O3b Networks, founded in 2007 by former CEO Greg Wyler, wants 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 satellite broadband company’s financial performance.

In an interview with Via Satellite Associate Editor Mark Holmes, Rigolle discusses his plans to turn O3b into a commercial reality, its new bonds with SES and the possibility of signing major deals with well-known wireless operators. 

VIA SATELLITE: Why did you take the role at O3b?

Rigolle: I thought it was a great opportunity to become a CEO of a startup. 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. 

VIA SATELLITE: 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 what other FSS operators did, SES felt the need to understand this concept even though we’re a [geostationary satellite] 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? 

VIA SATELLITE: Does your current position tie O3b to any extra obligations to SES?

Rigolle: No. I was SES. 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. 

VIA SATELLITE: 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. 

VIA SATELLITE: Does the economy have an impact on O3b’s 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. 

VIA SATELLITE: There was a sense at SATELLITE 2010 that banks were now more open to business. Is that what you are seeing in your discussions?

Rigolle: Yes. A year ago, something like this was not possible in either the debt or the equity markets. I got the question from one investor who had a very aggressive style, and he said, “O3b had been in the market for two years. Why should I invest now?” The first point is that O3b had not been seeking finance for two years. You also had the SES round of financing which gave the company credibility. The SES funding was vital, as it came during very difficult overall economic circumstances and was probably the only type of funding we could have got during this time. Now we have started afresh and working towards having the funding in place soon. 

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.

VIA SATELLITE: 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. 

VIA SATELLITE: 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. 

VIA SATELLITE: 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.

VIA SATELLITE: 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. 

VIA SATELLITE: 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 a gapfiller and an alternative to a terrestrial solution. We are all about making that terrestrial solution more robust and faster. 

VIA SATELLITE: 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. 

VIA SATELLITE: Could you tell us about the significance of the deal with ViaSat?

Rigolle: The significance is that an end-to-end solution is more than just having satellites around. You need to have transmission over equipment on the ground. What we have in front of us with the ViaSat contract, is that we have set agreements, which will see them build, install and service our gateways. They will also build terminal equipment that our customers will be requiring to be able to use the service, so it is teleport infrastructure, gateways, dual-tracking antennas, modems and so forth. 

VIA SATELLITE: Was this an open competition?

Rigolle: It was indeed an open competitive bid that Viasat won, however, it is not a closed contract. We are not telling our customers that if they want to work with us that they have to buy Viasat equipment. Because they will be developing it, and the fact they are developing it first, will have a lead over the competition. It is very much a non-exclusive contract. It is not in anyone’s benefit to have an exclusive contract, so that was also the message that I was giving to the people who had not won during SATELLITE 2010. I was telling them that while they would have preferred to have won, the business is not gone forever for them. With every satellite we are launching there will be more beams in more parts of the world. Different types of equipment will have to be built to work with the system, so, therefore, in terms of volumes, we are just at the beginning. 

VIA SATELLITE: Will you be signing any other technology deals soon?

Rigolle: If someone has their own teleport with equipment from manufacturer X and wants to go to O3b but wants to keep their existing teleports and same vendor, that is fine. We don’t want to force a solution on our customers. We want to offer them flexibility. 

VIA SATELLITE: Are we going to see a number of infrastructure-type contracts announced?

Rigolle: As far as we are concerned, we are there. We are building satellites. We have a contract in place to build our gateways and have commercially available equipment to customers so that has paved the way for an end-to-end solution. Within that ecosystem, there are opportunities for others to provide building blocks. If you take the example of the first GSM phone, very quickly other vendors produced handsets and made lots of money. It will be similar with our network. What we have right now is a point-to-point applications for trunking. If you talk about international backhaul and national backhaul, there will be a number of terminals required, and the number of sites needed will be much higher. We need to make sure that equipment is developed and produced and offered to the market.