Google Backs Backhaul Startup

Google (Nasdaq: GOOG) stretched its tentacles further into telecoms infrastructure today with an investment in satellite backhaul startup O3b Networks Ltd.

The new company aims to provide backhaul transmission capacity to cellular 3G operators, fixed-line operators, and ISPs in emerging markets for high-speed connectivity between their core and access networks.

The investment in the backhaul startup is Google's latest infrastructure play. The Internet search giant has telecom ventures spanning all things mobile from spectrum to femtocells to handset software, not to mention dabbling in dark fiber and undersea cables. (See Google Goes Nuclear, Google Builds Undersea Cable, Google: Dark Fiber Story Not So Dark , Google's Powerline Play, Clearwire Won't Use Google's Dark Fiber, Google Lauds 700 MHz as a Consumer 'Victory', Google Campaigns to 'Free the Airwaves', and UbiquiSys Gets Google Boost.)

Google, Liberty Global Inc. (Nasdaq: LBTY), and HSBC Principal Investments have each invested about $20 million in O3b Networks, which has so far raised about $65 million, according to Greg Wyler, founder and CEO of O3b Networks. But it will need to raise a lot more than that. The total project, with a 16-satellite constellation, will cost $750 million, most of which will come from debt financing. But O3b says it will need to raise another $150 million to see it through to launch.

For O3b, Google brings not only financial and operational support, but also experience with emerging markets, according to Wyler. (See Cool Google Job.)

"[Google] have a tremendous amount of understanding and knowledge of emerging markets," says Greg Wyler. "And an understanding of the need for low-latency, high-quality broadband."

The satellite startup aims to capitalize on the explosive growth in mobile services in emerging markets in Africa, Asia/Pacific, the Middle East, and South America, and views the lack of cost-effective, fiber-quality transmission as a potential snag in operator expansion plans.

"Backhaul is up to 40 percent of [network] costs," says Wyler. "If we can get rid of that, we can make it less expensive to get into rural areas, which means more penetration."

O3b plans to target large regional operators with networks in multiple countries and claims the cost to operators for its transmission capacity will be around $500 per megabit per month, which is "cost-competitive" with fiber. (See Top Ten: Emerging Markets Carriers.)

"Certainly, the transition to 3G is going to be difficult in a lot of emerging markets because, consistent with business models based on low ARPU voice customers, until now 2G operators have tended to invest in low cost, limited capacity TDM backhaul,” says Patrick Donegan, senior analyst at Heavy Reading.

“The cost and delay that you would typically associate with satellite systems would suggest that O3b’s network will be better optimized for off-loading non-delay sensitive 3G traffic like email and Web browsing in most cases,” adds Donegan.

Thales SA (Paris: TCFP.PA) has already started building the 16 mid-earth orbit satellites for O3b's initial deployment that will offer transmission speeds of 10 Gbit/s. The system is scheduled to launch at the end of 2010.

— Michelle Donegan, European Editor, Unstrung