The dearth of options available to global investors in government debt may end up working in South Africa’s favour as Moody’s continues to delay action on the country’s last remaining investment-grade rating.
Satellite vs fibre
are forcing satellite operators to change their business models as
decreasing costs of connectivty and increasing competition create
smaller profit margins
At around 6tn and with solar panels stretching 50m from end-to-end, satellites are not a cheap thing to send into space. Each bird costs around $250m to build and $180m to launch. It is no wonder that their operators have been able to charge premium rates to telecom companies, broadcasters and multinational corporations hungry for satellite capacity over Africa. Down on earth, a new network of fibre-optic cables is landing on Africa’s coasts and gradually branching their way to the continent’s urban centres, bringing cheap and fast international connectivity. The game is changing for satellite operators, but most are in denial.
Business models that have thrived on offering capacity to telecoms companies eager to cater for blossoming numbers of mobile phone users will no longer be enough. In 1999, 80.2% of Africa’s population depended on satellites for international connectivity, according to Hamilton Research. By 2008, this had dropped to 39.5%.
The roll-out of fibre networks is on a scale never seen before in Africa. In June 2009, Sub-Saharan Africa had a terrestrial transmission network stretching 401,282km – enough to wrap around the earth 10 times (see page 78). Satellite operators take pains to stress that their services are complementary and not in competition with the fibre networks.
There remains a shortage of satellite capacity over Africa. New 3G and data services launched by telecom companies are increasing demand for capacity, but a shift is beginning. Gateway Communications, one of Africa’s biggest resellers of satellite capacity, which was bought by Vodacom at the end of 2008, leases capacity wholesale from satellite operators and sells it on. Chief executive of Gateway’s Carrier and Wholesale Services, Mike van den Bergh, told The Africa Report that 95% of its connectivity is provided through satellites but that the 5% wired through fibre or terrestrial connections had already doubled in the last couple of years. “I think we would see the swing being more towards the 60/40 type of range, maybe even 50/50 in the five-year horizon,” he said.
Russell Southwood, chief executive of Balancing Act, a consultancy focused on telecoms and internet in Africa, says satellite operators are “very reluctant” to let customers out of their contracts, which can be as long as 10-15 years. Michael Joseph, CEO of Kenya’s Safaricom, told The Africa Report that he would probably not continue with his satellite contracts when they come up for renewal. But he said there “will always be a place for satellite communications in Africa”, and that Safaricom would still have to maintain satellite capacity in case it lost access to a cable.
Cables come with their own risks. International cables have thousands of kilometres of undersea vulnerability and often there is only a single landing point, the failure of which could wipe out the connection. In July 2009, damage to the SAT-3 cable connecting West Africa to Europe disrupted 70% of Nigeria’s internet capacity.
International fibre-optic cables are landing at a growing pace: SEACOM and TEAMS in Mombasa in 2009; Telkom-funded Eassy in South Africa in February 2010; and GLO-1 and MAIN-One scheduled to land in West Africa later this year. Ambitious backbone projects continue to be launched and discussed, but it will never be practical or cost-effective for the whole of Africa to be covered by cable.
Phenomenal levels of investment would be needed to criss-cross forests, mountains, deserts and lakes with fibre to bring this connectivity inland. “Cable is good for point-to-point,” says Flavien Bachabi, regional vice-president for Africa of Intelsat. “If you want point-to-multipoint, the cheapest, most reliable and most cost-effective is satellite.” ?
In hard-to-reach rural areas, networks of very small aperture terminals (V-SAT) that can transmit and receive voice and data via satellite are the most common form of connectivity. “There’s probably still 70% of the African continent in terms of landmass that for the foreseeable future is only going to be accessible by satellite,” says Gateway’s Van den Bergh. Nevertheless, according to UN-Habitat, around 40% of Africa’s population lives in urban areas – which will be wired first. The coastal areas near to these new cables are also the continent’s most urbanised, and the demand for capacity outside these areas is lower.
