Price Drop in Africa Has Startup O3b Defending Business Plan

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WASHINGTON — Established satellite fleet operators doing business in Africa said prices are under pressure, especially for C-band links, as long-planned fiber lines proliferate on the African coasts.

These operators said they did not believe the price declines in Ku-band would be severe, and they expect to survive the current downturn in the hope that the combination of fiber’s presence and increasing satellite coverage will not cause a permanent drop in prices.

Addressing the Satellite 2011 conference here March 16, officials with experience in the African satellite telecommunications market said they doubted the viability of startup satellite constellation operator O3b Networks, which has recently raised $1.2 billion and is targeting Africa as a major market.

O3b, based in Britain’s Channel Islands, is SES Takes a Stake in O3b”>backed by established satellite fleet operator SES of Luxembourg. Eight O3b satellites are scheduled for launch in late 2013 into an equatorial medium Earth orbit to cover regions located between 40 degrees north and 40 degrees south latitude.

The company will be selling wholesale bandwidth to Latin American, African and Asian telecommunications operators and has already booked more than $600 million in contracts that O3b officials say are binding. But that was before some of the massive fiber capacity now available in Africa had arrived.

“We haven’t heard so much about O3b for trunking services recently because fiber has arrived in Africa,” said Mazen Nassar, chief executive of satellite ground service provider Mena Nets, which has offices in Beirut and the United Arab Emirates. “We were expecting a lot more from O3b, but the market has now been sized down.”

Riyadh Al Adely, general manager of Sky-Stream of Dubai, United Arab Emirates, a satellite services provider, agreed. “They have a big challenge,” he said of O3b Networks.

Simon Bull of Comsys, a British consultancy that produces the annual VSAT Report on satellite terminal markets and the pricing environment, said satellite bandwidth prices in some places in Africa have tumbled from up to $5,000 per megahertz per month to less than half that, with no sign that the decline is stopping.

Khalid Balkheyour, chief executive of established satellite fleet operator Arabsat of Riyadh, Saudi Arabia, agreed that prices were dropping but said the current attraction of Africa for some satellite providers is likely to subside. The available capacity will reach a plateau that should allow prices to stabilize despite the fiber-caused pressures on the coasts, he said.

“We are maybe at a peak now,” Balkheyour said. “I expect prices to be stable — that’s what I hope — or perhaps to reduce a bit for the next couple of years. You will have excess capacity in Africa, but that will level off. Demand will continue to grow and [prices] will pick up again.”

Balkheyour said he remained confident that Arabsat’s new satellites — one launched in 2010, another scheduled for 2011, both with full Africa coverage — will find a healthy market, at least in Ku-band. “C-band is another question,” he said, adding that he did not see how O3b could succeed in the current environment.

O3b’s new chief executive, Steve Collar, took sharp issue with these assessments March 17 during a separate session at the conference.

“We have seen this time and again when fiber arrives somewhere,” Collar said. “The market evolves and adapts by finding new applications. Time-limited trunking is one of our applications, and mobile broadband is another. The need for bandwidth to address these demands is undeniable.”

Collar said the established operators in Africa may have overlooked O3b’s more recent focus on cellular backhaul to handle the huge increase in demand to handle cellular data.

He said O3b also has the ability to move its beams around to capture unanticipated pockets of demand, for example at a time of natural disaster.

The arrival of fiber, Collar said, is as likely as not to stimulate this demand for bandwidth far from the coastal areas as more people demand 3G and, later, 4G mobile links. “Pure trunking applications will certainly be affected” by fiber, he said, but this will not deliver a major blow to O3b’s business plan.

 

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