Rigolle: Nothing More Exciting in the Telecoms World than O3b

[Satellite News 03-22-10] O3b Networks, founded in 2007 by former CEO Greg Wyler, aims to bring Internet access to the developing world through a next-generation hybrid network that combines the reach of satellite with the speed of fiber.
In February, the company named Mark Rigolle, then CFO of SES, CEO. The leadership change followed a $75 million investment by SES in O3b, which could lead to SES holding up to a 30 percent stake in O3b depending on the company’s performance.
In an interview with Satellite News, Rigolle discussed his plans to turn O3b’s mission into a commercial reality, its new bonds with SES and the possibility of signing major deals with well-known wireless operators in the near future.

Satellite News: Why did you take the role at O3b?

Rigolle: I thought it was a great opportunity to become a CEO of a start-up. O3b is a fantastic idea that we are now turning into a company. It allows people in the developing world to access the Internet pretty much the way you and I do. Without O3b, that dream of allowing everyone access could take generations. The concept of O3b makes sense from a business perspective and I can’t think of anything more exciting in telecoms anywhere at the moment. Marry that with the fact that I already knew O3b very well, because SES had developed a history with the operator for months before it took a stake last year.

Satellite News: What were your initial impressions of O3b after its debut?

Rigolle: The first reaction from everyone in the satellite industry was one of skepticism and in my case, one of healthy skepticism. SES was cautious in terms of how it might work. You have to give credit to SES’s management culture, because contrary to other FSS operators did, SES felt the need to understand this concept, even though we’re a geo company. After months and months of analysis, the team came to the conclusion that this was perhaps the best idea to hit the satellite industry since the creation of Astra, so why not make something like that happen again?

Satellite News: Does your current position tie O3b to any extra obligations to SES?

Rigolle: No. I was SES until two weeks ago. Now, I am O3b. Out of the 11 members of the O3b board, three are former colleagues. SES does not have any extra influence in the company. It does mean I have better personal relationships with those people compared to the others. It is simply my job to develop good working relationships with all the board members.

Satellite News: What are your first year targets for O3b?

Rigolle: In a year’s time, we should be halfway through the build program of the satellites, and we should be in a position to speak more concretely about launch dates. Secondly, we would have made good progress on the ground segment so that we stay on track for launch of the first satellites. The other important thing is that we get to a position where we are fully funded. We will not only be selling capacity on the first eight satellites but also the follow-on satellites. This will lead to a well-filled order book.

Satellite News: Does the economy have an impact on access to funding?

Rigolle: The company has been involved in raising debt and equity for more than a year, so we have been making good progress at a time when, arguably, the economic situation has been at its worst. A large part of the debt enjoys a Coface guarantee and the bank’s attention has increased with SES investing in us, which tremendously increases the credibility of the whole project. On the equity side, having a FSS operator visibly backing us has allowed us to even revisit people that turned us down six months ago or so. These people are now open to us as they feel there must be something in it if SES has invested. The value of a FSS operator becoming a shareholder is quite important, particularly in this financial environment.

Satellite News: When do you expect to break even?

Rigolle: We expect to break even pretty quickly after service launch. Without giving too many details away, it is similar model to FSS in terms of possible profitability. It has very low operating expenditures and no cost of sales component. The capital expenditure is a much lower than for a geostationary satellite, which means our cost-per-bit is lower, which in turn enables us to offer the service at a more attractive price point. We have not yet given a firm date for service launch, but 2012 remains achievable.

Satellite News: What deals are you looking to sign in the first year?

Rigolle: There are two kinds of sales. Firstly, there is selling batches of capacity to people who see the value of that in the future. These are telecoms companies, resellers and so on that we have in our current backlog. We also want to get the product or the service to be accepted as an element of the future network design, for mobile operators for instance. If you want to set up a mobile phone company in Zimbabwe, for example, our capacity will enable you to very quickly build out strong national coverage, whether there is terrestrial infrastructure in place or not. Whether you want to go in with a 2G, 3G or 4G network, we could do it all.

Satellite News: When do you expect that first signature deal with a major telco?

Rigolle: I think realistically it will be closer to launch date before you get people to bite. Then you will get the momentum building. We are maybe just over two years from launch, so I think it is unrealistic to expect people to rely on that service when rolling out a network. But once you get close to launch date, you will be able to become part of a credible solution for network design. I would be very happy to have such major deals at launch or just after launch. In the meantime, we’ll happily sell our capacity to those who already see the huge value that it represents.

Satellite News: How will O3b monetize and reach the middle class in these emerging markets?

Rigolle: It is a question of price. I was reading about an ISP in Benin, and 50 percent of the end consumer price was international backhaul. So if you are able to reduce by a factor of two or three the cost of that type of that activity, then you are able to make a meaningful impact on the end consumer. By reducing the cost point, you are stimulating the demand. On top of that, we offer a solution that is more attractive in terms of speed. This business really has the potential to scale, because it is about offering a superior product at a more attractive price point.

Satellite News: Does Ka-band satellite service pose a threat to O3b in these markets?

Rigolle: We are not about reaching the end consumer. Our competitor is fiber, not Ka-band satellite operators that go direct to the consumer. It could have an impact, but we have seen that Ka-band is positioned as gapfiller and an alternative to a terrestrial solution. We are all about making that terrestrial solution more robust and faster.

Satellite News: What are the main challenges to make this vision of O3b a success?

Rigolle: I think the main key to the success of the company is the fact that we cannot sell to the procurement department of a large telco like Telefonica or a Vodafone. They have a bandwidth problem that needs to be solved now and we don’t have an existing product. The product we will offer will be different to what is currently available, so we will need to talk to business development people, as well as network design people, so they can see the value of this solution. Secondly, we need them to make decisions to incorporate this into their future network design and rollout plans. At that point, you can then start to book sales. We want to get relatively large names in telcoland to accept that this is a damn good solution to their mid-term connectivity problem and possibly the best solution to that problem and start to contract capacity in 2012 to 2014 for their future network rollout plans.

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