Increasingly, satellite capacity will be used for redundancy purposes – providing backup in case there is a problem on a cable. This kind of ‘occasional use’ is already common among broadcasters who need it for a specific period (see page 82). Babacar Sall, director of sales and marketing at RascomStar-QAF, says that around 20% of its Ku-Band capacity goes to occasional use.
Gateway’s Van den Bergh does not see the mainstream operators offering much flexibility to telecoms companies and multinationals eager for this type of back-up capacity. “I think they’re still to a large extent looking at a longer-term type of commitment,” he argues. Still, as more cables ring the continent and backbones branch out, clients could choose to buy their redundancy on fibre where it is available.
Operators such as RascomStar-QAF, which launched in 2007, are offering new services to clients reluctant to pay high prices. One project aims to sell connectivity to telecom companies in rural areas. RascomStar-QAF will install and manage its own gateways, obviating the need to lease capacity. Other operators are investing in their own cables. Intelsat has laid over 45,000km of cable so it can offer hybrid solutions and has just invested $7m to create redundancies between its seven teleports.
Broadcasting could offer new opportunities for satellite operators. In North America and Europe, where cable abounds, broadcasters are the major clients of commercial satellites. Some operators, such as Eutelsat, have already chosen to focus on broadcasting clients in Africa. Multinationals running bandwith-heavy programmes like SAP or Oracle and landlocked governments will also remain targets for satellite operators and resellers.
Christophe Pacilly, sales director at SeaMobile Europe, says the movement of mobile operators away from satellite will free up capacity for corporate clients. “If you are a big company with your headquarters in Abidjan, with 20 agencies in other parts of the country,” says Pacilly, “your headquarters will use the cable, but you will not have any choice for the agencies – you will continue with V-SAT.” ?
Meanwhile, operators are showing no sign of stopping their fleet expansion. Israeli operator Spacecom’s vice-president for business development, Omri Arnon, is bullish about the company’s focus on Africa. “Future AMOS satellites over the African market will double the size of the revenues of Spacecom,” he told The Africa Report. Spacecom bought a satellite from Asiasat that it has ‘drifted’ over to Africa to provide bridging capacity before the launch of its AMOS-5 by mid-2011. In 2008, Intelsat acquired the now renamed IS-25 satellite at auction from Protostar for $210m and plans to launch its Intelsat New Dawn satellite by the end of 2010.
There are more innovative satellite options around the corner. UAE-operator YahSat is marketing its YahClick service, capable of high-speed satellite broadband when its Y1B satellite launches in 2011. The satellite will be the first to provide the region with the Ka Band frequency capable of doing this. O3B, a US-based firm with financial backing from Google and satellite operator SES, promises to offer fibre-quality satellite capacity. Its eight satellites, due to launch in 2012, will be four times closer to the planet than a standard geostationary satellite. It says its capacity will be up to 70% cheaper than other providers.
Prices for satellite capacity vary, but can be upward of $6,000 per megabit per second (Mbps) compared with $600 per Mbps on fibre. Improvements to modems, antenna technology and encoding mean satellite prices are coming down, as is the cost and efficiency of V-SAT technology on the ground. But Intelsat’s Bachabi admits operators’ costs remain high. There are few global manufacturers and even fewer satellite launch vehicles, particularly after Sea Launch, a US-based launcher, filed for bankruptcy in June 2009. Insurance costs for satellites are high but very necessary – as RascomStar found out. Its RASCOM-QAF1 satellite suffered a helium leak in December 2007 that shortened its life from 15 years to around three. Luckily, the cost of a replacement – RASCOM-QAF1R, due to launch in May 2010 – was 100% covered by insurance.
It is not yet death of a satellite salesman. The US – one of the most wired countries on earth – has the world’s largest demand for satellite capacity. According to ViaSat, due to launch its ViaSat-1 satellite in 2011, there are 600,000 satellite broadband subscribers in hard-to-serve areas in the US and Canada.
All the same, Africa’s satellite operators need to stop telling themselves that kilometre after kilometre of fibre-optic cable offers no competition to their business models.