In these challenging economic times, it’s encouraging to know that there are still visionary companies that have ambitious plans aimed not at the most saturated, advanced countries but in the underserved developing countries. Denver, CO-based O3b Networks (registered in St. John, Jersey, Channel Islands) headed by Greg Wyler is one such company. Unlike other companies before that were high on ideals and low in practicality, O3b Networks, which stands for the "Other 3 billion," seems to know have a sound business plan to back up their lofty goals.
Make no mistake about it, O3b may have altruistic motives in providing broadband access to to the poorest countries in Africa, Asia and Latin America, but they are not a non-profit venture but a for-profit, sustainable business, according to their founder and CEO Wyler. O3b Networks is planning to build an all Ka-band, 16-satellite network in Medium Earth Orbit (MEO) in order to reach the estimated 3 billion people in developing countries that currently do not have Internet access. It has already contracted the construction of the first eight satellites with Thales Alenia Space to be launched in 2010 by Boeing’s Sea Launch.
O3b’s decision to use MEO satellites goes against the conventional wisdom that geostationary satellites (GEO) are the most economical way of delivering high-capacity satellite trunking services. At present there are three commercial satellite constellations operating in Low Earth Orbit (LEO), namely, Iridium, Globalstar and Orbcomm that provide only voice and low speed data communications. O3b believes that the lower latency virtually eliminates the delay of standard GEO satellites by reducing the round-trip transmission time from over 1/2 sec to just 1/10 of a sec. The reduced round-trip transmission time provides a web accessing experience closer to terrestrial systems such as DSL or fiber.
O3b’s satellites will utilize the Ka-band spectrum, which is 80 % more cost effective than the spectrum used by existing LEO operators (VHF, L-band, and S-band). Each transponder will carry up to 216 MHz forward/return channel, allowing for over 600 Mbps (OC-12) of IP trunking. Although advantaged in many ways, O3b’s design approach has two major disadvantages relative to traditional LEO constellations. While the Ka-band spectrum offers improved bandwidth efficiency, it is more susceptible to weather interference and requires sophisticated, large-diameter (three meters or more) tracking antennas to transmit and receive signals from satellites that are steadily moving across the horizon.
O3b aims to be a carrier’s carrier--delivering low-latency Internet backhaul at speeds reaching 10 gigabits per second. for telecommunications operators (telcos) and internet service providers (ISPs) in emerging markets.
The cost of the O3b network including the ground system is estimated to be over $650 million. But that might be conservative according to some sources with the volatility in satellite manufacturing, launch and insurance costs. O3b has contracted Gilat as its VSAT equipment provider for the ground network. The spacecraft will be using the same basic service module design currently being produced for Globalstar’s replacement constellation. O3b should benefit from Globalstar’s volume production (48 satellites currently under construction), although the satellites are likely to cost 50% more (~$30 million vs. a Globalstar cost of ~$18 million) due to O3b’s unique Ka-band payload design. Finally, O3b’s comparatively low altitude and small payload size will enable the company to utilize any number of low-cost launch vehicles such as the Kosmos-3M, Dnepr, Pegasus, or Falcon-1.
According to company sources, O3b has raised an initial $60 million from investors that include Google Inc., Liberty Global, Allen & Company Inc. and HSBC Principal Investments. Just before press time, O3b also announced that it has signed more than $200 million in customer contracts, after only a few months of announcing their planned system.
The cost of venture targeting the poorest half of the population of the world gives rise to concerns from financial analysts on the profitability of the venture. The research firm NSR said that "we certainly support, indeed applaud, O3b’s vision and goals. However, given that the venture is backed by private enterprise that will have to show "normal" ROI benchmarks, the timing of such a venture in the midst of economic turmoil may lead to a shift of focus where tapping lucrative developed markets provide the means by which ROI benchmarks are achieved. "
One recently failed venture that started with lofty goals of providing satellite radio access to developing countries comes to mind--WorldSpace, which declared bankruptcy in late 2008. Like what NSR predicted, WorldSpace aimed initially at developing countries to "bridge the digital divide" but after financial pressures mounted, the company had to revise its business model and focus on developed countries where it did not do the necessary ground work and eventually went belly up.
The carrier’s carrier busines model is a unique approach in that O3b Networks will basically act like a satellite operator leasing capacity to established telcos and service providers, as opposing to providing the service themselves, like WorldSpace did.
Wyler remains very confident in their business model. In an interview (see sidebar) with Satellite Markets and Research, he said "We are a carrier’s carrier, our customer base is well established operators in the countries we are pursuing. For us to succeed on our objective of allowing everyone to participate in the global internet, then- by definition- we must have a profitable business model and we are very confident that we do."
There are other challenges that O3B may face. Given that it will focus on developing countries, with varying regulatory regimes, it may have its work cut out for them in terms of getting the necessary satellite landing rights and permits for ground terminals and other regulatory issues. In this regard, the major satellite operators, Intelsat, SES and Eutelst among others, may have a prior advantage since they have been operating in these environments for decades.
However, O3b seems intent of making their venture a success. Which will be a win-win for their company and the other 3 billion with no internet access that they plan to serve.
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B.H. Schneiderman is the editor for Latin America of Satellite Markets and Research and is a consultant to satellite and telecommunication companies. He can be reached at: bhstbc@gmail.com
