Start-up satellite broadband provider O3b Networks is working towards providing emerging markets with fibre-like services, but technical issues recently forced it to delay the launch of its second batch of spacecraft. SatelliteFinance’s Jason Rainbow…
Start-up satellite broadband provider O3b Networks is working towards providing emerging markets with fibre-like services, but technical issues recently forced it to delay the launch of its second batch of spacecraft. SatelliteFinance’s Jason Rainbow speaks with O3b CEO Steve Collar to find out more.
Jason Rainbow: When did you find out you next batch of satellites had an issue that caused you to skip your launch window – and what kind of impact will this have?
Steve Collar: We made a joint decision over the 7-8 September weekend with Arianespace and Thales Alenia Space. It’s going to have a minor impact on our business but my focus is to help manage our customers through this, because obviously any kind of delay for them is potentially going to impact their plans. So my priority is to ensure that customers are settled and are fully informed about when we intend to launch services, which looks like now being the early part of next year. We’ll narrow that down over the coming weeks.
You know, we first thought of this idea back in 2007, we financed the company in 2010 and here we sit in 2013 – by any standards it’s spectacular progress. We’ve not had any issue with our schedule up to this point, so this is well within a normal tolerance for a satellite programme.
JR: O3b has a lot of export credit agency financing with Coface – does this delay affect any milestones that are tied to those facilities?
SC: Not materially, as with all project financing there’s a certain amount of contingency built into the plan. But there’s no question that we will sit down with our banking group and Coface and explain to them where we are, because they’re an integral part of the company. They’re as important a stakeholder as the shareholders and customers.
JR: Does it throw up any requirements for extra capital?
SC: One of the great things about O3b is it’s completely scalable. We will have eight satellites up within the next few months, and 12 up hopefully by the end of next year.
There’s almost no limit to the number of satellites that we can launch. We’ve taken a very different approach to all the other operators that tend to launch a fixed point design for a 15-year period. We can keep refreshing our constellation, simply adding new satellites, capability with new spectrum bands, and higher throughput through the benefits of newer technology. We can grow to more than 100 satellites in the same constellation if the market is there.
So absolutely there’ll be capital needs in the future, but for the time being it’s about getting the satellites we’ve got under construction up. And before too long we’re going to be changing our focus on what the next generation looks like.
JR: So the delay in revenues coming in isn’t going to affect you?
SC: No, in the grand scheme of a business that you’re building for decades, a few months is not significant.
JR: Have you been briefed on any plans by your shareholder SES to increase its ownership?
SC: We’re looking out for the interests of all of our shareholders, and SES will definitely have its plans for O3b in future, as will all the other shareholders.
JR: A key part of O3b’s USP is the low latency it can provide. Why would that be valuable to an end user?
SC: Well, when you assess the performance of your broadband system at home for example there are two key parameters that determine how well it operates: It’s the speed and it’s the latency.
Everyone will talk about the speed, but very few focus on latency. That’s because most broadband is wired over terrestrial circuits. And a typical terrestrial latency is anywhere from 100-200 milliseconds.
For geostationary satellites, you are dealing with 600 milliseconds – anywhere from three to six times more delay. And latency is just delay. It’s the effect that you hear if you are on a satellite phone. You’ll speak and a second later or so the other person will hear it and start responding and you have that unnatural conversation.
But latency is just as important in data networks. Because if I send you some information, and I’m waiting for you to respond, there’ll be a run up of delays and before long the data network will start to collapse. It doesn’t really matter for information that is just being broadcasting one way, but if there’s any kind of interactivity it’s a major problem. It dramatically affects the effective data rate that you’re going to receive.
Geostationary satellites have an intrinsic problem with the fact that they’re 36,000km away – but our satellites are only 8,000km away.
JR: In terms of the kinds of industries that could be drawn to this proposition, are you expecting a lot of demand from the oil and gas sector for real-time information?
SC: Oil and gas companies want to move as many of their operations onshore as they possibly can. They manage a lot of their operations offshore through Enterprise Resource Planning (ERP) systems. These systems don’t cope with latencies of more than 200 milliseconds.
So that means the oil and gas operators can’t effectively use any ERP system, unless they replicate the whole system offshore as well – which is tremendously expensive. What appears to be a little thing like latency drives millions and millions of dollars of operational costs.
If we take it back to a consumer at home and think, if you had a choice between a link that is supplied over geostationary satellite or one that is over O3b, one has 600 milliseconds of latency – where your kids can’t play online games, you can’t book travel without being kicked out of the booking process, and you can’t use VoIP providers like Skype in any meaningful way – while on the O3b supplied service all of these things are seamless – which one are you going to pick? That’s where latency becomes compelling.
JR: Let’s talk about Africa, where we’ve heard a lot about over capacity and pressure on pricing there, do you expect people to pay more for better latency?
SC: It’s not about paying more. It’s about providing people the kind of experience that will keep them locked on your solution. We’re providing an equivalent experience to fibre, and we’re deploying in areas where fibre either isn’t there or it’s of poor quality.
And there are plenty of these places. Look at where we’ve sold recently in South Sudan, Liberia, Madagascar and DRC – these are all places that are very difficult to roll out fibre. In some cases they have one fibre operator and in others they have none at all.
So if we can embed ourselves in places where connectivity is poor we believe we will be deployed there forever because we will offer fibre equivalent services. One of the dangers of satellite connections is, because you have these performance compromises, there’s always a risk that when volume and demand builds to a certain point it will be replaced by fibre. We’re fairly optimistic this won’t be the case for O3b because we’re cost effective and we provide the equivalent performance.
JR: And with O3b’s satellite beams being fully steerable you could always shift your focus?
SC: That can be an advantage in terms of mitigating risk, because if for whatever reason a market goes away in a particular place we can re-steer the beam and develop a market somewhere else. But it’s also interesting for customers who benefit from that mobility.
For Royal Caribbean, for example, the service that we will be providing them is to ships at sea. And we will track a cruise ship as it moves through its voyage.
JR: When you go into these markets that aren’t already connected to fibre, are you mainly doing that in partnership with governments?
SC: In some cases. The internet is a fundamentally important tool to enable social and economic development, and it is becoming increasingly important for governments to drive broadband into their countries and level the playing field.
Governments get it now. Countries where there’s a strong government backing for broadband are interested in O3b, places like Brazil, and Malaysia where we just signed a deal for a rural 3G project that is government-backed.
JR: Where will O3b fit with the next generation capabilities of other operators – Inmarsat’s Global Xpress and Intelsat’s Epic – are you in overlapping markets?
SC: Not hugely. Firstly, I believe that as long as we’re able to drive the right products into the market and hit the right price points then there’s a significant amount of elasticity, which means there’s a place for Global Xpress, Epic and us.
I think of Global Xpress as being a system where customers can get some bandwidth anywhere they go. O3b is a system where we can provide a significant amount of bandwidth but we’re not going to do it on a global basis, because it just leads to too many compromises.
Epic is somewhere in the middle. In my mind, it is just an evolution of the existing Intelsat fleet with some additional features. I think there’s a spot in the market for all three of us, and many more to come, as long as we keep our eye on what the customer is going to use that particular service for. That’s why we’ve productised in trunking mobile backhaul, energy, maritime, mining and government – just to make sure that what we’re providing into those different verticals is of interest and that we are providing services that customers want.
JR: So you’re optimistic about launching commercial services?
SC: It’s a fantastically exciting time for us, and I really feel like we’re coming to the market at a really good point. Whether it’s global economies recovering, or the high demand for bandwidth services, it’s a great time to come to the market. And certainly getting our customers up into service soon is the main priority for the company.
