O3b Execs Press Business Case for Bigger Constellation

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ROME — Startup satellite fleet operator O3b Networks, which has already persuaded its investors to increase the O3b constellation to 12 satellites from the original eight, says the logic for at least 20 satellites is unarguable.

In a presentation here to analysts, O3b Chief Executive Steve Collar said “everything gets better” for O3b and its customers if the constellation is enlarged.

Based in Britain’s Channel Islands, O3b is spending $1.5 billion to build, launch and insure — at an 8.6 percent premium rate for the launch plus one year’s operations — 12 satellites to be operated in an unusual orbit 8,069 kilometers in altitude over the equator.

The satellites will be launched four at a time aboard the Europeanized version of Russia’s Soyuz rocket from Europe’s Guiana Space Center spaceport in South America. The first launch is next spring, with a second scheduled for mid-2013 and a third in 2014.

Each 700-kilogram satellite is designed to operate for at least 10 years — O3b is assuming a 12-year life — and deliver 10 gigabits per second of throughput, using Ka-band frequencies, from 10 beams per satellite. Each beam has a 700-kilometer diameter.

The company’s original business model was to provide telecommunications access to less-developed nations in the constellation’s coverage area, which is 45 degrees north and south of the equator.

Founder Greg Wyler, with a background in building telecommunications networks in sub-Saharan Africa, named the company O3b to mean the “other 3 billion” people who do not enjoy the broadband access being deployed in many parts of the world.

That was then. O3b has since attracted satellite fleet operator SES of Luxembourg as the company’s major investor, hired SES veteran Collar and cast a much wider net for future business opportunities.

In presentations here, Collar and John Finney, O3b’s chief commercial officer, ticked off the business niches O3b now views as its low-hanging fruit: maritime applications for cruise ships and superyachts, but not commercial fishing; offshore energy exploration and production; cellular backhaul in less-developed nations; and the original business of Internet trunking.

Government and military applications, such as devoting the equivalent of one or more satellite beams to an aircraft carrier group, are “our next frontier,” Finney said.

For now, SES is counting on O3b generating some $40 million per satellite in annual revenue, with gross-profit margins equivalent to what SES reports from its geostationary satellite business, meaning better than 70 percent.

SES’s current 46 percent equity stake gives it a path to 50.1 percent majority ownership, at which point SES would buy the remaining 49.9 percent or take O3b public, according to SES officials.

Collar conceded that SES and O3b’s other investors want to see proof of concept before adding more satellites. That means demonstrating, for businesses as diverse as Internet service provider SkyNet of Colombia and Royal Caribbean International’s 8,000-passenger luxury cruise ship, that O3b’s network can deliver its promised low-latency, high-speed throughput.

The satellites’ low orbit promises superfast Internet links, but also requires that users install tracking antennas to follow the satellites as they pass overhead, and then to make the switch to the next satellite without user links being interrupted.

Once this initial business has proved its profitability, O3b will push for more satellites to increase throughput, reduce per-megabit-per-second costs to users and cut the cost of the tracking antennas, Collar said.

Here is how Collar explains the math: “Our efficiency is defined at the start and end of the pass” each satellite takes over a given user’s location, he said during the presentation to analysts. “Everything gets better if the start and end of the pass is higher in the sky — which happens with more satellites.”

More satellites means users are able to link with a satellite as it is closer to directly overhead, increasing throughput. Because the user antennas spend less time with a given satellite, they need less maneuverability and therefore cost less to make. Part of the savings can be passed on to users, Collar said.

He said O3b has already reduced prices for users, mainly telecommunications trunking customers, who signed on before O3b added four satellites to the initial eight-satellite constellation.

The scale economies are especially obvious in comparing the original eight-satellite constellation with the current 12 satellites, Collar said.

O3b assumes that its satellites will last 12 years in orbit. An eight-satellite constellation cost $1.2 billion, or $100 million per year. Collar did not include cost-of-capital assessments given that, as with all satellite systems, the capital spending is almost all incurred before the revenue is generated. Using Collar’s figures, $100 million in annual system cost, or $8.3 million per month for 80 gigabits per second of capacity, means a monthly cost of $104 per delivered megabit per second.

That is for eight satellites. With 12 spacecraft, the total throughput increases by 80 percent, to 145 gigabits per second, with a 50 percent increase in satellites and a 25 percent increase in capital investment.

The cost per megabit per second in that case drops by 30 percent, to $71 per month because the delivered-throughput increase per satellite is greater than the increase in the number of satellites.

 

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