Borrowed from Kictanet (Apologies for those on Kictanet)
Interesting Read on the trends...
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Satcom 09: Africa’s satellite providers find themselves looking at a less
rosy future
Satcom is the African satellite industry’s annual get-together and this
year’s was held this week. On the second day of the conference the West
African Cable System announced the signing of an over-subscribed
fundraising. And this is only one of half a dozen international fibre
projects that will be built. At the conference itself, new satellite
entrants announced services that were both innovative and cheaper. Russell
Southwood looks at how all this will change things for a regional satellite
industry that has more or less been the main provider of bandwidth for the
continent.
Guns to the left of them, guns to the right of them, it was not a
comfortable conference for the more traditional satellite operators and
resellers. On the one side, there was the ever-present story of the imminent
arrival of much, much cheaper international fibre capacity. So although
there are a number of new satellite launches (including Intelsat’s New Dawn)
that in any other year would have held people’s attention, the spotlight
kept drifting back towards the impact of the new fibre.
As if that was not distracting enough for those wanting to get their message
across, a number of new entrants were offering some combination of
innovation and price drops. O3B, which launches its constellation of
satellites in 2010, was offering carrier grade satellite capacity with low
latency at fibre or near fibre prices.
On a much smaller scale, Asia Broadcast Satellite was pitching satellite
capacity for just above 03B’s prices for delivery in 2011. Based broadly on
the US Wild Blue model, Yahsat was promoting its satellite broadband service
YahClick for US$350 per site (FOB) at US$30 a month upwards for the user.
And as Tata’s Head of Africa – Global Data Solutions said with a broad smile
on his face:”It’s all good.”
Intelsat’s Executive Vice President and General Counsel Phil Spector might
respond that neither 03B nor Yahsat had operational satellites but somehow
the blow intended failed to make much impact. Indeed the traditional
satellite operators seemed strangely passive. Improvements in modulation or
compression? That’s up to the manufacturers. (To be fair, Intelsat’s
Regional VP Flavien Babachi mentioned putting a router on a satellite and we
await the results of that with interest.) Any plans to provide keener
pricing? That will only happen if there’s a glut in the market and that’s
unlikely. Why no new satellite broadband services? Our operator customers
aren’t asking for them. They will not be able to stick to this script over
the next five years: something has got to change.
Cheaper fibre and satellite prices will mean that operators and resellers
will take their business elsewhere. Part of this is the natural transition
that occurs when fibre arrives and national backbones begin to connect
demand to the new international fibres. 90% of demand in most countries is
found in their urban centres and these will soon be connected to landing
stations. The process of doing this will by itself create a series of
inter-country fibre connections.
Both those with satellite and fibre were at pains to point out that they
were complementary (which they are) but the scale of transition about to
occur made this seem simply like an act of good manners that did not quite
ring true.
So what’s the upside for the traditional satellite operators faced with this
transition?
* Despite the economic downturn, there will continued above-average overall
growth in bandwidth demand at least up until 2013. So some of the effects of
the transition to fibre will be blurred by everyone wanting more of
everything.
* Fibre is new to Africa and some countries neither have the capacity to run
it effectively nor is it always safe and secure. Ethiopia’s link to Sudan is
a case in point which means that ETC is still a large purchaser of satellite
bandwidth. Nevertheless the opening of the new route through Djibouti should
improve matters. One operator was reporting that new fibre customers were
signing up for 25% of their capacity on satellite as redundancy to cover
these kinds of issues. 03B’s Greg Wyler made much of fibre outages in the
Suez Canal. But with fibre routes up both sides of the continent, even that
risk is to some degree mitigated.
* According to GSMA figures, 66% of Africa’s population now has GSM
coverage. This disguises a range of progress from Uganda with 90% of its
population covered to countries that still have only 30-40% population
coverage. Satellite cellular backhaul will continue to fill this demand but
as these will be low ARPU locations, operators will be under considerable
cost pressures and will look hard at all pricing.
* Finally, many users have long-standing contracts (10-15 years) and it will
be some time before the natural consequences of the transition are fully
felt. But whilst this will be of some comfort in the short to medium term,
it is not a long-term defensive position. A number of global satellite
operators have significant parts of both their turnover and profitability
coming from the continent: half of Intelsat’s fleet serves Africa. This is
bound to change and the only question is by how much?
Some snapshots of the exchanges at the conference give some idea of the
shifting of the tectonic plates:
* It’s pricing, stupid: Brian Herlihy, CEO of Seacom spoke about offering
prices of between US$50-300 an mbps per month and whilst IRUs might add as
much as 20% in interest payments, this is still much sunnier that the
US$4-6,000 per mbps currently being charged for satellite. Better still,
Seacom is promising this price wherever the capacity lands, whether in a
coastal country or one inland. Paul Edwards, Chair of Nigeria’s largest CDMA
operator Starcomms said he had been offered US$100 per mbps on one of the
west coast fibres. In addition, O3B’s pricing is pitched fairly close to
these numbers. The traditional satellite operators are stuck: they either
have to take what’s left over or come up with something innovative
technically which will improve their price offer. If they do, then it runs
the risk of cannibalising existing revenues. (According to a report in an
international industry paper, 03B has been in discussions with both SES New
Skies and Intelsat. Read that how you will. Who’s courting who?)
* Price elasticity provides massive increases: Tata’s Steven Van Der Lind
described the process of transitioning customers from satellite to fibre.
Three years ago, their assumption was that it would be a 1:1 replacement. As
the likely fibre prices became more established, customers started asking
for the equivalent of a 2:1 replacement. Recently he has signed contracts
where the increase has been 10-15 times the original capacity being
utilised. The arrival of fibre is also having an impact for those dealing
with short-term satellite needs. Tom Omariba, Managing Director of UUNet
Kenya (who have bought fibre capacity) said that they were
“technology-neutral” in meeting their customers needs but increasingly it
was leasing them satellite equipment.
* Pushing to the edge of market: Vodacom DRC’s Alain Malanda, Head of
Transmission, Data Planning and Optimisation is probably one of the
candidates for satellite cellular backhaul as DRC has few roads, let alone.
However, he told the conference that 50% of his national traffic was carried
by microwave and fibre and 50% by satellite. And whilst he was clear that
they were still pushing out coverage, they had undergone an optimisation
exercise on its satellite capacity to get more for less. The DRC
Government’s announcement of a fibre route to the coast and the likely
connection of Lumumbashi will also eat into the 100% of international
traffic currently going by satellite. Timescale: 2-3 years?
* The 2010 bonus: Mashilo Boloka, Director: Broadcasting Policy at South
Africa’s Department of Communications gave an update on preparations for the
2010 World Cup. He said that the fibre network between the 10 host stadiums
and the International Broadcast Centre would be ready for the Confederation
Cup in June 2009 and that a second teleport was being provide for outgoing
links.
The satellite industry has done the continent a tremendous service when
no-one was thinking of building the scale of fibre now being undertaken and
whatever happens, it will still be the only technology to reach widely
dispersed populations. It’s also hard to believe that the global operators
will not come up with some innovations to strengthen their positions.
However, it’s fair to say that the industry has had its five years of feast
and may be entering a period where food is in somewhat shorter supply.