Sabbagh: SES is a “Lonely Voice” in the Industry

SES was the talk of World Satellite Business Week (WSBW) late last year when it announced a major new strategic initiative, mPower, through O3b. SES has contracted with Boeing Satellite Systems, to build seven super-powered Medium Earth Orbit (MEO) satellites. The constellation will have 30,000 fully-shapeable and steerable beams that can be shifted and switched in real time to align with customers’ quickly changing growth opportunities. It was a major move by the operator as it looks to expand into new growth markets. Here, SES CEO Karim Michel Sabbagh talks about the operator’s new vision and how it will remain relevant and thrive in an IOT world.

VIA SATELLITE: Lets start with the O3b mPower announcement back in September. What is the significance of this from an SES perspective? When did it crystalize in your mind?

Sabbagh: The significance is one of advancing our thinking and execution around the concept of a scalable capabilities system. Flexibility and scalability have been at the center of our investment decisions over the past four years, and O3b mPower elevates the execution of these principles to an unprecedented level. At the end, we want to be able to bring optimized solutions to clients in data-centric markets, and this has to do with performance, economics, time-to-market, and future-proofness. To hit all these notes rightly, you have to have in the first place a flexible and scalable network architecture.

These principles are not new, and they were in fact part of my first public comments back in 2014. The current O3b system was already quite advanced at the time and gave us a first tangible demonstration of these attributes under the umbrella of a distributed network. It provided up to this point in time the greatest level of flexibility, i.e. delivering a service to any client anywhere within the visible Earth for the system, and scalability, i.e. augmenting the performance of the system in an evolutionary manner as new assets are added to the constellation.

Notwithstanding these unique attributes, we realized early on that the demand for more performance will further accelerate while the requirements will be more fragmented. So we needed to think about improving and democratizing these MEO capabilities. You have to remember that O3b was initially designed to provide very high throughput to a small number of clients each with very high bandwidth requirements. The evolution we were looking for was one where we could further advance the throughput performance while achieving greater flexibility and scalability on the bandwidth in order to serve and empower a much larger market. And the economics had to be transformative in order to unlock these new markets.

VIA SATELLITE: So this was a decision two years in the making?

Sabbagh: The thinking to expand our MEO system as the business develops has been integral to our initial investment in O3b. This was central to Romain Bausch’s thinking when he championed SES’ first investment in O3b back in 2009. So the decision to frame the next development is part of the nominal planning process we had in place for our MEO system. What is new, and you can associate that to the past two years, is how we started envisaging the transformational leap in performance and economics.

VIA SATELLITE: Could you clarify the speeds with the new satellites?

Sabbagh: The first seven satellites of the new system will bring multi-terabits of productivity. We can scale this up as we add new assets into the constellation. Having said that, this is not a race about scale and speed but it is the SES path for further differentiation in order to achieve greater flexibility and scalability in delivering optimized communication solutions.

VIA SATELLITE: When we started the conversation with O3b a few years ago, there was talk of 100 plus satellites. Where do you stand on that?

Sabbagh: Let’s separate the principle from the known execution. The principle when referring to 100 plus satellites is one of underscoring the scalability of the system, and our unique path to achieving a truly distributed network. The known execution is that we will scale our capabilities in sync with the pace of market development. On the one hand, we don’t want to do too much too early; on the other hand, we don’t want to fall in the trap of doing too little too late. With our next generation MEO capabilities (that is, O3b mPower) and the unfolding thinking on our next generation GEO capabilities, we are occupying the sweetest spot.

VIA SATELLITE: There has been a lot of talk about these mega-constellations and the capacity they will bring. How much actual demand is there for this type of capacity?

Sabbagh: Many of the symptoms that have been described reflect an evolving cycle of technology and capital as posited by Carlota Perez (I invite you to read her book). The first 30 years or so, you have what is referred to as Installation. This is characterized by rapid growth as new technological infrastructure is put in place. This phase is funded by financial capital, derived from investment and speculation. This tends to lead to a speculative frenzy, resulting in a “transition.” It sounds familiar in the context of our industry.

