The O3b

Or, the Other 3 Billion. This is the name of the project that aims to bring web access to 3 billion people in Africa and other emerging markets in Asia, Latin America and Middle East. The enablers are HSBC Private Equity, John Malone of Liberty Media and Google, who have put in $ 20M each with a minority participation from boutique investment bank, Allen & Co. The partners may inject more funding themselves or bring in more partners later. Wholesale access will be sold to ISPs in the target markets and the access will be enabled by satellites, procured from Thales Alenia Space. The satellites are expected to be operational by end-2010 and the wireless spectrum required for the service had been secured through the International Telecommunication Union.

For HSBC, this is a telecoms investment. It serves two purposes: an expectation of return, notwithstanding their admission that they may raise money through debt for further capital injections into this project, and strengthening of their brand as ‘the world’s local bank’ especially in the higher-growth delivering emerging markets. For Malone and his companies, this is an investment into a related diversification. Allen&Co is a secretive outfit but such investments are also par for the course for them.

Which leaves Google and their motivation for participating in this project.

Google is a vocal champion of net neutrality although not all necessarily believe that all of Google’s intentions are clear in this context. The O3b project will allow Google to bypass the need for even a debate on net neutrality, especially in markets where regulation is yet evolving. The project strengthens Google’s position on net neutrality.

Google also enables free wi-fi web access, committed until 2010, in its ‘hometown’ of Mountain View in California. You can log on, using your Gmail account, and use free web access. It is not difficult to see why, once again, not all trust Google’s intentions or commitment to privacy. Reducing the costs of web access by 95% for the unconnected masses is the closest Google may get to providing ‘free’ web access in developing markets.

The investment in O3b is a shrewd strategic move by Google which serves several other aims too.

In developed markets, Google’s ‘Do No Evil’ policy is not accepted on face value any more. In other markets, the opportunities to pre-empt negative sentiment still remain.

In the partnership, as it stands now, Google is in a unique position to enjoy a potential monopoly in providing advertising services to ISPs who will buy the access wholesale. Once again, Google has a first mover advantage in these markets.

And stretching the argument a bit, it is entirely possible to imagine how the satellite infrastructure could segue into and enrich Google Earth and Google Street View! These services are not offered yet in the developing markets where any improvement will be seen as a welcome one, while Google can diversify its interests globally.

Financial returns will, of course, depend upon several local factors including how speedily ISPs can be set up and serviced in these emerging markets. But as far as strategic returns go, Google has bowled a Googly that can only strengthen its side in many ways.

Other readings:

Om Malik on O3b

6 thoughts on “The O3b

  1. I’ve written a critical review of the project at http://tinderblog.wordpress.com/2008/09/09/google-broadbandgoogle-broadband/

    “I think that their US$ 750 million investment in satellites will be useless within 20 years of launch due to degradation (NYT claims a 10-15 year life for MEO satellites), whereas building more land capacity in Africa would have much longer-lasting benefits.”

    “Google clearly wishes to use this project to enable broadband Internet access in developing regions, but many other things must be in place, including fixed power infrastructure, PCs or OLPCs, technical support and skills, and demand and useful content and services for areas with lower literacy, before that can happen.”

  2. @pseudoKu – That’s a good point! What’s the point of ‘net connection without PCs?
    I do suspect that Google’s aim is beyond just connecting PCs – they want to target the mobile world. Mobile penetration in O3B is far higher (and growing) than that of PCs/laptops.

    But, at the same time, if anyone knows satellite communications, I can’t help but think of the disastrous Iridium project. Of course, sat-comm has progressed far since the ’90s. But satellite communication for Internet connection is likely to have:
    a) large latency (i.e. greater increased round-trip due to satellite hop) resulting in high delays
    b) uni-directional communications, or atleast much, much lower _uplink_ speeds compared to _downlink_
    both of which are likely to result in poor performance or unsatisfying speeds.

    Having said that, *any* communication is better than none, so it might just work. The proof is in the ping. ;-) Of course, Google can do what it does best – serve ads – so it’ll be a win for it.

