The demand for mobile backhaul is growing at an unprecedented rate. Smart phones on ave-rage consume five times as much bandwidth as a regular cell phone and the number of smart phones is projected to increase by 300% to two billion units in 2015. This has prompted the International Telecommunications Union (ITU) to call for an increase in both fiber and spectrum in order to avoid network bottlenecks. In July 2010 NSR projected that the satellite portion of this market should be worth just under US$ 600 million by 2015.
Whichever number you choose, it’s a large market and one that is attracting a lot of interest both from the major established operators. SES, Intelsat and Eutelsat are all targeting that segment - and also from the new and aspiring operators: Avanti, O3b and now COMMStellation.
Avanti successfully launched Hylas-1, a Ka-/Ku-Band geostationary satellite, at the end of last year and expects to initiate commercial service in Europe towards the end of Q1 this year. Although the main target market are consumers, David Williams, CEO of Avanti Communications, recently stated “In addition we are experiencing significant bidding activity for large enterprise and cellular backhaul deals which could accelerate the rate of fill.” Hylas-2 for the Middle East and Africa is fully financed and scheduled to be launched in 2012.
O3b announced itself to the world during Satellite Business Week in 2008. At that time most of the comments heard in the hallways were skeptically referring to the failed MEO and LEO projects of the previous decade. Fast forward two and a half years to the present day and the company is regarded with a new respect. Greg Wyler, the ebullient founder, was listed in the top 50 agenda setters for technology along with Steve Jobs, Jeffrey Katzenberg, Jeff Bezos and Eric Schmidt. Board members now include five SES officers, including SES CEO Romain Bausch. Mark Rigolle who was named CEO of O3b last year was the former CFO for SES. The successor to Rigolle as CEO, Steve Collar, who will start in his new position this month, was formerly Senior Vice-President of Business and Market Development for SES New Skies. Couple this with successfully raising US$ 1.2 Billion and you can understand why.
The “other 3 billion” that O3b are intending to connect are in the 150 countries located between latitudes 45° North and South. The MEO satellites will be in an equatorial orbit and the first eight should be operational in 2013, with a further 12 possibly in service by 2015. Each satellite has 10 Gbps throughput with 12 fixed feed two-axis steerable antennas, providing the flexibility to dynamically assign capacity between users. One of the four markets that O3b are targeting is the backhaul market for mobile operators. The other three are: Satellite Service Providers, Enterprises and fiber alternative for Telecom Operators and ISPs). As of September 2010 O3b had US$ 600 million in sales backlog. Since then it has announced a five-year deal with Etisalat for mobile backhaul and trunking and a multi-year deal with Netcom Nigeria for services to ships and offshore platforms.
The newest and maybe the most ambitious entrant into this market is COMMStellation. Microsat Systems Canada Inc. (MSCI), a Canadian satellite manufacturer, announced in January its intention to build an 84-satellite system in LEO orbit dubbed “Backhaul to the Future.” The constellation will consist of 78 satellites in six polar orbital planes with a spare in each orbit. Each satellite will have 10 Ka-Band transponders with a total throughput per satellite of 12 Gbps. Ka-Band is usually associated with small ground antennas, however in this instance since the consumer is not a target, the system has been designed with the aim of keeping the satellite simple with as much of the electronics as possible on the ground. This translates into large (2.5 meter) tracking antennas for the users. Each satellite will have a footprint of approximately 4.2 million miles i.e. covering an area a little larger than the United States. However since this is a polar orbit the number of satellites in view at any one time will vary depending on the latitude with more satellites being seen in northern and southern latitudes – the UK for example will see four simultaneously. The total system cost–including 20 ground stations, launch and insurance—is currently pegged at under US$ 1 Billion.
