[Satellite TODAY 11-19-09] Analysts had a reactions to SES’ $75 million investment in emerging market broadband provider O3B Networks – a move that made SES a key shareholder in the company.
     Patrick French, senior satellite analyst at NSR told Satellite News that the deal is an “important step” for O3B, which will use the funds to help build an ultra-low latency, fiber speed satellite network to serve as a global Internet backbone and next generation backhaul infrastructure for people and businesses in emerging markets. “It is NSR’s view that the SES investment in O3B is an important step forward in O3B’s capital raising efforts, yet the race is not yet won for O3B in this area. Still, the SES investment will no doubt have the added value of lending credence and credibility to the O3B business plan and could well encourage other investors, possibly banks or private equity, to step up to the plate to finish the job. As for the future, it is really hard to speculate what makes sense until the O3B system is up and running and the industry has some real world experience with the service,” said French.
     SES’ investment goes beyond just gaining a financial stake in the much talked about newcomer to the satellite industry. SES will also provide engineering and commercial support to O3B in order to assist the company’s development.
     Despite the buzz surrounding the deal, French has both positive and negative feelings about O3b’s business model. “O3B’s business plan certainly makes sense when targeting the large trunking circuits (say around 10 Mbps or higher) that are currently being carried on FSS capacity. For smaller circuits, it all comes down to the specific client needs and the actual cost of the O3B ground equipment, which is currently quoted as much higher than typical VSAT equipment,” said French. “As the size of the circuit goes down, it makes less sense from a client’s financial perspective to make the large investment in the O3B ground equipment because the lower capacity cost cannot pay off the equipment capital investment in a reasonable length of time. But again, this is just a hypothetical generalized view and a specific business case will need to be run for each specific client to see if they get a net benefit by moving from FSS capacity to O3B.”
     Andrea Maleter, technical director, Futron Corp. said called SES’s investment “interesting,” suggesting that the move may possibly be a response to Intelsat’s plan to buy Protostar1 and move it to provide service in Africa. “SES has a history of taking small positions in regional companies and then expanding these to majority or even full ownership, so this would not be an unusual approach for them,” said Maleter.
     In a research report issued Nov. 16., Eric Beaudet, a satellite equity analyst at Natixis Securities, discussed the investment’s impact on the regional market. “Strategy-wise, SES already has a satellite Internet solution, transmitted by its geostationary Ku-band satellites. However, these are optimized for video broadcasting, making Internet services more expensive. The investment in O3B will therefore give SES a competitively-priced broadband offering. Note that rival Eutelsat has opted for a Ka-band geostationary satellite, which is more suited to point-to-point transmission and will be launched in the summer of next year,” said Beaudet.
     SES CEO Romain Bausch told Satellite News that it was not beyond the realms of possibility that SES could become a majority shareholder in O3B Networks in the future. “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,” said Bausch. “If O3B proves there is a strong demand for these services and is growing successfully, we will definitely seriously consider this.”