Taking Internet to the next four billion users (2) …. PUNCH


Launching satellites

Building this new infrastructure is not cheap. Seacom cost $650 million to build, and MainOne cost $240 million. And that does not include the cost of building pipes into the center of the country. That makes the idea of using satellites to blanket the planet with Internet access sound particularly appealing. The question, though, is whether anyone can make satellites cost-effective.

Satellite Internet has been around for years, but newer companies like OneWeb—backed by Virgin Galactic founder Richard Branson—and Elon Musk’s SpaceX are taking a different approach. By placing satellites in low-earth orbit—roughly 100 to 1,250 miles overhead—these companies say they can provide access that is far faster than traditional satellite Internet, and with less latency (the time between sending a request and getting a response). The catch is that these lower orbit satellites can’t cover as much area as a traditional geosynchronous orbit satellites at an altitude of about 22,000 miles. That means these companies will have to launch hundreds of satellites in order to cover the planet with their wireless signals. And that’s going to be expensive.

OneWeb declined to comment, but founder Greg Wyler told Businessweek the company will need at least $2 billion to get started. SpaceX did not respond to our request for comment, but Musk told Businessweek his service will cost at least $10 billion to build.

Companies will have to launch hundreds of satellites in order to cover the planet with their wireless signals.

Robert Rusch, a satellite communications industry analyst, warns that companies tend to drastically underestimate the cost of building satellite services. He says companies tend to only consider the space-side costs of running an Internet business, such as launch costs and the satellites themselves. “They don’t think of the ground stations, the real estate for gateways, the software that makes the whole system work,” he says.

That’s part of why low earth orbit satellite companies have a poor track record. Most famously, a Bill Gates-backed company called Teledesic tried to launch a service not unlike the ones proposed by OneWeb and SpaceX, but went bankrupt in 2002, as did low orbit satellite phone companies Globestar and Iridium.

A proven model

Still, $10 billion might not sound bad for a service that, unlike an undersea cable, would provide worldwide access. And OneWeb and SpaceX have a significant advantage in that they can learn from the mistakes of those who have come before them. That means they’re more likely to get the pricing right, and can take advantages of advances in technology. But there are also questions about how much capacity these services can provide, and what they will actually cost in the end. OneWeb has stated on its website that it will provide 10 terabits of capacity. That sounds like a lot, but consider that Seacom is designed to provide up to four terabits of capacity for Eastern Africa alone.

And even though launching satellites may sound like less of a legal hassle than digging trenches for Internet cables, satellite companies face their own regulatory issues, including the possibility of being required to censor content for local governments. “By international law you can only provide service into a particular territory if you have permission from the sovereign country,” Rusch explains.

Add these issues up, and there’s a real danger these satellite companies will have to charge more than people in developing countries can afford or are willing to pay.

While the costs of terrestrial Internet connections are high, they’re relatively predictable. And the business model is proven around the world. MaineOne, for example, already is breaking even. And, of course, there are already many cables already deployed to build on. “You can move the needle further and faster [by investing in terrestrial internet],” Summer says. “And it’s longer term.”

In other words, although Google’s scheme to offer Internet through high-altitude balloons may be one of the most realistic of the new-age approaches to delivering Internet, the company might still be better off putting its money into its less well-known Project Link, which helps get landlocked countries online.

What’s wrong with moonshots?

So what’s wrong with letting a few eccentric billionaires spend their money on pet projects? After all, they just might work. In a perfect world, there’d be plenty of funding for both traditional Internet infrastructure and moonshots like low-orbit satellites. But in reality, investors have limited funds and are loath to put money into projects they believe may be redundant. “When I was raising capital in 2008 to build the MainOne cable, [satellite internet provider] O3B got launched and we almost lost our funding because of the perception O3B would solve Internet access challenges in emerging markets,” says Opeke.