Unlike O3b which had Google, Liberty Media and HSBC on board at the time of the initial announcement, COMMStellation, then and still at the time of writing has not announced any financial backers or partners, although it has made it very clear in all the announcements that it is looking for these. According to CEO David Cooper they have been “inundated with offers” and are now going through the selection process. A Request for Proposal (RFP) for the payload went out last year and discussions are being held with the launch companies.
This initiative may well be “demand pull” as David Cooper says. The market for backhaul is certainly there. Nevertheless this is a bold move for a company that to date has only built two satellites (MOST and NEOSSat). In order to meet the target of late 2014 – early 2015 launches (14 satellites at a time) COMMStellation needs to start bending metal by the beginning of next year and rapidly scale up to producing two satellites per month. That’s the second and not inconsiderable hurdle. The first of course is raising the capital in order to do so. Regulatory filings are underway through Industry Canada (the Canadian equivalent of the FCC) and they’re hoping that appropriate partners will be able to help with frequency coordination, another not insignificant task. Assuming all this goes smoothly, then comes the transition from satellite manufacturer to operator and service provider. Again, appropriate partners may help with some of this. MSCI does provide the Telemetry, Tracking and Control (TT&C) for MOST so already has experience in this area and they are intending to establish marketing and sales relationships around the world....but that’s a big market to attack!
It would therefore appear that the success of this venture hinges on three things: David Cooper’s ability to turn a small custom satellite manufacturing operation into a major production line, obtaining the right partners and raising the money.
To briefly consider each of these. Although MSCI is not a volume producer of microsatellites, it is the largest global manufacturer of reaction wheels for other microsatellite prime contractors and sells dozens per year; so it does have experience in volume manufacturing. It is also apparently currently going through a complete review and upgrade of PA (Product Assurance) and ERP (Enterprise Resource Planning) Systems to accommodate multiple concurrent satellite builds. The bus used for MOST and NEOSSat is based on a standardized architecture, which should also help in ramping up production.
Obtaining the right partners and raising the money may well go hand in hand. COMMStellation is described as a “consortium of companies,” so presumably companies other than MSCI will be involved. If these turn out to be the right strategic partners, ones with relevant experience in global telecommunications for example, the path to raising money, accessing customers, and frequency coordination could be a lot smoother. Timing is everything. In the last two years whilst other industries have struggled to raise money, Export Credit Agencies have helped finance several satellite ventures including O3b, Avanti, Iridium and GlobalStar, so it’s not inconceivable that COMMStellation will also benefit from this source.
So will COMMStellation succeed? According to O3b their satellites will address less than 0.5% of the emerging markets 3G backhaul needs, so that leaves plenty for COMMStellation – and other operators. Large markets attract many players, some of whom may want to partner with COMMStellation, some of whom may want to compete. Improvements and /or an increase in terrestrial capacity will also have an impact. Dialogic Inc. for example, announced at the beginning of February that it had a new optimizer for mobile backhaul that could double the amount of data that a standard network could handle. This Optimizer could also be used for satellite networks, but the economics may not be as good as those for terrestrial. Some countries will doubtless answer the call from the ITU. So in addition to the challenges already mentioned, other extraneous factors will also have an impact.
The demand is there. For any company this would be a tough project; for MSCI in particular it is a very ambitious one, and one that to a large extent will depend on the quality of the partners it manages to attract. The satellite industry is littered with examples of systems that do get launched, but years later than originally planned. O3b was supposed to be operational in 2010, Spaceway North America in 1997. Given all the challenges ahead it wouldn’t be surprising if the best outcome has the 2014-15 launch date slipping by a few years.
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Elisabeth Tweedie has over 20 years experience at the cutting edge of new communication and entertainment technologies. She is the founder and President of Definitive Direction a consultancy that focuses on researching and evaluating the long term potential for new ventures, initiating their development and identifying and developing appropriate alliances. During her 10 years at Hughes Electronics she worked on every acquisition and new business that the company considered during her time there. www.definitivedirection.com She can be reached at:etweedie@definitivedirection.com
