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.