Lessons from Loon:


Thanks for sharing this. Interesting read.


*Ali Hussein*

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On Mon, Feb 1, 2021 at 9:49 AM Adam Lane via kictanet <
[email protected]> wrote:

> My thoughts for those who might be interested…
> blog.huawei.com/2021/02/01/lessons-from-loon-connecting-unnconnected/
> Lessons from Loon & Connecting the Unnconnected
> ByAdam Lane
> February 1, 2021
> Source of main image: Loon <loon.com/press/>
> News that Loon was winding down operations because “we haven’t found a
> way to get the costs low enough to build a long-term, sustainable business
> <medium.com/loon-for-all/loon-draft-c3fcebc11f3f>” came as a
> disappointment to many, and rightly so. It is hugely difficult to provide
> connectivity in very remote areas, and any new technological innovations
> that could do so would be welcomed particularly in Kenya and Mozambique
> where operations were quite advanced. What may we be able to learn from
> this announcement? There are lessons around costs, and more importantly,
> around revenues.
> *The first lesson is around costs.* A typical base station can cost
> anywhere from US $20,000 to US $80,000 depending on factors like how it
> gets backhauled to the Internet (e.g., via satellite, microwave, fiber or
> LTE relay), the size of the actual tower itself (the taller a tower the
> easier it is to provide wider coverage), power costs (e.g., solar-powered
> with batteries if grid electricity is not available and can lower long-term
> operating costs), and the equipment on the tower.
> The balloons that Loon used also incurred costs, including the balloon
> itself, 4G equipment, and the use of lasers for backhaul. These lasers
> transmitted the Internet from the ground to a single balloon and then
> between different balloons – innovative technology which is still being
> used in other projects outside of Loon. For Loon, one challenge was that
> each balloon only lasts a few months and thus needs to be recovered and
> then relaunched, adding a great deal to the cost even if the technology on
> the balloon can be re-used. Consider, for example, balloons that are
> currently launched only from Puerto Rico and Nevada and then spend weeks
> travelling across to Africa.
> In the industry we talk a lot about* Capital Expenditure (CAPEX) *and *Operating
> Expenditure (OPEX)*. For a base station, CAPEX is buying the equipment
> and building the base station, which is a one-time cost and may last a
> decade or more. The tower itself can last multiple decades, even if
> equipment on it may need to be replaced. OPEX for a rural site may be quite
> low if the tower has no power costs and uses solar panels with batteries
> and the site rental is low. In this case the main operating cost is
> backhaul costs, which partly varies by demand. A telecom company thus faces
> significant up-front costs and then hopes to reclaim the revenue over
> years, ideally around 2 to 3, sometimes around 7. But some sites may never
> recover the costs, and thus those sites rarely get built without subsidies.
> Loon seems like it has quite significant CAPEX and OPEX if the balloons
> have to continually be replaced to refill the helium, and that may be one
> of the reasons the costs are not as low as desired. Maybe with time the
> balloons could be improved to last longer, or maybe with greater scale,
> more manufacturing, launch (and helium refill) sites could be built closer
> to where they are needed, which would reduce costs. As the balloons move
> around, there is a large minimum number of balloons necessary to ensure
> good coverage of any particular location which is a large cost, even with
> Loon’s impressive algorithms managing the balloon’s movements.
> It seems that Loon has decided it might not be able to get the costs low
> enough, or is not willing to keep investing any longer to reach the point
> at which it can get them low enough.
> *The second lesson is around revenue.* As well as costs, perhaps the
> bigger challenge is revenue. Enabling Internet use is the key, not just
> providing Internet coverage. But in rural areas revenues are typically very
> low due to few users, the low income of those users, and thus the low
> average revenue per user (ARPU) for service providers. Loon was supposed to
> help overcome this by covering a very wide area, which could have many more
> users per balloon than a typical base station (200 times more, according to
> Loon). However, providing wider network coverage does not mean there will
> be more users, or that they will spend money on telecommunications.
> In a remote area that previously did not have coverage, very few people
> will have a phone or smartphone. Why would they, if there was previously no
> coverage? They need to be able to afford one, as well as the electricity to
> recharge the phone on a daily basis and the Internet service fee for voice,
> the Internet, mobile money, or other value-added services such as
> agricultural information services or education content that might not be
> free. Few actual services may be useful for that person—in other words
> there may not be a website or app that meets that person’s day-to-day needs
> in a language they understand, because they are likely to represent a
> minority market. As a result, they may not spend much money once they are
> online. On top of that, they may not know how to use a smartphone or the
> Internet in general.
> To overcome all of these issues would require a tremendous ground
> operation: making the people on the ground aware there is Internet,
> explaining why and how it would be useful to them, helping them get a
> device and power, which might require donations or loans, showing them how
> to use that device, and so on. Then there is still the challenge of those
> users being on a low income. Thus even if there was an incredible use case,
> they might struggle to pay for it at least in the short-term. Maybe if such
> an operation took place, it would have generated more revenue, and thus
> made Loon worth it. On the other hand, such an operation may just increase
> costs even more (especially an operation in very remote and sparsely
> populated areas) that the business model is even harder to be viable.
> Providing network coverage is not enough without these complementary
> activities; many mobile network operators are increasingly investing in
> such initiatives to enhance their business case, but these may not have
> happened with Loon’s partners—or they may not have shown results quick
> enough.
> So, the lesson is not just about costs, it is about understanding the
> complexities of the revenue side of the equation as well. These cost
> challenges are similar for traditional base stations, though they may be
> easier: when someone builds a tower you see it and know it is there; the
> telco staff who build the tower could also market and sell the benefits of
> the Internet or devices, or provide skills training for a few days after
> building a tower, or they could license an agent in the village who would
> sell internet services. This requires people on the ground who would not be
> there if there is just a balloon floating overhead.
> Finally, for those who invest in base stations, and design them with low
> operating costs, they can afford to wait several years until they recoup
> their costs, and then begin to make profits, since the infrastructure will
> stay there for a long time. It also makes it easier for governments to
> offer subsidies to build that infrastructure, as a one-time subsidy, than a
> recurring subsidy. Loon has announced a package of US$10 million to help
> support various related efforts in Kenya to support those in Kenya who
> might be affected by the loss of Loon’s service. This could make a real
> difference. As could the many programs that Google, a sister company to
> Loon, has been running for many years to provide digital skills, one of the
> barriers identified above.
> So the lessons from Loon are not just about the needs for innovative
> technology that might reduce costs of providing Internet coverage, though
> that is still true, but about the needs for more investments in increasing
> revenues—providing devices, power, relevant content, awareness of that
> content, and skills to use the devices amongst many others.
> Loon’s efforts were welcome and some of their technologies no doubt will
> be re-used in other ways, whilst the lessons learned may well help others
> working on similar initiatives. Their willingness to take risks, invest,
> and innovate is commendable and hugely necessary if we are try to solve the
> problems of rural Internet use (not just coverage).
> There are many efforts underway around the world in this area, but it is
> not enough. Let’s work together to do more!
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