Cellular Backhaul: Where Does Satellite Fit In?
Africa is a double-edged sword for satellite players. The continent has a population of more than one billion people, a majority of which are still not connected to high-speed services. However, the rapid onset of fiber could impact the opportunities for satellite. With the cellular market seeing increasing demand for backhaul services, the question remains whether or not satellite can step into the breach.
The whole world is going mobile, and not just in developed markets but also in emerging markets where more development is being focused on mobile devices. The demand for bandwidth is increasing exponentially, and cellular operators are searching for new ways to meet the demand for video and data services.
The good news for satellite is that despite the onset of fiber in Africa, the backhaul market is definitely still there. “Our research shows that around 54 percent of the African population is never going to get connected to fiber. So there is always going to be a demand for satellite, but what is inevitable is that it’s going to be used for more rural and more inland connectivity. We predict that there will be demand for technologies that can support rural low ARPU solutions,” says Phil Braden, COO, Gateway Communications, part of the Vodacom Group in South Africa.
Braden remains optimistic that the satellite opportunity is there and believes that the platform’s role will evolve with markets on the cusp of change. “There will also be a number of cellular backhaul sites, which will never be serviced by fiber or microwave. Satellite will continue to serve those. We see satellite products changing. You are not going to be doing large trunks anymore, but satellite restoration products are something that we have noticed that our customers are crying out for, because even though these cables come in, when their capacity gets to an end customer inland, availability has gone right down. There is need to find restoration products, either by meshing with other cables or via satellite.”
Impact of Fiber
While other technologies will take a piece of the market share from satellite, there are still plenty of niches for satellite players to provide services. “I would say satellite providers will see increased usage of their services for backhaul,” says Vitalis Ozianyi, industry analyst, South Africa, ICT, Frost & Sullivan. “Though, the proportion of use of satellite for backhaul capacity will decrease as compared to microwave and the emerging fiber backhaul. Growth in use of satellite backhaul will emanate from need to connect remote locations with a large number of potential mobile users.”
It may seem cliché, but satellite can make the largest impact on underserved rural locations where demand is on the increase. “Wireless penetration is increasing globally, and we are currently at more than five billion and rising. Yet, there is a big market in remote and underserved areas for more than a billion people. And with that, in targeting end-users in remote, unserved and underserved locations, the most effective way to respond to backhaul requirements is still satellite. In some instances, it is the only possible way. We definitely see more deals on the horizon,” says Jose del Rosario, a satellite analyst at NSR.
While the amount of fiber coming into the African market is on the increase, it is being matched by the demand for data services, a trend which Braden believes is a huge opportunity for satellite. Braden believes it is now Africa’s time for an explosion of new data and video service usage via wireless devices in this market. He says, “Overall, growth is huge from a data perspective. When we set our strategy 12 months ago, we were of the view that this is Africa’s time. The amount of capacity coming in has been crazy. What we have seen year-on-year is that demand predictions have been quite wrong. If you are in the business of providing capacity, it is not a bad business to be in. You have seen a lot of capacity come in. When the West Africa Cable System (WACS) switches on at the beginning of next year, the amount of capacity available in sub-Saharan Africa will double at the flick of a switch. So, there is an awful lot capacity at the landing stations.”
So, what do wireless operators think of satellite? Is satellite a key part of their network planning? One of Africa’s key emerging markets is Kenya, which has a population of approximately 40 million people. The nation’s biggest cellular operator is Safaricom with 18 million subscribers. While the market has an overall penetration rate of between 60 percent and 70 percent, it is the growth in data services that could fuel the next wave of growth for Safaricom. In terms of where it is with its network planning now, Nzioka Waita, director, corporate affairs, Safaricom, says, “We have been running 3G services for the past four years and our reach has been through the use of mobile phones, dongles and laptops. We will continue to encourage the use of the same devices. The 4G service is still in the formative stage and will be rolled out subject to availability of spectrum. Video applications are bandwidth-hungry and as a result, the traditional wireless systems have had to be upgraded or replaced with IP/MPLS systems to handle the increased capacity demand.”
Fiber is becoming more of an option for Safaricom, which works with Intelsat for capacity, but Waita says the demand for satellite is still strong. He adds, “Satellite is still relatively important, especially in the northern part of Kenya where the cost of investing in terrestrial infrastructure is costly due to the vastness of the area and its sparse population distribution. Satellite still provides a useful back-up system for international service in the unlikely event that the submarine systems are interfered with or severed in any way. However, we expect the demand (for satellite) shall continue to go down since more and more terrestrial systems are being rolled out to areas traditionally served by satellite.”
