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Report on Business Ottawa providing $85-million to Telesat satellite project for rural internet

Satellite antennas at Telesat’s facility in Allan Park, Ont., on Monday, Jan. 28, 2019.

Ryan Carter/The Globe and Mail

Telesat Canada has secured $85-million in government funding as it pushes to launch a web of almost 300 small satellites into low-Earth orbit and bring high-speed internet to hard-to-reach places. Ottawa has also agreed to contribute up to $600-million more to support the delivery of broadband services to local customers over the next decade.

The Ottawa-based satellite company is competing with high-profile U.S. players, such as Elon Musk’s Starlink, in an emerging field of broadband communications that proponents say could help bridge the urban-rural digital divide. By 2022, Telesat wants to launch a “constellation” of satellites that will orbit the globe multiple times a day from about 1,000 kilometres above the Earth, much lower than today’s “geostationary” satellites that appear fixed in one spot about 36,000 kilometres above the planet.

Designing, building and launching the satellites into space, as well as developing the technology to control the fleet and communicate with base stations and customers on Earth, will be an expensive endeavour. Telesat has not said publicly how much its low-Earth orbit (LEO) project will cost, but it described the plan in a January letter to Finance Minister Bill Morneau as “a multibillion-dollar investment in capital and [research and development]."

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Related: Canada’s Telesat takes on U.S. giants in ‘low-Earth orbit’ internet space race

Telesat and federal Innovation Minister Navdeep Bains announced a partnership in a joint news conference in Ottawa on Wednesday. In one component of the agreement, Ottawa will contribute $85-million to Telesat through the Strategic Innovation Fund as a non-repayable grant.

That money will go to the research-and-development phase of the LEO project and comes with a number of commitments, including that Telesat “create and maintain” 485 jobs over the next decade. Dani Keenan, press secretary for Mr. Bains, said the majority of those jobs already exist, but that Telesat has committed to create 175 new roles within the next five years.

Telesat has also pledged to spend $215-million on research and development over the next five years, establish a scholarship program and create 40 co-op opportunities for postsecondary students.

The second part of the Telesat partnership is a memorandum of agreement signed by the satellite provider and the federal government. The details of this will be finalized in the coming months, Telesat said, but it is expected to include a “contribution agreement of $600-million from the Government of Canada that will secure the affordable delivery of LEO capacity for Canadians.”

“At a high level, [the $600-million contribution] covers a 10-year period from the time that the constellation is in service,” Telesat chief executive officer Dan Goldberg said during a call with reporters. He said Telesat has a “strong financial position” that includes cash on its balance sheet and free cash flow it generates from its existing satellite business, but noted, “Without government support on a project of this nature it would be very difficult to move forward.”

Telesat plans to raise additional funds by tapping debt and equity markets, he said.

To serve customers in rural and remote areas with its LEO constellation, Telesat plans to direct satellite capacity to community hubs. From those hubs, other internet service providers (ISPs) would build last-mile connections to serve individual homes and businesses.

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In an e-mail, Telesat spokeswoman Lynette Simmons said the government will not purchase capacity directly from the company, but will “support Telesat and the private sector in delivering affordable, high-speed internet to Canadians who are underserved today.” The company said it will offer satellite capacity “at significantly reduced rates to ISPs across rural Canada.”

Through a combination of revenue from its ISP customers and the government’s contributions, Telesat “expects to receive a total of $1.2-billion over a 10-year period,” Ms. Simmons said.

Ms. Keenan said the government’s contribution of up to $600-million is part of its 2019 budget commitment to launch a new Universal Broadband Fund with the aim of connecting all Canadian homes and businesses with internet download speeds of 50 megabits a second and upload speeds of 10 Mbps by 2030.

Telesat was once owned by BCE Inc. but is now a private company controlled by two major shareholders, the Canadian pension fund Public Sector Pension Investments (PSP) and Loral Space & Communications Inc., which trades publicly on the Nasdaq stock exchange.

U.S.-based Loral’s primary asset is its 62.7-per-cent economic interest in Telesat, though it controls just one-third of the satellite company’s voting shares. PSP holds the majority of the voting power over Telesat.

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