Broadband Cable Association of Pennsylvania


June 2, 2014

Google Inc. plans to spend more than $1 billion on a fleet of satellites to extend Internet access to unwired regions of the globe, people familiar with the project said, hoping to overcome financial and technical problems that thwarted previous efforts. Details remain in flux, the people said, but the project will start with 180 small, high-capacity satellites orbiting the earth at lower altitudes than traditional satellites, and then could expand.

Google's satellite venture is led by Greg Wyler, founder of satellite-communications startup O3b Networks Ltd., who recently joined Google with O3b's former chief technology officer, the people said. Google has also been hiring engineers from satellite company Space Systems/Loral LLC to work on the project, according to another person familiar with the hiring initiative. Mr. Wyler has between 10 and 20 people working for him at Google and reports to Craig Barratt, who reports to Chief Executive Larry Page, one of the people said. Mr. Wyler couldn't be reached. The projected price ranges from about $1 billon to more than $3 billion, the people familiar with the project said, depending on the network's final design and a later phase that could double the number of satellites. Based on past satellite ventures, costs could rise.

Google's project is the latest effort by a Silicon Valley company to extend Internet coverage from the sky to help its business on the ground. Google and Facebook Inc. are counting on new Internet users in underserved regions to boost revenue, and ultimately, earnings. Google's Project Loon is designing high-altitude balloons to provide broadband service to remote parts of the world. In April, Google acquired Titan Aerospace, which is building solar-powered drones to provide similar connectivity. Facebook has its own drone effort. "Google and Facebook are trying to figure out ways of reaching populations that thus far have been unreachable," said Susan Irwin, president of Irwin Communications Inc., a satellite-communications research firm. "Wired connectivity only goes so far and wireless cellular networks reach small areas. Satellites can gain much broader access."

Google's efforts to deliver Internet service to unserved regions-through balloons, drones and satellites-are consistent with its approaches to other new markets. Even if one or more projects don't succeed, Google can often use what it learned in other areas. A Google spokeswoman said the company is focused on bringing hundreds of millions of additional people online. "Internet connectivity significantly improves people's lives. Yet two thirds of the world have no access at all," she said. She declined further comment. Tim Farrar, head of satellite-consulting firm TMF Associates, expects Project Loon's balloons eventually to be replaced by Titan's drones.

Drones and satellites complement each other, he said, with drones offering better high-capacity service in smaller areas, and satellites offering broader coverage in areas with less demand. Mr. Farrar worked as a consultant for Teledesic LLC, which tried to build a constellation of low-earth-orbit satellites to deliver Internet service in the 1990s. Teledesic, backed by Microsoft Corp. and telecommunications entrepreneur Craig McCaw, considered using drones to provide additional capacity for the satellite system in some areas, he said. The more than $9 billion project halted satellite assembly in 2002 amid technical hurdles and cost overruns. Earlier, Iridium Satellite LLC went into Chapter 11 bankruptcy reorganization less than a year after starting voice and data services in 1998.

History is replete with ambitious satellite plans that failed, according to Roger Rusch, who runs TelAstra Inc., a satellite-industry consulting firm. Google's project will end up "costing far more than they can imagine today," he said, perhaps as much as $20 billion. "This is exactly the kind of pipe dream we have seen before."

Google also will have to overcome regulatory hurdles, including coordinating with other satellite operators so its fleet doesn't interfere with others. O3b, in which Google was an early investor, has been working on providing broadband Internet connectivity from satellites weighing about 1,500 pounds each. O3b has been planning to launch about a dozen satellites, aiming to serve large areas on either side of the equator. Google hopes to cover the entire globe with more, but smaller, satellites weighing less than 250 pounds, the people familiar with the project said. Jamie Goldstein, an O3b director and a partner at North Bridge Venture Partners, which backs the company, said he couldn't comment on what Mr. Wyler is working on, citing a nondisclosure agreement with Google. An O3b spokeswoman didn't respond to requests for comment.

During a conference in March, Google CEO Mr. Page mused about spanning the globe with Internet access delivered by Project Loon. "I think we can build a world-wide mesh of these balloons that can cover the whole planet," he said, noting that they are cheaper and faster to launch than satellites. But satellites are more flexible and provide greater capacity. In recent years, costs to build and launch satellites have dropped sharply, according to Neil Mackay, CEO of Mile Marker 101, an advisory firm. Consultant Mr. Farrar estimated that 180 small satellites could be launched for as little as about $600 million.

