by Garrett Reim,  Los Angeles Business Journal, January 27, 2017

INTERNET: Startups look to satellites for higher security.

Cloud Constellation Corp. has a far-flung idea.

As businesses and governments consider ways to protect data in light of increased cyberattacks and surveillance, the startup is offering them a chance to put their information out of reach by storing it on servers within satellites orbiting the Earth.

While its system has yet to leave the ground, the company received a boost last month from Palo Alto commercial satellite manufacturer SSL, which has agreed to build Cloud Constellation’s satellites and invested, along with other backers, an undisclosed sum in the Westwood company. Cloud Constellation is projecting it will be able to launch its constellation of 14 low Earth-orbiting satellites by the first quarter of 2019.

“The advantage (of our system) is that the data that you are transmitting has no relationship or no exposure to the public networks,” said Cliff Beek, the company’s president. “There are leaks inside the network that we call the internet.”

Cloud Constellation is not alone in its pursuit of a space-based data storage and transmission system. ConnectX of Century City is pursuing a similar idea and has received investor commitments for a $100 million-plus round of capital that it expects to close in March, said Lance Parker, the company’s co-founder and chief executive. ConnectX has plans to launch three satellites manufactured by Irvine’s Tyvak Inc. by the end of next year.

But industry experts are skeptical that space-bound networks would be more secure than those on Earth. Radio frequencies, which would be used by both Cloud Constellation and ConnectX to transmit encrypted data, are vulnerable to interception and hacking, said Jonathan Gossels, chief executive of Sudbury, Mass.-based network security consultancy SystemExperts Corp., in an email.

“All it takes is one mistake, one slip up, and the whole thing unravels,” said Gossels. “Since all communication will be broadcast, every major security agency around the (world) will crack the encrypted administrative interface. This is a ‘kick me’ sign on your back.”

Cloud Constellation’s Beek responded that encrypted broadcast communications are difficult to compromise.

“Unless they are blocking it, it is very difficult to hack a radio frequency band going to a satellite,” he said.

ConnectX’s Parker, founder and former chief executive of mobile cybersecurity software developer iTag Inc., said his company would bypass security concerns with a new coding language that is inherently more secure and efficient than existing internet protocols. The coding language, in simplified terms, compacts sentences into a series of symbols, much like Chinese characters or hieroglyphics.

“It would be different than what attackers are used to or much more difficult to figure out,” he said.

Hack attack

Cloud Constellation was founded in 2015 after a string of high-profile data hacks, including a Target Corp. breach in 2013 that affected 40 million or more consumers, and Edward Snowden’s release of classified National Security Agency documents the same year.

Scott Sobhani, the company’s co-founder and chief executive, saw an opportunity to provide a more secure alternative to ground-based data storage and transmission networks, said Beek. Sobhani had previously worked in the satellite communications industry for companies such as Lockheed Martin Corp.

“Where (hacking) occurs is when you are utilizing public networks on the ground,” said Beek, noting the vulnerability of data traveling across shared networks. “We are moving (data) through optical lasers around the globe in a third of a second and it never touches the ground except for a satellite dish on top of a building.”

He said the company has raised an undisclosed amount of Series A funding from private investment firm Eagle Capital Group of the United Kingdom and has already closed about a third of a forthcoming $80 million Series B round, which includes the investment from SSL.

Representatives of SSL declined to comment.

ConnectX has raised an undisclosed seed round from private individuals and is anticipating that its more than $100 million round, which has yet to close, will finance a low Earth constellation of about 12 satellites.

Beek and Parker said Fortune 500 companies, particularly those in the financial services sector, would be the Cloud Constellation’s target customers, along with government departments, such as embassies in hostile territories, and health care providers.

Earth-based options

Many companies use cloud storage systems, such as Microsoft Corp.’s Azure or Amazon.com Inc.’s Web Services, to spread data storage around the globe. That tactic helps distribute workloads and provide backups in case one facility goes down.

Businesses that require more bandwidth, or those with reservations about sending and storing information across shared networks, sometimes opt to lease dedicated fiber-optic strands or even whole communications cables, said Jon Deluca, chief executive of downtown L.A.’s Wilcon Operations, which owns and leases private fiber-optic cable networks throughout Southern California.

A leased line can vary in cost from hundreds of thousands of dollars a year to millions of dollars a year, said Deluca.

High-security cloud storage can cost $1,200 to $1,300 a year for a terabyte, said Francis Tam, a partner at MossAdams in Seattle who performs cybersecurity audits on corporations.

Cloud Constellation is planning to charge customers $5,000 a month to transfer and store 3 terabytes of data on its private space-based network and servers. Parker said ConnectX’s system would be less expensive.

“We think we will be able to bring our cost per terabyte to down to $50 per year,” he said.

Deluca cautioned that vulnerabilities and novelties of satellite-based storage might make business customers wary and keep them away.

“For customers looking for the most secure environment, that would be a leap from what they are currently doing today,” he said. “I think it sounds like a cool proposition, but my gut reaction is that there are quite a few hurdles that might need to be overcome.”