One of the largest wireless players in Africa and the Middle East is the MTN Group with about 150 million subscribers, of which approximately 110 million are based in Africa. As a group, it uses approximately 700 Mhz of satellite capacity. Its operations in West Africa are the largest users of capacity where satellite remains very important for domestic backhaul.
Kamal Fayed, general manager, Global Carrier Services, MTN, says the company will still need its fair share of satellite when serving remote regions in Africa. He says, “The 3G and 4G data connectivity will be available in the important cities which are linked with terrestrial (microwave links or fiber) infrastructure. However, in the remote towns and villages, providing high-speed data connectivity remains a challenge. For remote areas, satellite backhaul is required and will be required in the future to provide data connectivity the same as we are doing for voice.”
Fayed admits he has been surprised by the company’s recent demand for satellite capacity. “We have been surprised by the increase in demand in the last five years, however, lately, the demand has stabilized. The future demand will depend on the development of wireless data in areas that cannot be reached by fiber or microwave. The demand for capacity is still growing, but satellite remains very expensive. The cost remains high even if we use advanced optimization technologies such as carrier-in-carrier, while the cost of submarine cable capacity is constantly going down with the increase in demand.”
According to Fayed, prices for satellite capacity and solutions need to come down. “With the pressure on rates and increased competition in the market, mobile operators are looking at lower cost backhaul solutions and satellite providers will need to review their model in order to become able to provide more cost-effective solutions.”
One of the international operators looking to make an impact in Africa’s cellular markets is India’s Bharti. Airtel Africa already has about 50 million subscribers in the region. According to N. Arjun, chief projects and transformation officer, Airtel Africa, the operator is set to be a major buyer of satellite capacity there. “We need satellite capacity as many of our operations are in landlocked countries with no direct access to submarine cable capacity. In those countries we do use satellite capacity. We are one of the largest customers of satellite bandwidth in Africa,” he says.
Arjun notes that while the operator may be a key acquirer of satellite capacity, it does expect a shift away from satellite in the future. He says, “The arrival of new fiber networks in Africa, combined with the high bandwidth requirements of technologies such as LTE/4G, will likely shift some of Airtel’s traffic away from satellite. However, Airtel will always look towards the best combination of price and reliability, and satellite could still play a significant role in Africa. We will, over time, replace satellite with microwave and fiber. We are worried about latency, and cost of satellite bandwidth.”
In the near-term, Airtel Africa will continue to use a lot of satellite capacity. “The satellite demand in Africa should increase by over 60 percent in the next three years,” says Arjun.
Satellite has become increasingly prevalent in countries such as Sudan and the Democratic Republic of Congo (DRC). In terms of countries across the region, which represent vibrant wireless markets, Braden sees Kenya and Nigeria moving very rapidly forward. “Nigeria also has a huge economy, even though it has challenges. We see a lot of potential growth areas across all regions of Africa and we are active in most African countries. Vodacom has operations in South Africa (SA), DRC, Lesotho, Mozambique and Tanzania. We expect to see the countries one by one step-up their game, as first they move to 3G and then 4G. The demand will grow exponentially.”
Braden gives some examples of the company’s recent business. “The satellite is still there and we are still investing heavily in satellite technologies. We have just secured a large Gilat SkyEdge platform in the DRC area that is in deployment now. That has allowed us to get our customer 30 percent efficiency savings on that platform, and we continue to look at other satellite technologies. We are looking at all new technologies so that we squeeze every bit of efficiency we can out of the satellite part. We are also providing our customers access to terrestrial capacity, and our strategy is to become a much larger wholesale player in region.”
Africa has some interesting end-user dynamics. The uptake of mobile streaming, according to Ozianyi, so far has been very low. Meanwhile, the uptake of mobile data service has surpassed fixed data services in subscriber numbers as well as revenue. “Mobile data uptake in Africa is unique when compared to Europe, North and South America and parts of Asia. This can be easily related to the uptake of mobile voice services a decade ago. The uniqueness lies in the non-existence of fixed line consumer services for voice and data. Thus, mobile services are the only option for the majority of users,” says Ozianyi.
Africa, for all of its unique dynamics which vary from market to market, remains a new frontier for satellite. While the opportunity for satellite may be better served as new DTH platforms emerge, the wireless revolution taking place in many countries cannot be ignored. Nokia Siemens Networks plays a vital role in building out wireless networks, offering a number of optimized solutions for satellite mobile backhaul.
