[Satellite News 11-16-09] SES CEO Romain Bausch admitted it was not beyond the realms of possibility that SES could become a majority shareholder in O3B Networks in the future. Now, that possibility has turned to reality following a $75 million investment, announced Nov. 16, into a company that aims to bring high-speed broadband connections to emerging markets.

            Bausch spoke to Satellite News almost immediately after the deal was announced about its plans to become a 30-percent key shareholder in O3B and about the significance of this deal from SES’ perspective.

Satellite News: Could you explain the thinking behind the investment in O3B Networks?

Bausch: There are a number of reasons why we have decided to invest in O3B. The first one is the market opportunity. O3B is building a low-cost, low-latency IP trunking satellite infrastructure. They are developing and building a huge backbone network, which will provide Internet connectivity to enterprises in emerging markets.. There is a very high demand for these type of services, currently served by geostationary satellites. O3B is low-cost, low-latency infrastructure, so it has additional features, that gives some advantages to geostationary satellites. It is not intruding into the portfolio of World Skies business. We are not so present today in the hybrid trunking business, so there is only a small overlap in terms of the market segments we are serving today with our satellites and the satellites of O3B. The main supplier of trunking services today via geostationary satellites is Intelsat, and this deal is a nice complement to our portfolio. We can now offer O3B’s services directly to our customers as part of our portfolio.

            Another reason relates to geography. As you know, SES has a strong presence in Europe and North America. Therefore our strategy consists of increasing our exposure in emerging markets. You have the highest growth opportunities there. This is a definitely an investment focusing on the emerging markets. The Medium Earth Orbit satellites will cover all the markets in Latin America, Africa, Middle East, Asia and Oceania. O3B is offering this strong coverage in all these emerging markets. So, this is an important step for SES to increase our presence in these markets.

Satellite News: What does $75 million buy you here?

Satellite News: There had been a sense in the market that SES was moving away from minority investments. Why have you made one here?

Bausch: The difference here is that this is not about geostationary satellites. For us, it is difficult to see where we could go into part ownership of geostationary satellites, because we only achieve synergies and economies of scale if we can have these satellites in our fleet. You cannot do this if you don’t have ownership control of these satellites. YahLive maybe an exception to that. But, with O3B, this is a different situation. It is a MEO (mid earth orbit) satellite system. There won’t be economies of scale with our own GEO satellites. But, it is important to note, that while we are a minority shareholder today, we are not precluded from becoming a majority shareholder in the future.

Satellite News: Is that something you see as a serious possibility?

Bausch: If O3B proves there is a strong demand for these services and is growing successfully, we will definitely seriously consider this.

Satellite News: Could you tell us about the timeline behind this deal?

Bausch: We started thinking about a potential investment in O3B Networks around a year ago. We started formal discussions with them a little bit later. We had to look in detail at the technology. It is certainly a very innovative satellite technology solution, including steerable antennas. The technology is different to what the geostationary satellites are using. But, it is not an unproven technology. The satellites are not so different from the second generation of the Globalstar satellites. From our side, it is innovative in terms of building core infrastructure.

Also, you have the social dimension of this deal. Serving the developing countries and offering them a low-cost opportunity to get connected is an important dimension of this deal. We are also doing this for that reason. Obviously, there is an economic rationale behind this deal, but it is good to combine business rationale with innovation and with social responsibility..

Satellite News: O3B entered into the scene in a blaze of publicity having high-profile companies such as Google as backers. What is it about their business model that you think will work?

Bausch: It is good to see companies like Google and Liberty Media, who have different areas of activity, believing that this can be an attractive business proposition. So, that is encouraging. In terms of why we believe it will become successful, it is about the combination of the innovative idea of O3B with the technical, operational and commercial strengths of SES. We think, this is a very promising combination.