Africa: Broadband And Telephony Services Hold Most Promise

By James Careless

Historically, it has been a challenge for satellite executives to profitably expand their business in Africa, despite the fact that satellite footprints blanket the continent. Add Africa’s underdeveloped terrestrial networks, and one has to ask, "Why isn’t this market a satellite provider’s playground?"

The answer is two-fold: Politically, the combination of authoritarian regimes, government problems and intermittent warfare has made Africa treacherous turf for investors. Financially, the continent’s economic challenges and environmental disasters have resulted in a consumer base that wants to pay for communications services, but cannot afford it.

According to the Global VSAT Forum (GVF)’s report Open and Closed Skies: Satellite Access in Africa, "access to the Internet and other telecom services [in Africa] has been held back not only by restrictive regulatory frameworks, but also antiquated infrastructure, high fixed costs, low economic and investment activity, diverse geography, language and culture and much more." But the winds of change are blowing across Africa, says David Hartshorn, the GVF’s secretary general. "The research we did in compiling this report shows that – more than any other emerging region of the world today – Africa is moving to take advantage of the benefits provided by satellite-based communications," he says, adding that this is most evident when one looks to the extent that African governments have opened up their markets to competitive satellite providers.

"For instance, seven years ago there were no competitive satellite providers in sub-Saharan Africa," Hartshorn says. "Today, almost every single sub-Saharan administration has introduced partial or complete competition for satellite services in their countries. In turn, we are seeing a blossoming of domestic satellite service providers in Africa. These include companies such as Netcom Africa in Nigeria; Internet Gabon; Egyptsat; and Pronet in Zambia, Malawi and now Botswana."

Why Africa Is A Land Of Satellite Opportunity

The move by Africa’s governments to open their satellite markets to third-party and foreign providers is due to many factors; one of which is lobbying by the GVF and its members. Another reason is that "African governments now understand that improved telecommunications will help them achieve their policy goals," Hartshorn adds. "This includes everything from improved education and health care to economic growth and increased employment. As well, improved telecom will make Africa more attractive to foreign investors, which in turn will translate into even more prosperity and a stronger tax base."

Some parts of Africa are more open than others. "In general, West Africa still offers the best growth potential as the [western] countries are familiar with satellite technology and regulations have improved," says Mary Ellen Hannon, Anacom’s vice president of sales for Africa. "East Africa is gradually opening and will begin to grow for us over the next year."

A Cornucopia Of Possibilities

The passion for ‘everything Internet’ that is consuming the rest of the world has not bypassed Africa. Across the continent, thousands of cyber cafes have opened their doors offering patrons affordable access to e-mail and the Web through on-premises PCs, plus something to eat and drink. In the business world, corporations large and small are demanding Internet access, from domestic startups to major multinationals.

"All you have to do is try to call a customer in Africa and you instantly realize that the existing telephone networks are unreliable and have poor quality," explains Hannon. "Therefore, the Internet has become an essential tool."

This sector is a prime target for Nigeria’s Netcom Africa. It is a Lagos-based provider that combines "the benefits of satellite with the terrestrial wireless to deliver IP services to the last inch," says Brian Kim, Netcom Africa’s business development sales and marketing manager.

"We are currently offering services on Ku-band over our iDirect VSAT platform," says Kim. "Most of the applications are focused around providing Internet connectivity to cyber cafes, SMEs and enterprises. These types of customers demand a platform that supports IP voice as well as data at the same time."

On the enterprise side, Polarsat is providing satellite data and voice communications to companies in Libya. "We are an approved VSAT provider to GPTC [Libya’s national PTT] and have an extensive network in that country, primarily servicing the oil industry," says Richard McPhaden, Polarsat’s vice president of marketing. "Our customers include Schlumberger, AGIP (oil and gas), IPLL (International Petroleum Libya Ltd.), Mediterranean Oil Services, UMM Al-Jawaby Oil Service Col. Ltd. and Lasmo Grand Maghreb."

Supporting Terrestrial Telecom Advances

Satellite is an essential element of Africa’s cellular telephone rollouts. In fact, "The largest growth for Anacom’s satellite transceivers in 2004 in Africa was for new GSM [mobile telephone] installations," Hannon says. The reason satellites are cashing in on Africa’s wireless boom is due to pure market economics. "Typically, carriers start out by saturating urban African markets," David Hartshorn adds. "To continue growing, they then move into smaller communities in rural areas. It is cheaper to set up local cellular repeaters in those areas and connect them back to the main cellular network via satellite, than it would be to do so using terrestrial wire or wireless."

Satellite’s backhaul capability also makes it a necessary component of the Wi-Fi and WiMax (wireless data up to 75 Mbps, up to 30 miles away) networks currently being planned in Africa. With a satellite solution on the front end, Wi-Fi and/or WiMax then cover the last mile. This model is viable because of satellite’s ability to interconnect large distances quickly and economically making such business ventures worth exploring in Africa. Collectively, these technologies eliminate the need to build wired terrestrial networks.

Opening New Markets

Innovative vendors are finding new applications for satellite technology. For instance, Polarsat is installing a VSAT Plus II satellite communications network in the Democratic Republic of the Congo (DRC) as part of that country’s new Air Traffic Control (ATC) system. In a project spearheaded by Navigation Aeronav International, the VSAT network will initially connect airports in Kinshasa, Lubumbashi, Mbuji-Mayi, Mbandaka, Ilebo and Kamina. Eventually, it will expand to link 15 DRC ATC facilities.