Joerg Ambrozy, product manager, Nokia Siemens Networks (NSN) Radio Access Transport Product Management, says the company can use satellite in a very significant way. “Deployments reach from very small isolated base stations to large networks with more than 1,000 base stations connected over satellite. Nokia Siemens Networks Radio Access has deployed a lower five-digit number of base stations connected over satellite backhaul globally. The Middle East/Africa region reflects a double-digit percentage of this installed base.”
Ambrozy predicts that NSN will be using satellite in a number of new networks. “Satellite backhaul will certainly play an increasing role for new rural mobile network deployments in Africa. Rural regions simply do not have any other transmission infrastructure available. Satellite backhaul may be used only in initial deployments until terrestrial infrastructure is built-up, i.e. microwave radio. Fiber connectivity is certainly increasing but will not be available anytime soon throughout the region, especially in rural Africa.”
But Ambrozy knows the environment is changing and points to altering government regulations and lower-cost satellite options impacting the dynamics of the market. “In the past, rural expansions in areas without terrestrial infrastructure have been avoided due to costly satellite connectivity. Deployments in areas with available infrastructure was not feasible at all, as terrestrial infrastructure is most times available at a fraction of the cost compared to satellite backhaul,” he says. “The business case remains difficult but has significantly improved. Mobile network interfaces have become much more efficient and therefore is reducing the required satellite bandwidth. The same applies to newer satellite technologies such as TDMA, the introduction of IP and different frequency bands, allowing resource sharing/statistical multiplexing also on satellite links. So, satellite connectivity overall will certainly grow but remain a niche connectivity for mobile operators.”
Satellite Not Deterred
While the onset of other wireless and terrestrial technologies pose a competitive threat, companies such as O3b are far from deterred. In fact, O3b Networks CEO Steve Collar believes there is a great opportunity for the company in Africa. “The challenges in Africa are a little different where we see some highly developed economies where infrastructure is developing quickly,” says Collar. “Given that Africa has formed its telecom networks on mobile technology, we see O3b playing a key role in these rapidly developing countries providing the highly demanded backhaul solutions for mobile network operators. However, there are also numerous countries in Africa that are at the other end of the development scale where we aim to bring broadband connectivity solutions that will lead to social and economic development within the region.”
Del Rosario also is confident that a company such as O3b, which aims to brings the costs down for wireless operators, can carve out a strong market niche. “From the O3b perspective, they can help drive lower operating expenditure and I think they have the perfect platform for 3G and 4G in the region, given their OPEX structure as well as the inherently lower latency their constellation supports,” says del Rosario. “Yes, there are a lot of people looking at Africa now. The opportunity has been in Africa for awhile, where there has been pent-up demand, but now I think there is real demand to go after this market. One caveat on this is that O3b still has a challenge in terms of the equipment costs. It is relatively high. For O3b to really take-off in the region, they have the operating expenditure covered, but in terms of capital expenditure, the ground equipment price has to come down drastically.”
France Telecom (Orange) is another example of a telco with a strong presence in Africa. With one of the most recognizable global wireless brands and operations in many countries all over the world, the company acquires satellite capacity to serve its ‘Orange’ countries in Africa. Veronique Disdet, head of Orange’s satellite factory says that in many cases concerning Africa, terrestrial transmission is too expensive. “We support internal needs and needs for ‘Orange’ countries. Right now, we have several types of access in African countries. In Africa, there are many rural areas with low population density so transmission can be a challenge. Microwave is limited in range. That is where satellite comes into play. It can address all kinds of needs such as GSM backhaul. From our discussions with Orange, we expect their needs for satellite to increase. For the last mile, there is poor connectivity in many countries. For back-up, it is useful when fiber is available. There are several aspects where satellite can be used in an effective way.”
France Telecom’s only satellite is Telecom 2D. With this satellite set to be decommissioned next year, the operator could be out on an aggressive capacity acquisition to serve Orange’s backhaul needs in Africa. Disdet says the company is using satellite to support GSM backhaul and other services. “France Telecom is no longer a satellite operator and we already are buying a lot of capacity to support our needs. There is always an issue to cover a population that is very spread and satellite is always going to be useful to address those needs.”
Africa remains a vibrant market for satellite. Rural regions do not want to be left behind, and the influx of new technologies creates more opportunity to develop low-cost wireless voice and data offerings. It remains to be seen whether the backhaul market can serve satellite in a role other than a niche market, but even though other technologies may erode on satellite’s potential market share, the growth in wireless penetration and demand should still lead to plenty of demand for backhaul services based on satellite.