Following the Installation period, you reach a turning point, which I’ve referred to a couple of times during my public remarks in Paris, and it is about Transition. Unlike Perez, I don’t see it as a storm. It is in fact a turning point, underpinned by strategy- and technology-based transformations.

This transition disrupts the prevalent industry, generating something more productive and more oriented towards solutions and services — not brute technology infrastructure only.

The next phase is therefore defined as Deployment. You’re de-facto in a new golden age with steady growth. Future-proof technology is rolled out, funded by production capital derived from profits — exactly what we’re doing with O3b mPower — and leads to technological maturity.

Every golden age in the technology field has been more likely to involve more collaboration and partnership, a general shift from products to services, from tangible to intangibles, and from mass production to customization. It certainly sounds familiar with what we’re doing at SES.

In the face of such an industry transition, there are three main paths: one, weather the transition; two, fortify by consolidation; and three, build for the future. At SES we are on the latter path.

In the first path, weather the transition, it is a Kodak-like scenario. You try to delay the inevitable, you stand behind the facade of a legacy business and performance, but all you’re doing is delaying the challenge of building for the future. The longer you wait, the more likely that your performance would have deteriorated to a point where even if you try to move the needle on transformation you’re doing too little too late.

In the second path, you’re still trying to preserve the past and are relying on economically challenged conditions in a said industry to enhance your own trajectory by consolidating market players. This may get you going for few more years, but you’re again delaying the required effort of transforming your business. And your incumbency status would have become more substantive and, in fact, difficult to transform.

Finally in the third path, you‘re investing in future capabilities, and you’re doing so in a flexible and scalable manner, avoiding the risk of doing too much too early. In this model, you’re focused on specific markets where you have a clear right-to-win. This is the goal we have set for ourselves. In this scenario, there is greater integration among players in order to serve new business models; there is also rationalization of assets and investments. It is certainly the most demanding path, and we’re well underway.

VIA SATELLITE: Has the industry been slow to change?

Sabbagh: The answer is yes, and it is the predicament of every industry where there is a well-established playbook that yields rich economic returns. Again, if you go back to my earlier comments on technology phases, we have a unique opportunity to set the foundation for a new golden age if we’re willing to lead the required transition.

VIA SATELLITE: Has O3b really done the job it set out to, as there are four billion people still not connected?

Sabbagh: It certainly made a difference, and SES Networks has amply reported on the impact they have had by connecting countries, communities and economies. As I noted earlier, I believe that this is journey and not a static end-point. This ambition will continue to guide and inspire us.

VIA SATELLITE: When these new satellites go up, what will be the revenue mix between traditional broadcasting and data?

Sabbagh: I would envisage a point in time around the end of this decade or early in the next one where our revenue mix is more or less balanced between video and networks. So even before O3b mPower has had its full impact on our business, the mix of revenues would have evolved markedly.

VIA SATELLITE: SES Networks talked about doubling revenues in five years. That seems fairly bullish. Is that realistic?

Sabbagh: It is certainly our ambition, and this should give you a good entrée-en-scene for your discussion with Steve Collar (CEO, SES Networks) in the near future.

VIA SATELLITE: Were you surprised that the Intelsat/OneWeb deal fell through?

Sabbagh: The question remains “What is the industrial logic for these two operators to come together, and how a not-yet-operational start-up can fit in the operating model of an incumbent?” As a student of strategy and management, I consider that these are the two essential questions for framing adequately the tie-up consideration.

VIA SATELLITE: Is the global standalone GEO operator about to become a thing of the past?

Sabbagh: I can only speak about the choices we made, and they all go in the direction of empowering the business of our clients through flexible satellite-enabled services. So interestingly you retain the FSS acronym, and you transform the core meaning from fixed (legacy) to flexible (present and future).