If Google succeeds, it "could amount to a sea change in the way people will get access to the Internet, from the Third World to even some suburban areas of the U.S.," said Jeremy Rose of Comsys, a London-based satellite consulting firm. Google also is hoping to take advantage of advances in antennas that can track multiple satellites as they move across the sky. Antennas developed by companies including Kymeta Corp. have no moving parts and are controlled by software, which reduces manufacturing and maintenance costs.

Kymeta hopes to sell its ground-antenna systems for hundreds of dollars, said CEO Vern Fotheringham. They would substitute for phased-array antennas which cost roughly $1 million a decade ago, he said. Kymeta supplies antenna technology for O3b and worked closely with Brian Holz, a former O3b chief technology officer. Mr. Holz recently joined Google's satellite project, along with Mr. Wyler and David Bettinger, technology chief of satellite-communications company VT iDirect Inc., Mr. Fotheringham said. Technology news website the Information reported on May 27 that Google had hired Messrs. Holz and Bettinger for a satellite project. "Google certainly has the resources to do something exciting in this area," Mr. Fotheringham said. "We and everyone else in the industry are keen to hear more about what they're working on." Wall Street Journal

Television broadcasters are stepping up their resistance to the Federal Communications Commission's crackdown on so-called sidecar agreements that let one station run portions of another in the same market. On Friday, the National Association of Broadcasters filed its second lawsuit this month against the FCC in the U.S. Court of Appeals for the D.C. Circuit. This time the trade group wants to overturn a March FCC order that restricted "joint sales agreements," which allow one station to sell advertising for another. Earlier in May, the NAB sued the FCC over its plans to scrutinize "shared services agreements," which let stations share resources.

On Friday, the NAB's petition against the FCC was joined by two similar petitions from broadcasters-Nextstar Broadcasting Group and Howard Stirk Holdings LLC. An FCC representative wasn't immediately available for comment on the petitions. Friday's legal action came a day after the country's largest broadcast station owner, Sinclair Broadcast Group, told the FCC it planned to shut down three stations as a result of new FCC restrictions on sharing agreements. Sinclair took those steps to complete its nearly $1 billion acquisition of Allbritton Communications Co.'s television stations. Sinclair said that it would surrender the licenses to the stations in Charleston, S.C., and Birmingham, Ala., after being unable to find a buyer.

The company's $985 million deal to buy Allbritton's seven broadcast stations and one cable channel, announced July 29, must win regulatory approval by July 28 or risk coming apart, Sinclair noted in its letter. Sinclair's existing broadcast properties overlap with Allbritton's holdings in several markets. To comply with FCC rules limiting the number of stations a broadcaster can own in a particular market, Sinclair had planned to spin off several stations into separate entities and operate them through joint sales agreements and shared services agreements.

But the FCC order in March, which ruled that any station handling more than 15% of ad sales for another station must be considered the owner going forward, complicated Sinclair's plans. The agency also planned to take a close look at shared services agreements. Such agreements have proliferated in recent years as a wave of consolidation has swept through the local television industry. The side car companies Sinclair had proposed using-Deerfield Media Inc. and Howard Stirk Holdings-exclusively own stations that Sinclair helps run. Deerfield is owned by a former banker to Sinclair Chief Executive David Smith, while Howard Stirk is owned by a conservative commentator who, in a previous interview with The Wall Street Journal, described Mr. Smith as "one of my best friends in the world."

Sinclair's decision to surrender the licenses of WCIV in Charleston and WCFT-TV and WJSU-TV in Birmingham was greeted by the FCC's Republican commissioners, who opposed the commission's crackdown on sharing agreements, as confirmation of their fears. "Prior to the Commission's decision to restrict the use of JSAs, Sinclair had a viable buyer for stations in Charleston and Birmingham: Howard Stirk Holdings (HSH), an African-American owned broadcaster. That deal, however fell through because of the Commission's decision to stop Sinclair from entering into JSAs with HSH," wrote Republican Commissioners Ajit Pai and Michael O'Reilly in a joint statement. "So what has the Commission's decision wrought? Instead of increasing the number of African-American owned television stations, we are driving stations off the air." Meanwhile, Free Press, a watchdog group that opposes media consolidation and had opposed Sinclair's original plans to spin off the stations to sidecars, cheered the move. "We commend the FCC for closing loopholes in its ownership policies, clearly signaling to Sinclair that the agency would no longer tolerate the dodging of the rules," said Free Press Policy Counsel Lauren Wilson in a statement. Wall Street Journal