Africa: Growing In Profits And Competition

By | October 1, 2002 | Via Satellite

By Nick Mitsis

From broadband applications to straight telecommunications, Africa continues to grow as a major area of commercial satellite activity. Industry companies are digging deeper into this continent, further developing vertical markets and building business ventures that are becoming noticed within the global arena.

With such advancements, however, stumbling blocks have materialized and fierce competition has increased. From relating to and doing business with established monopolies and autonomous governments to providing a turnkey solution to various communications needs within numerous business sectors, many satellite professionals are focusing on Africa’s profit potential.

The Region: By Numbers

Along with satellite executives honing in on further business developments, analysts continue to crunch strong numbers, maintaining Africa as a viable arena for near- and long- term profit growth. “Africa remains one market where telephony services are a strong and strongly growing use of satellite capacity,” says Andrea Maleter, technical director with Futron Corp. “In fact, Futron forecasts that by 2011, the telephony market will represent the dominant use of satellite capacity over Africa. The underlying drivers of this growth will be market liberalization, competition and universal service mandates opening up rural telephony markets.” According to Futron’s 2002 Forecast, roughly two hundred 36-MHz transponder equivalents will be delivering voice services throughout Africa and the Middle East by 2011.

“But the most exciting story in Africa is data services, where all markets are forecast to have very high levels of growth,” Maleter says. Of the data markets, while the highest growth–almost 600 percent–is in last mile broadband access services, this is still a small market, and even by 2011 represents only a quarter of satellite transponders used for data services in Africa. “Larger now, but not growing as quickly, is the provision of services connecting ISPs to the Internet backbone,” she adds. Futron forecasts this market to grow some 85 percent throughout the 2001-2011 period. It may not follow a steady growth pattern, instead growing as bandwidth demand increases, slowing at times with the deployment of new fiber cable connections. “Much larger, and growing steadily, is the private corporate networks (VSAT) market, which Futron forecasts to double in the next 10 years,” Maleter says.

Along with voice and data services, video services also abound in Africa. “As in the rest of the world, video services form the largest share of satellite usage in Africa, with broadcast and cable TV being twice as strong as Direct-to-Home (DTH),” adds Maleter. But while the demand for video services continues to grow, Futron’s forecast indicates that this service will not translate into strong increases in transponder use. This leveling off of space segment usage will occur, “since the introduction of digital service is likely to outpace the ability of the African markets to support growth of additional channels,” she says.

The Region: By Markets

On a continent hampered by geographic obstacles of mountains and deserts, with more than 30 developing countries working autonomously–many plagued with ongoing political unrest–and the majority of people not living in the handful of established cities but rather dotting the inland with rural communities, it is no wonder that satellite technology remains favorable as applications and market penetration initiatives push forward. The most lucrative markets luring international business include: Internet connectivity for both enterprise and private use; telephony service for those outside the established terrestrial networks; broadcasting initiatives to the home; and data transfers for commerce. “The government of South Africa, for example, has done a satellite viability study, but as a general point we see commercial activity and government activity are each having some difficulty deciding to proceed further than where they are at the moment,” says Paul Davis, president of Loral Asia Pacific. “Commercial activity is having trouble further materializing a business plan not because of lack of need for [satellite technology] services, but because of lack of customers, enterprises that can pay for those services.

“With governments it would be nice if they would move forward with an infrastructure plan, but most of them have more pressing needs like simple food and water for their constituents and are not moving rapidly to do television or distance learning, for instance. By in large, it is a market that is in some tension at the moment even though the needs are great. It is having trouble justifying itself with the business side on one hand and the other needs on the other hand that are more fundamental.”

For example, Nigeria has been examining the possibility of further developing DTH services for its country, but currently is facing political instability, and this unrest is hampering this advancement as well as rural telephony initiatives.

“There is also some very nascent activity looking at a pan-Africa telephony initiative principally to remove some of their colonial barriers,” Davis says. “It is not unusual if you are dialing from an African country trying to make a telephone call to a neighboring country, which has a different colonial heritage, say, for example, French or Italian. The calls would go through Paris or Rome before they traveled the 200 miles across the border between each other.” Such an initiative is creating great interest, but the project has not reached the level yet where financiers or partners are showing up to springboard this application into business reality. “Africa is a place where activity is bubbling, but the stew is not done yet,” adds Davis.

At the same time that market interest in DTH and telephony initiatives germinates, the recent increase in commercial/government satellite business initiatives seen throughout other regions has not borne new profits for those trying to increase their business within Africa.

“Those initiatives that are going on in Africa have that commercial/government underlying thrust, hoping that a combination of the strength of government infrastructure with a commercial package would make business sense,” says Davis. “Those have not yet reached maturity either, but there is plenty of discussion going on. In fact, everything that has any real resonance at this point has an element of some government and commercial activity. What really would be nice is if more than one government within Africa could work together on such initiatives, but experience has shown that is hard to do.”

While commercial/government initiatives are slow to roll-out in Africa, pure commercial business plans move forward. Recently, Stellat recognized the profitable broadcasting potential within Africa and signed a deal with Africa N1 for broadcasting and distributing a television and radio bouquet throughout Africa. Africa N1 broadcasts news and entertainment and claims to be the only French speaking pan-African radio service, reaching more than 30 million listeners. Stellat’s C-band distribution through its Stellat 5 satellite is helping Africa N1 further expand its business in the region.