"This ATC network will provide the DRC’s ATC centers with combined voice and data communications," says McPhaden. "They will also be retransmitting ground-to-air VHF broadcasters between air traffic controllers and aircraft. The signals will be routed by satellite over long distances to local transmission towers, so that controllers at remote facilities can talk to pilots throughout the country."

Sometimes innovation is simply a matter of deploying existing resources differently. For instance, Netcom Africa is fulfilling a "demand for providing ‘grouped’ bandwidth, where a customer can share a fixed amount of bandwidth throughout geographically dispersed sites," says Kim. "In these scenarios, the economic benefits of satellites far outweigh the advantages of fiber. Additionally, in many regions fiber is not an available option. Another segment that has seen growth is transaction-based systems such as lottery terminals, Point of Sale (POS) and ATMs. The modernization of these vertical industries has sparked a large demand for reliable [satellite] infrastructure across a large area."

Connecting Africa to the rest of the world is yet another promising satellite opportunity. The Greek/Cypriot consortium Hellas Sat, for example, recently redirected one of Hellas-Sat 2’s satellite beams to cover South Africa, creating a link between that region and Europe. According to Hellas Sat CEO Christodoulos Protopapas, this connection has already borne financial fruit. "Working with the EBU, we transmitted the American elections to South Africa via Hellas Sat 2," he says. "We also have many South Africa clients now using this link on an occasional basis, to bring programming from Europe to their viewers." Eventually, Hellas-Sat hopes to sell Greek-originated programming into South Africa via satellite.

Challenges Facing Satellite Industry

Even with the improvements within Africa for more satellite product and services, the traditional obstacles of regulation, limited competition and lack of payment for services still dampen the sale of satellite transmissions for Africa business ventures. But there are other elements hindering the growth of this market, ironically, one of which "is the satellite itself," says Kim.

"Space segment prices are still quite high compared to the equivalent connectivity found in developed markets through available terrestrial technologies such as ADSL," he says. "African salaries and revenues are also lower than their North American counterparts, but telecommunications costs are several multiples higher. This means that an African cyber cafe may use up to 80 percent of revenues to pay for its VSAT service charges."

"Administrative issues and regulations are [also] major challenges," says Anacom’s Hannon. For instance, "many companies must use Letters of Credit to purchase goods. The paperwork involved in these transactions is difficult and time consuming; in addition, any error can result in non-payment. Prior inspection of equipment is also required and once again this is very time-consuming and cumbersome."

Getting products to customers can be a real problem in Africa, due to the interlocking factors of poor (and even nonexistent) roads, lawlessness and government bureaucracy. To cope with this issue – which pushes up transportation expenses substantially – Patriot Antenna has "strategically set up Master Distributors throughout the region," says Steve Pokornicki, the company’s director of sales and marketing. Patriot sells a lot of 1.8-meter and 2.4-meter C-band transmit/receive earth stations in Africa. "These are companies that purchase container loads from Patriot Antenna monthly," he continues. "They ‘stockpile’ our product and then supply to the areas as needed. They save transportation costs this way."

The complexity of doing business in Africa is a challenge in itself, especially to naive suppliers accustomed to the comparatively simple U.S. market. To succeed in Africa, a company’s must have the "ability to adapt needs in lightning speed, and be able to roll up its sleeves and fight in the trenches," says Kim. "This market is deceivingly sophisticated, competitive and unpredictable," he adds. "Many operators make the mistake of coming into this market with the wrong expectations of expedited time lines for profitability."

Kim’s advice: Do not come to Africa unless you are in it for the long haul and are willing to invest heavily in this market. "There are many costs associated with doing business in Africa that are disproportionately larger than the same types of costs in Europe and North America," he says. Those unwilling to shoulder such costs should look elsewhere.

One headache is just trying to find out what the rules actually are, according to the GVF, "The difficulty of obtaining information about VSAT regulations in Africa is so acute – and the demand for such satellite solutions is so great – that it has given rise to a lucrative business, attracting international consultants who sell the information to would- be satellite service providers."

Approaching The Land Of Satellite Opportunity

The opportunities and challenges of the African satellite market require more than just ‘street smarts.’ They require a new way of thinking on the part of Western satellite equipment and service vendors.

The place to start is to stop seeing Africa in comparison to other regional markets. Instead, consider the continent on its own terms. To do this, vendors need to get a grasp on the African mentality–indeed, the wide range of different mentalities across this vast land–and then formulate their strategies accordingly.

This is why local partners are so important, be they domestic service providers, entrepreneurs, or government officials. Such partners can help Western suppliers develop a realistic understanding of the particular African markets they want to enter and the right ways to approach them.

As well, local partners are usually the appropriate people to make ‘first contact’ with African government officials and regulators, because these partners intrinsically possess the necessary cultural etiquette for doing business in Africa. Make no mistake: the memories of overbearing Western imperialism are still fresh in this region. Foreign suppliers wishing to succeed in Africa may want to keep this in mind and to respectfully temper their sales strategies accordingly.

Finally, the challenges of Africa should not cloud the fact that things are looking up on this continent, now that the nations here are starting to find their way economically. For companies willing to seriously devote themselves to this market, Africa is indeed a land of opportunity; one that could deliver substantial returns in the long run.

James Careless is senior contributing writer to Via Satellite magazine.