Once-mocked 03b Investment Now Force Multiplier for SES

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PARIS — Satellite fleet operator SES’s $75 million investment in O3b Networks in November 2009 looked at the time like a weekend hobby — enough to save the life of O3b, but not enough to damage SES if O3b crashed and burned.

Several of SES’s biggest competitors used the investment to ridicule the idea, saying its complicated user ground antennas would not be accepted by the corporate markets O3b was aiming at — offshore energy, cruise ships, developing nations’ telecommunications operators and the like.

What a difference six years makes. After a dodge-a-bullet moment when the first four satellites suffered an onboard problem, O3b now has 12 satellites in medium Earth orbit and is likely to order eight more this year from supplier Thales Alenia Space of France and Italy.

SES’s 45 percent stake is likely to increase to a majority share by the end of 2016, Luxembourg-based SES has told investors.

The SES investment looks prescient today, when competitor Intelsat is investing in OneWeb LLC, a low-orbiting broadband delivery constellation whose credibility today is not much different from where O3b’s was when SES came aboard.

SES Chief Executive Karim Michel Sabbagh, who assumed his post in mid-2014 and could have decided to downplay O3b, now never misses an opportunity to talk about the force multiplier that a Ka-band broadband constellation in an 8,000-kilometer equatorial orbit can be for a company that has made its living from geostationary satellites 36,000 kilometers above the equator.

Away from the headlines, Google — an initial O3b backer — has not raised its 5 percent equity share in the company but has kept up with the capital raises to avoided share dilution.

What matters to SES shareholders is the money, not the technology, and at SES’s June 17 investor conference O3b Chief Executive Steve Collar gave a snapshot of the company’s current status.

Absent from Collar’s remarks was any reference to the $300 million insurance payment O3b claimed because of the defect of the first four satellites. SES has said it is in favor of allowing O3b to use the cash to invest in the business.

Collar said O3b has 25 governments and corporate customers now under contract, with another 15 expected to be under contract by October. The current customers have booked 22 gigabits per second of capacity on the O3b fleet.

Of the first eight customers, including Pacific island nations that, without fiber access, are starved for capacity as a way of keeping young people from weighing anchor, seven have increased their original contract volumes.

Papua New Guinea, he said, has increased its original 360 megabits-per-second contract nearly sixfold, to 2 gigabits per second. South Sudan and Madagascar have also added capacity to their original commitments.

O3b had $530 million in committed backlog as of June, Collar said, compared with $484 million a year earlier. The company expects to reach cash-flow break-even by early 2016.

Collar said the company sees annual per-satellite revenue leveling off at between $32 million and $36 million, a point that should be reached by September 2018 if not earlier.

O3b’s first satellites were launched in June 2013, with a second group of four launched in July 2014 and the latest four-pack launched in December 2014. All were orbited on Europeanized Russian Soyuz rockets operated by Arianespace.

O3b’s initial vision of providing Internet access to the “other 3 billion” people without terrestrial access has not been abandoned, but the company does appear to have focused on markets with a more immediate payout.

O3b by now is used to the jokes: O3b actually means the “other three billionaires” for luxury yachts, the “other three barrels” for offshore energy producers and the “other three battle groups” for military customers.

Be that as it may, the fact is that Peter Hoene, the new chief of SES Government Solutions — the division that markets capacity to the U.S. and other governments, mainly the military — went out of his way to tell investors that O3b “is a real discriminator for us” in U.S. military competitions for bandwidth provision.

“This is not just a 10 percent improvement” over geostationary orbit, Hoene said. The same order-of-magnitude throughput increase that cruise ship operator Royal Caribbean has seen with O3b can work for the U.S. Navy.