By Jason Bates
The first deregulation efforts in Africa helped establish VSAT networks as one of the leading communications solutions across the continent. Companies such as Gilat and Hughes Network Systems established strong footholds in Africa by providing telephony services using VSAT networks. But industry efforts to increase the size of the VSAT market across the continent have been slowed by the price of the systems.
Making VSAT Affordable For Small and Medium Enterprises
One of the biggest uses of VSATs in Africa remains the provision of government-subsidized telephony networks. The buildout requirements of these systems, put in place in the early days of deregulation, helped drive the VSAT market and establish Gilat and Hughes Networks Systems (HNS) as dominate players, says Andrea Maleter of Futron Corp. "VSATs provide the tools that enable private competitive carriers to get into business in any market, and in particular Africa," Maleter says. "They are an enabler of competition, because it's a relatively low-cost and incremental mechanism whereby a new operator can get into business and start providing service and have network and infrastructure installed rapidly and incrementally."
While VSATs are a big part of the African market, that market is a small percentage of revenue for the world's largest VSAT providers, says Maleter. Africa accounts for just 10 percent of the world's VSAT systems. Africa provides only 8 percent of Gilat's VSAT revenues, and only 2 percent for HNS, according to data collected by Comsys. "VSATs are huge in relation to other telecoms in Africa but not in relation to VSATs in the world as a whole," says Maleter. "Africa is continuing to grow, but it's been in fits and starts. Everybody thought it would grow really big 10 years ago, but then it slowed down. The deregulation, a key issue to all of this, now is starting to take hold."
Satellite in general and VSAT in particular provide solutions to many problems in Africa's economic development, civil government establishment of responsible civil governments and educational development, which is also critically important for growth of the region. But VSATs today remain the domain of governments and large companies or organizations in Africa, as the industry continues to struggle to bring the cost of the networks down in order to make them affordable for small and medium enterprises.
Demand from small and medium enterprises in the financial services, and the retail sector, is growing, especially in regions where obtaining an operator's license has become easier, says Janna Koretskaya, regional vice president of Africa for Gilat Satellite Networks. The companies also are working to bring the prices down. "Throughout the years, VSAT technology has become increasingly affordable to a wider range of end users. As this trend continues, we believe we will see operators using VSATs as part of hybrid networks, where VSAT is integrated into a broad networking solution that includes DSL, Wireless Local Loop, WiFi and even WiMAX. For example, VSAT can be used as an effective backup solution for banks, to provide 100 percent uptime for mission-critical networks. This provides an automatic failover in case a bank's terrestrial network connectivity is lost. In addition, VSAT will continue to serve as an efficient last-mile solution for other technologies to bring communications service to all citizens in the region, regardless of their remote location."
VSATs remain the domain of the largest operators in Africa, but the definition of large operators can vary, says Dave Jupin, vice president of product development and marketing for the international group of HNS. "Most of the networks we consider large are greater than 100, but in some cases, greater than 50 is a pretty large number. In South Africa, there have been customers signed by telcoms that are in the multiple hundreds. They tend to be banking and retail. In Nigeria, 30 or 50 sites may be considered large for that country versus a small or medium enterprise that might be 15 sites or less."
The VSAT providers would like to find ways to bring VSATs to more users, but "we don't have a lot of price elasticity on the volume of equipment unless it gets into the thousands," says Jupin. "The issue for small users is that you probably are not profitable until you cross 1,000 sites, and it's not just the equipment, the space segment is expensive and you have to buy it in chunks. Until you get to be a service provider with a certain amount of volume, you probably can't make ends meet and be profitable."
Many VSAT providers charge upfront for equipment and do not subsidize the cost, and HNS does not provide vendor financing, Jupin says.
Even with the cost impediments, HNS partners such as Nairobi, Kenya-based Afsat Communications Ltd. are trying to market to small entities across the continent, Jupin says. "Where we are seeing tractions is targeting pan-African service," he says. "Afsat has crossed about 2,500 sites and quite a bit of its service is to small entities, either individuals or small enterprise companies. Accelon, a similar company, is up around 1,000 sites that are more concentrated in Nigeria, with a lot of individuals or small business operators picking up on that service. They pick up small contracts - ones and twos at a time, and on average they are taking 100 to 150 sites per moth. They are starting to pick up steam by targeting individuals or single proprietors that need Internet access and good communications."