Northern Sky Research

O3b's Latest Brazil Contract is another Building Block

Oct 19th, 2011 by Jose Del Rosario   More from this Analyst | Profile

In September 2011, O3b Networks announced a multi-year, multi-million dollar commitment with Ozônio Telecomunicações, a Brazilian multimedia communications and Internet service provider. The precise contract value was not disclosed, but it follows a series of O3b deals over the past two years including:

  • June 2011 reseller agreement with Sky Fiber for broadband solutions and connectivity to Southeast Asia
  • May 2011 deal with Mavoni Technologies, South Africa for connectivity to municipalities and educational institutions
  • October 2010 deal with Netcom, Nigeria to provide connectivity to ships and offshore platforms
  • September 2010 exclusive national capacity agreement with Pak Datacom Limited to deploy high-speed internet to Pakistan
  • June 2010 deal with Telecom Cook Islands on bandwidth provision for Internet connectivity
  • September 2009 agreement with Vizada Networks to supply O3b services to the African continent

In November 2010, the company secured its full $1.2 billion to finance the construction and launch of its satellite constellation, a significant portion of which came in the form of equity investments and debt. Tracking deals over the past two years is important given that in September 2009, O3b’s backlog stood at just under $600 million in service contracts, which would fall short of fulfilling relevant and recurring corporate requirements, servicing its debts, providing returns or dividends to its equity stakeholders, managing its constellation as well as fulfilling other financial obligations in its day-to-day operations.

It is difficult to quantify or estimate O3b’s total backlog to date, but the Brazil contract is or could be the most significant given the market’s potential. The deals outlined above do improve O3b’s financial and market position, but not at the same level in terms of potential and opportunity that the Brazilian market presents. Mobile broadband usage, increasing disposable income levels, a serious universal service (USO) program and a large addressable population base are some of the main market ingredients that could lead to high, sustainable and recurring revenue streams. Moreover, the Brazil contract could signal an enhanced market position that could lead to other “significant” deals.

Bottom Line

The ability to land clients in order to service its financial requirements and thus prove a sustainable business case has been one of the key issues plaguing O3b’s proposition within the industry. Beginning in 2008 when it was announced, a “wait-and-see” attitude from solution providers has prevailed. Questions that have arisen include:

  • Will the constellation actually be launched?
  • Will it be technically sound?
  • Will it make enough money to stay afloat over the long term and thus justify investing in ground technology today and over the short term?

Although and by no means “out of the woods yet” by any stretch of the imagination, NSR does see the recent contract with Brazil as putting O3b closer to being on more solid standing as it presents another building block that can lead to a more positive market position. Simply put, should similar contracts with key countries or clients follow suit, the momentum would lead closer to a resounding “yes” to the nagging questions that have been raised about the program.

Information for this article was extracted from NSR's report Wireless Backhaul via Satellite, 5th Edition