    Just my 2 naya paisa. :-)

  3. I would be interested in discussing just what makes you think that the size of the market is another 3B users of the web?

    When I look at South East Asia I do not see a massive demand for access to the web as seen by the literate who read and create content on the whole. Whilst I see some adaptation in terms of Video and Audio it is still limited.

    If I were to model the market it might be for the delivery of IPTV rather than a read write web and that would make the technology choice suspect. Talking to mobile operators in South East Asia they do not expect high levels of data use as we see it. One has already talked about how they can turn the internet into radio for the Indian market. Vodafone are using Voice activation in their Mobile Payments platform in areas such as Afghanistan because of the low levels of literacy.

    The difficult birth of One Laptop Per Child makes me question the ability to get the cost of hardware down to a level that “Data Networks” become available. I do not expect WiMAX or 4G to solve this issues any time soon.

  4. @ pseudoKu: Thanks for your note. When I read this news article first, my first thought was not PCs or OLPCs, but mobile devices and mobiles.

    This was for the some of the same reasons as Atul mentions – the high penetration of these devices as the preferred voice communications device. My opinion is only based on development data; Atul has worked in the Middle East and Africa in the telecoms industry so he speaks from experience. More in replies to other points.

    @ Chris: That was a great read, thanks for leaving the link here. I will cover some of the points you raise further down in replies.

    @ Atul: Thanks for your comment and as puns go, how about ‘the proof is in the pinging’?

    I cannot help but think that the oft-referenced Iridium failure is not quite apt here. First of all, the O3b details available so far do not say how this access will be enabled on the ground for consumers. That last-mile hurdle remains to be crossed.

    Also there are several experiments going on in Europe to trial VSAT-enabled web access – and associated services such as IPTV – in high speed trains such as the ICE. I am aware that some new rolling stock is being hard-wired with repeaters while antennae will be placed on the top of trains. Perhaps not what the O3b guys have in mind but this is just to say that there are many ways to skin the final cat on the last mile to the consumer. Please ignore the awful mixed metaphors.

    What may hamper the project would be availability and pricing of suitable access devices, and as Chris points out, appropriate content, more on which below. Also, do see Chris’s post.

    @ Harini: Thanks, I can see why but I am puzzled why it wasn’t the first thought for me too. I instantly thought mobile devices instead.

    On whether they should have thought of subsistence farming related insurance or K-12 schooling, I think those are far more politically ridden arenas than telecommunications. I feel these firms have chosen their political cause and are going for it in a manner that they know.

    @ Ian: Thanks for your question and points.

    I think branding is symbolic of aspirations and not of realities. I take the name O3b to be just such a symbol and not a measure of the market size.

    On whether there is much demand for web access in say, SE Asia: In India, there is already much evidence to the contrary. Web access, when provided, mostly through the wranglings of the 3rd sector, has been used by new web-denizens in ways that access providers had not dreamt of. It is not the read-write web but it is a transaction web! See reference to the e-Choupal initiative for rural commodity farmers for instance.

    I feel the transaction web would be valued much more than even the entertain-web, which IPTV is. I suppose it is not glamorous enough to warrant media coverage but alternative channels and commentaries have covered these experiences.

    I agree that the read-write web also does not make much sense in countries plagued with illiteracy. However the hole-in-the-wall experiment has shown that the essentially intuitive nature of web design works even for illiterate people. Of course, locally relevant applications, such as the Vodafone example you cite, will have to be found. Perhaps Google will find a community to develop these apps, and perhaps KPCB will set up a O3b-fund for it? Who knows!

    Lastly, on access devices, when I read this news, I thought mobile phones and devices, not computers. Whether it VoIP or mobile banking or other transactions, all will benefit from providing access. In India, there are vast numbers of rural people with close to no access to banking services. But they do have mobiles which may help them with remote banking services.

    As for the affordability of these devices, I feel these answers may come from within those countries. For instance, perhaps the Simputer can be modified to serve the demand for a low-cost and perhaps even shared access device. Thanks.

What do YOU think?