a time when the startup, founded by Greg Wyler, believed that providing a global broadband service, especially to the world’s least-served regions, would in itself be a good business.
As it gradually dawned on OneWeb and SoftBank that this thesis was no longer tenable, they pivoted to the vertical markets that many other satellite operators are looking at as the most promising.
The lawsuit, filed Sept. 10 in the New York Supreme Court, lays out a sequence of events in which OneWeb and SoftBank asked Intelsat for confidential sales information related to customers in these four markets.
Believing that these requests were made as part of the Intelsat-OneWeb/SoftBank agreement giving Intelsat exclusive rights to sell OneWeb services, Intelsat continued to furnish the information.
In hindsight, Intelsat now believes that as early as late 2018, around the time that Adrian Steckel became OneWeb’s chief executive — in September — OneWeb and SoftBank had secretly decided to scuttle the Intelsat agreement. But they needed the Intelsat data to begin their own effort to sell OneWeb services to the vertical markets.
But trouble began even earlier, according to the lawsuit. In late 2016, SoftBank agreed to purchase a 40% stake in OneWeb and invested nearly $1 billion in the constellation startup.
At the same time, OneWeb and SoftBank negotiated an agreement under which SoftBank would purchase all of OneWeb’s satellite capacity in a $4 billion take-or-pay deal, and be granted global distribution rights — a deal that violated the Intelsat sales agreement.
“OneWeb and SoftBank agreed to the [Capacity Purchase Agreement] without discussing or clearing it with Intelsat,” the lawsuit says.
Intelsat responded by sending a breach-of-contract letter to OneWeb on Oct. 26, 2016. In response, OneWeb and SoftBank agreed to honor the pre-existing Strategic Cooperation Agreement with Intelsat.
An amended agreement, in which SoftBank and OneWeb accepted Intelsat’s exclusivity rights, was signed on Oct. 27, 2016.
The lawsuit says that it was “at the strong urging of OneWeb” that Intelsat entered into contracts for future use of OneWeb capacity with Gogo, GCI Communications and KVH Industries.
In February 2017, OneWeb, Intelsat and SoftBank negotiated an agreement that would combine Intelsat, with a 52-satellite fleet in geostationary orbit, with OneWeb into a single satellite operator. As part of the deal, SoftBank would invest $1.5 billion into Intelsat, which is heavily leveraged as a result of previous leveraged buyouts by private-equity companies.
Intelsat debt holders rejected the deal.
OneWeb, SoftBank and Intelsat continued to negotiate the specific terms of the cooperation agreement. Intelsat said that in April 2018 it waived its rights to bill OneWeb for a $10 million investment Intelsat had made in antenna developer Kymeta — an example, said Intelsat, that it was continuing to act on behalf of the strategic cooperation agreement.
During this time, OneWeb had sought, without success, to secure debt financing from an export-credit authority, notably France’s Bpifrance. OneWeb has since abandoned its efforts with export-credit agencies, saying it will instead seek more equity from its existing shareholders: http://bit.ly/2kBUecg
With nowhere else to turn, OneWeb approached SoftBank for more funding. SoftBank agreed, on the condition that OneWeb’s other existing investors, including Intelsat, matched the SoftBank investment.
“At this time, SoftBank no longer desired its global distribution rights and was no longer willing to abide by its $4 billion take-or-pay commitment with respect to OneWeb’s satellite capacity,” Intelsat says in the lawsuit.
“[D]uring the second and third quarter of 2018, SoftBank was actively seeking to sell its investment in OneWeb to other satellite providers and had changed its view of the future business prospects for OneWeb.”
Intelsat tentatively agreed to put in another $20 million — its original investment was $25 million — but only once a signed contract on the distribution details was concluded.
Intelsat says it was not until July 11 that it discovered that OneWeb was acting as if its agreement with Intelsat had been scrapped. The news came in a letter from Steckel to Intelsat Chief Executive Steve Spengler in which Steckel demanded that Intelsat stop telling distributors that Intelsat had any exclusive distribution rights in the four vertical markets that were part of the cooperation agreement of 2016.
“[N]o capacity distribution obligations currently exist between OneWeb and Intelsat,” the letter said, according to the lawsuit.
The lawsuit includes a summons that OneWeb and SoftBank answer the complaint within 30 days. Intelsat says it has not yet quantified what says are “significant damages and monetary harm” done by OneWeb and SoftBank.
OneWeb declined to comment on the lawsuit.