SES Eyes Larger O3b Stake amid Rising Satellite Broadband Demand
PARIS — Satellite fleet operator SES on April 30 said demand for capacity from the O3b Networks constellation of medium Earth orbit Ka-band broadband satellites is accelerating faster than expected and that SES may move to become a majority shareholder before the end of 2016.
In a conference call with analysts, SES Chief Executive Karim Michel Sabbagh said the timing of the move from SES’s current 45 percent O3b stake to 50.1 percent or more has always been conditioned on factors related to O3b’s early success.
Sabbagh said O3b, which now has 12 satellites in orbit, has booked customer orders in recent months at a faster rate than SES had expected, and that this could force SES’s hand in purchasing the majority stake.
“The momentum is gathering faster and faster,” Sabbagh said, referring to O3b’s current base of around 40 customers, mainly telecommunications operators seeking O3b’s low-latency broadband offer for those applications that want faster data delivery than what is available from geostationary-orbit satellites. “We’re seeing the market pulling for this much earlier than expected.”
Sabbagh said Luxembourg-based SES is finding increased synergies between its 50-satellite fleet of geostationary-orbit satellites and O3b’s constellation of spacecraft in an equatorial orbit of around 8,000 kilometers.
On the conventional video and data-distribution front, Sabbagh said SES is using its own funds to install gear in homes in an unidentified European nation to test customer response to what SES calls Sat-IP.
Sat-IP converts the linear satellite signal that arrives on customers’ dish antennas into an Internet Protocol signal that then can be used by smartphones and tablets throughout the home.
Sat-IP is one of several technologies that can do this, and Sabbagh said SES has no proprietary interest in seeing one or another of them succeed. The idea, he said, is to persuade TV screen developers such as LG, Samsung and Panasonic to install Sat-IP or an equivalent technology into their screens to assure the continued relevance of satellite-to-home delivery as the market changes.
Most references to nonlinear television programming consumption portray customers as on the move. But in-the-home, nonlinear television is where most of the demand is, Sabbagh said.
SES generates most of its revenue from video programming, but the line between video and data distribution is fast disappearing.
Reporting its financial performance for the three months ending March 31, SES said it increased the number of TV channels on its fleet by 5 percent, to 6,526 channels, compared to the channel count as of a year ago.
High-definition television channels increased by 6.8 percent, to 1,910 channels during the period, SES said.
High-definition’s richer images require more satellite bandwidth per television broadcast. Next up is ultra-high-definition (UHD) television, which satellite fleet operators are encouraging for the same reason. UHD television screen prices are coming down and UHD-filmed programming is increasing.
Sabbagh said emerging-market nations appear to be moving toward UHD more quickly than SES anticipated, with some emerging-market broadcasters jumping to UHD without spending much time on high-definition.
Industry officials remain unclear on when UHD will become a mass-market phenomenon. Sabbagh said an industry standard with programmers, chipset manufacturers, hardware producers and others all in alignment should occur by 2018.
SES has seven satellites under construction and scheduled for launch in the next 30 months, and it has told investors it has left room in its budget for three more spacecraft.
Most of the new capacity is intended for SES’s markets outside North America and Europe. The seven satellites under construction will add 211 new transponders to SES’s capacity in addition to transponders that will replace capacity on existing satellites. Some 82 percent of the new capacity will be directed at emerging markets.
The first of the new satellites is SES-9, which carries 53 transponders with dedicated beams for several Asian nations. Sabbagh said SES has been given a commitment by launch service provider SpaceX of Hawthorne, California, that the launch will occur before October.
SES Chief Financial Officer Padraig McCarthy declined to specify how much of SES-9’s capacity has been presold, saying many customers prefer to await a satellite’s launch before booking. But Sabbagh said Asian customers now are asking when SES-9 will be available and are clearly interested in it.
SES has more than tripled its workforce located in emerging markets since 2011. Sabbagh said the non-North American, non-European staff grew by 50 percent in 2014 alone, with no visible effect on the company’s cost structure.
It is not just that the new employees live in lower-cost countries, he said. The company’s response time for customers is also improved with local representation, and this provides savings.