Aside from telephony and broadcasting markets, data transmission is also among one of the more lucrative business growth segments within Africa. For example, JD Group Ltd., a household goods distributor, has tapped into satellite technology to increase its African profit margin. In Africa alone, JD Group has more than 625 stores under six different brand names in urban and rural areas in five countries serving more than 1.3 million customers with thousands of individual items at some 40 distribution centers. One of the company’s major dilemmas was creating real-time communications among its stores and evolving a quicker way of disseminating this data. “If we are going to service our customers best, reliability was a paramount consideration,” says Dick Behrens, systems and administration director for the JD Group. “Our vision was that a customer could walk into any of our stores anywhere in the region and, with the press of a button, immediately know the status of their account and the availability of the products they wanted. Downtime means lost customers and lost sales, so we couldn’t take a chance on copper [fiber].”

The JD Group found its answer with a custom-built wide-area network based on Hughes Network Systems’ VSAT satellite technology, designed by HNS in conjunction with local telecommunications provider Telkom SA Ltd., who implemented and maintained the system.

In addition to the retail market, the banking and aviation industries have also experienced the important role satellite technology can play in maintaining smooth information flow and higher return. For example, Intelsat Ltd.’s services and equipment have allowed the Central Bank of West African States to create a corporate network linking branches in 15 countries to the headquarters in Dakar, Senegal. Throughout the Intelsat network, business transactions and employee training take place electronically, reducing the number of trips that branch personnel make to Senegal. The network has done well and has expanded its capacity to include videoconferencing with agencies outside its network and connecting to the Internet backbone in the United States.

In addition, ASECNA is using satellite technology to keep the air traffic in Western Africa running smoothly. The group is an African air navigation safety regional organization consisting of 16 member countries–Senegal, Ivory Coast, Tongo, Benin, Niger, Burkina Faso, Madagascar, Chad, Congo, Central African Republic, Gabon, Mali, Mauritania, Comoros, Equatorial Guinea and Cameroon. ASECNA uses Intelsat transponder leases and IBS services for air navigation safety within 22 African countries. The capacity allocation includes 9.4 Mhz on Intelsat 903 at 325.5 degrees E, 1.8 Mhz on Intelsat 707 at 359 degrees E and fifteen 64 kbs IBS carriers on Intelsat 707 and Intelsat 903.

Likewise, the Global Data Broadcasting Corp. (GDB) has harnessed satellite technology to provide Internet connectivity for its clients. Kromos Communications Inc.’s integrated terminal for transport of IP data, Voice-over-IP and multimedia traffic has given GDB the ability to offer cost-savings solutions to its clients. “We have chosen Kromos technology because it offers our corporate clients a single hop full-mesh network. We have added our first client, Africaonline–one of the largest ISPs in Africa serving seven countries–to this service. Now, Africaonline users in Ghana, for example, can speak to the Ivory Coast without having to go to New York,” says Gamal Marwan, CEO of GDB Corp. “We are flabbergasted with the demand in Africa, because in central Africa itself, it is not well connected. So our clients can now service each other more efficiently with satellite technology.”

Many corporate clients in Africa, knowing the full spectrum of the advantages satellite technology offers, are joining in great force. “Many companies are signing up for this service for their own Intranet needs, especially the large multi-nationals that have branches all over Africa and that report to headquarters either in Europe or in the United States,” says Marwan. Much of this data transported between business divisions consists of corporate training, dissemination of information, Internet access, access to the company’s database at headquarters, sending data from the field back to headquarters and voice applications. GDB leases transponder space on Panamsat and Nilesat satellites. “The beauty of using satellites such as Nilesat and transporting it through Ku-band technology is that our customers can use our service with a 90- cm antenna,” Marwan explains. Some vertical markets GDB serves include: education, banks, government ministries, IP service providers and enterprise clients. “We also see video streaming and convergence between video and data applications strongly growing within the near future,” Marwan says.

But like those in the satellite industry, non-satellite telecommunication providers in Africa are also taking note of the advantages this technology can bring to the table and some are beginning to take part in it. Recently, MSI Cellular, the pan-African telecommunications service provider, acquired LinkAfrica, a satellite telecommunications and data link provider. This acquisition is MSI’s first in the area of satellite communications. “LinkAfrica has been a pioneer in bringing communications to the continent and this is a unique opportunity to develop the full pan-African potential of our networks,” says Mohammed Ibrahim, chairman of MSI. “LinkAfrica will help us provide data and voice connectivity within African countries to areas that cannot be reached by terrestrial solutions, between African countries and between Africa and the rest of the world.”

Now, not only is competition heating up among the satellite players, those not directly within this industry are acquiring the technology to better service their needs. MSI is licensed by 13 governments in Africa, representing more than one-third of the population of the African continent. LinkAfrica has more than 15 earth stations connected with five international carriers. This acquisition may expand MSI into a stronger communications role within the continent, at other satellite players’ expense.

The Region: By Regulation

Like other global regions, Africa is no different when it comes to national and multi-national regulatory obstacles. On this continent, however, the problem seems to persist and an overall sense of autonomy rather than uniformity continues to prevail in lawmakers’ minds. “There is massive autonomy here. For example, two countries are sharing borders and one may not allow VSAT technology transmission but may only allow reception of such signals, while 10 miles down the road when you cross the border, everything is permitted,” says Marwan. “This massive autonomy on a country to country basis still exists. Make no mistake. But as privatization comes in and borders become a much more important factor, individual governments will definitely start to allow foreign investments to come in.” Countries like Egypt, for example have already started to implement such measures. Now, some western African countries along with South Africa are slowly moving toward that trend as well.

As satellite business continues to grow within Africa and new vertical markets materialize, one thing remains certain: a pan-African business unity will have to become standard so those doing business within the region can continue to yield profits and achieve victory over the endless regulatory battles that are keeping potential money-makers at bay.

Nick Mitsis is Via Satellite’s editor.

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