OverHorizon President Outlines Capital Expenditure Plans
In July, the government of Cyprus granted OverHorizon, which has offices in Arlington, Va., and Solna, Sweden, a second orbital slot. OverHorizon, the only company to apply for the slot, plan to use it as well as another slot granted to the company by Cyprus in 2001, to operate small satellites providing mobile broadband communications services.
OverHorizon will use the slot for 20 years and pay Cyprus annual administration fees and a small percentage of the company’s revenues. The company expects to launch the service no later than the beginning of 2001 and to break-even within a year, Lennart Hällkvist, president of OverHorizon, said.
Hällkvist, formerly the top executive at Nordic Satellite AB, spoke with Satellite News about the operator’s ambitious plans, its capital expenditure plans and the market opportunities for OverHorizon.
Satellite News: What are your plans for acquiring satellite space in order to provide your service?
Hällkvist: We sent out [a request for proposal], and we are now discussing the final manufacture of the first satellite with two suppliers, one European and one American. We expect to sign the contract for the first satellite by the end of this year. In the first deployment phase we are looking at deploying one satellite covering parts of Europe, Africa and the Middle East. … We are also looking at having a smaller one, probably a hosted payload, over the Americas. In the second deployment phase, we are looking at a satellite over East Asia.
Satellite News: Why have you decided to look at small satellites?
Hällkvist: We wanted to have smaller, single purpose satellites designed for a single task — mobility and broadband — as opposed to larger one shoe fits all multipurpose satellites. This approach, besides better meeting the end customer needs, also enables incremental build-up so that we basically lowered the investment threshold. With that said, you can also today, with the miniaturization of electronics, build a complex satellite without the need to make it very large. The initial challenge here was to find a suitable smaller platform.
Satellite News: What are the major financial challenges facing the company?
Hällkvist: Even if we didn’t have the current financial market situation, satellite projects are capital expensive at the beginning of the project, and although we have lowered the investment threshold, this is always a challenge when you are out looking for funding. We have just closed our fourth and last initial financing round of which the last two were oversubscribed. As this is a niche service with a smaller group of targeted end customers we have chosen to run a small and efficient organization and, consequently, kept the costs at a minimum during this phase and raised around $6 million. We have one more round, which is larger, of which we expect to close the first tranche in the fall. After that, we would have sufficient funding to order the first satellite. We are looking at one equity part and one debt part. We will need around $140 million for the first deployment phase, which is the first satellite as well as the hosted payload.
Satellite News: What are your target markets on the satellite landscape?
Hällkvist: With the market experience that we have, we have a lot of interaction with customers in the government, in defense as well as security and media market segments. These customers have a large and fast growing need of true broadband, low-cost service enabling very small, mobile/on-the-move, low-cost terminals. Those were the basic parameters for the service. We have filed eight patents and with the frequency band chosen and the design of the coverage areas, we will be able to provide that. We are targeting those sectors, the government customers and the media customers. We are targeting these in Europe, Asia and the Americas.
Satellite News: Which markets do you think you can make a particularly strong impact?
Hällkvist: We are looking to make an impact with organizations in the media, security, defense and government. We are looking at areas where there is poor infrastructure, such as Africa or the Middle East. Each satellite will have up to five steerable interconnecting spot beams, each covering an area on the ground with a diameter of around 1,400 kilometers. If there is an earthquake in Pakistan, you can move one beam to cover that area to provide immediate access. If there is a conflict in Congo, we can move another beam over there to provide service for the military forces that are there. We have seen a lot of interest from these customers. We have been to the U.K. [Ministry of Defence], Nordic Defense Administration, the U.S. defense agencies, etc. They all have an interest in the areas we will cover with the first satellite.
Satellite News: How significant was the recent licence from Cyprus?
Hällkvist: The Cypriot orbital slot was the first one, and we are close to signing for a second orbital slot. That is with another European country. We are also having discussions with two administrations in the Americas as well as one in the Middle East, and one in Asia. If we launch more satellites we will need more orbital slots and more frequency licenses. You don’t really need the license until the satellite is ready to be placed, but we will together file at the ITU for the use of the license once we have signed the satellite contract. We are in discussions with a second European country about an orbital slot. We expect to sign something before the end of the year. I would expect that to come along in the September/October timeframe, but you never know. These discussions are at the ministry level and they take time. We have agreed on the basic conditions for the license but there are still a few things to iron out.
Satellite News: How will you use your experience at NSAB to boost OverHorizon? Is it a different challenge?
Hällkvist: Internally, it is basically the same thing. You develop according to market needs. You develop the specifications for the satellite. You order a satellite. You discuss with manufacturers. You arrange a license. Everything like that is the same. What is different here are the customer segments we are targeting. Instead of selling a five-year lease on a transponder to a media company, here what we sell will be bandwidth slots. People will pay for what they use. It will be an ad hoc service. There will be an automated system in terms of billing and providing service. The customer market segments are different.
Satellite News: What role do you see the company playing on the satellite services landscape in Europe?
Hällkvist: Our service is unique as it combines broadband communication and mobility at low cost. At the same time, I am not so sure we will make a large impact in Europe. There are areas in the Mediterranean we could make an impact, but we are looking more at areas such as Africa, Asia and the Middle East where there is less infrastructure where we can make an impact. We are a niche player. Although the demand is large we have still assumed a conservative view on our market share, even on this service. We are positioning ourselves as being a complement to MSS operators like Inmarsat and Thuraya, which have great mobility but no real broadband throughput and a high price for the service. We can provide services up to 8 megabits per second and at a much lower cost. We will use distribution channels providing complementary services to the same customer segments we are targeting.