09.08.08

O3b Networks – not a reprise of Teledesic (except perhaps in its ultimate fate?)

Posted in Financials, General at 8:23 pm by timfarrar

This isn’t really an MSS topic, but having worked for several years in the late 1990s on the Teledesic project and with fond memories of evaluating the market for broadband in developing countries, I thought the emergence of O3b Networks with reportedly $60M of investment from Liberty Global, Google and others, merited a comment.

Some of the commentaries appear to conflate O3b’s satellite backhaul business plan with the satellite access services offered by Wildblue and HughesNet in the US. O3b can’t offer services to the end user (except the largest corporates) since customers will require expensive terminals which track their Low Earth Orbit satellites. As Teledesic found out in the late 1990s (and as is still true today) you either need a couple of moving dishes (to ensure seamless handover) or an electronic steered antenna – both are well beyond realistic consumer prices (not to mention their installation difficulties compared to fixed geostationary terminals).

Instead O3b will offer backhaul for ISPs operating in countries without fiber links, so they can obtain connectivity to the Internet backbone. That’s a fairly well established and highly competitive market (valued at several hundred million dollars a year), with Intelsat and other FSS players competing intensively on price. Characteristically the market grows as Internet take-up and usage expands within a country, then collapses almost to zero within 12-18 months of fiber’s entry. There’s absolutely no reason for O3b to change this equation – satellite is at least two and in some cases closer to three orders of magnitude more expensive than large fiber connections for this backhaul service, and fiber continues to decline rapidly in price.

A second market is for cellular backhaul within a country, when fiber isn’t deployed outside the major cities. Again this market is somewhat transitory: terrestrial microwave links become a good option when the cellular coverage is sufficiently contiguous for daisy chaining links from one tower to another, but the satellite opportunity is longer lasting than ISP backhaul in major cities. The opportunity here for O3b will also be affected by how much more expensive its terminals are than standard VSATs, since somewhat more limited amounts of capacity are required. However, O3b’s low latency may be helpful for this voice-oriented traffic.

Thus O3b is simply a bet that quite a few countries, particularly in Africa, won’t get fiber any time soon. Even though its been (very) slow to get going, I’d rather put my money on EASSY, an African fiber project with many of the telcos in the region as signatories (as well as credible international players), which has just entered the construction phase and is hoping to be operational in 2010, well before O3b could expect to be up and running.

3 Comments »

  1. snowyowlster said,

    September 15, 2008 at 5:23 pm

    It’s pretty surprising that a MEO based constellation is being considered for a fairly conventional application like ISP backhaul. One Geo Ka Band satellite (like the proposed Viasat satellite) with spot beam based frequency reuse could provide a significant amount of bandwidth and could allow inexpensive terminals to be used so that Internet Cafes, schools, etc. could gain access to the Internet. Of course the Viasat or Wild Blue satellites require gateways in each spot and high speed access to the Internet from each Gateway – which may or may not be possible in all the regions to be covered.

    On the other hand, measures to provide better connectivity options to the third world are to be applauded – and perhaps the venture can get funding from the various charitable foundations which are working in that region.

  2. timfarrar said,

    September 15, 2008 at 8:35 pm

    It appears that a key reason for using MEO satellites is to reduce the latency of the connection so O3B can position itself as an alternative to fiber. This was also an argument advanced by Teledesic, but it wasn’t terribly compelling at the time, at least for Teledesic’s Internet access service. If O3b wants to be the preferred solution for both voice and data traffic (which now includes a lot more VoIP) then the answer might be different.

  3. snowyowlster said,

    September 17, 2008 at 5:03 pm

    I do understand that argument – however given that cellular backhaul in remote Africa is done over GEO satellites today and that even these satellite connections are pretty expensive and therefore transitory (as per your original posting) – I can’t see how a MEO satellite could be a more economical alternative or a viable long term solution for cellular backhaul. If this venture does get further funding – it might mean that it has something else up it’s sleeve.

    It would also be interesting to understand the Ka band spectrum situation from a regulatory point of view for MEO satellites. I wasn’t aware that there was Ka spectrum available for non FSS applications.

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