SES Astra CEO Confident Of African Success

SES Astra hopes to become a major broadband player in Africa. The European satellite operator has teamed up with two partners, Industrial Development Corp. (IDC) and Africa Venture Partners (AVP), to invest in IP Direct with the intention of becoming the leading pan-African broadband satellite provider.

The move isn’t a surprise given SES’ aggressive broadband ambitions in Europe through SatLynx. Maury Mechanick, an attorney at White & Case LLP, observed that SES Astra’s parent, SES Global [Luxembourg: SESG], is “very good at differentiating between things that are off the wall and things that may be risky, but make sense. In terms of an African initiative, there has been a lot of interest in Africa over the last six to 12 months. Historically, there has been recognition that the African market offers a lot of potential. There have been concerns about the economic viability of that market … There is recognition that in certain segments of the African market, economic viability may be achievable today in ways that it wasn’t before.”

Dirk Saelens, a media equity analyst at KBC Securities said that he was surprised SES is moving into the African broadband market so early. “I didn’t have many expectations here. In terms of timing, broadband in Europe and the U.S. already have question marks. I perhaps expected more in terms of entering the African market in 2004.”

The investment in IP Direct will now see SES target interesting markets such as Ghana and Nigeria for satellite broadband services. SES Astra will take a 40.96 percent stake in the new joint venture. Monetizing the African broadband market is unlikely to be easy. But, with a lack of terrestrial phone lines and services, there is potentially is a huge opportunity for satellite operators. SES is clearly trying to position itself as a leader in terms in the satellite broadband arena in both Africa and Europe. Saelens observed: “I think there is a big opportunity for satellite broadband. The problem is everyone is still looking to what the opportunity will be. You need to have a broad platform in terms of broadband applications and solutions in different countries. On the one hand, it is still very early in terms of satellite broadband and companies, but on the other, companies like SES Global do not want to miss the opportunity.” IP Direct will use high power Ku-band space segment on the ASTRA 2B at 28.2 degrees East Longitude.

In an exclusive interview, SES Astra President & CEO Ferdinand Kayser talked with International Editor Mark Holmes about why the operator has decided to invest in this broadband joint venture in Africa, as well the company’s overall ambitions in the broadband arena.

SN: Could you tell us the reasons why you decided to invest in IP Direct and what levels of growth you see in the African broadband market? Why have you decided to get involved in this JV? Which territories in Africa do you see ripe for the picking in terms of broadband?

Kayser: There were several good reasons to invest in IP Direct. First of all, in order to continue to generate growth, we actively pursue two strategies: one is geographic expansion, and the other is service diversification through new products. With IP Direct, we achieve a combination of both. Providing satellite services to Africa offers interesting opportunities because it is a key growth market in telecom, as well as in Internet applications. But we would not have gone into Africa on our own. Building on SES Global’s philosophy of providing global satellite solutions through strong regional operators, we were keen to develop local partnerships. In the case of IP Direct, they are strong South African-based partners. In particular, IDC is a very important South African state controlled financial institution but working like a private bank. IDC is one of the most important investors in new development projects in the African continent, with profound knowledge of local markets. For political reasons, this is an important element. Secondly, with AVP Invest, we are bringing in a highly competent and skilled management team. This allows us to go to the very important West African markets of Nigeria and Ghana via our South African and local partners. We would never have gone directly from Betzdorf to Lagos … But going via South Africa with experienced market partners – that is the case with both IDC and AVP – we think this is a good combination for a market, which desperately needs broadband access via satellite more than other markets. To give you some figures, the population of Nigeria is somewhere between 120 and 130 million people. But, there are definitely less than one million terrestrial telephone lines in the country. Although there is plenty of GSM reception in the meantime, that doesn’t offer an alternative for broadband. Both Nigeria and Ghana are very interesting countries in terms of broadband access provision.

SN: When would you hope to go into Nigeria and Ghana?

Kayser: We are in the process of building up the network. It is scheduled to be switched on in December. We are targeting the commercial launch for March 2004.

SN: In terms of your joint venture with SatLynx and your deal here with IDC and AVP INVEST, what do you see as the main differences between the two ventures in terms of how they are attacking their respective markets?

Kayser: The basic principles are the same, but the market environments are definitely different. The way we will introduce the products will definitely have to be customized. SatLynx is primarily in the B-to-B arena today. With IP Direct, we may be targeting more SMEs [small and medium-sized enterprises] in Africa and, to a certain extent, the upper residential market. Therefore, the marketing will have to be different. There are also some differences on the product level. The bandwidths and the speeds offered to the customers of IP Direct will be lower than the ones offered to the more institutional customers of SatLynx. Pricing structures will also have to be different. In Africa, every thing is prepaid.

SN: The second phase of the plan is to offer services across the whole of Africa. When do you expect that to take place?

Kayser: We will decide that in the course of 2004, once we have had the first feedback from the Nigerian and Ghana markets. It is not just a matter of financial resources, but also of management resources. We are glad to have a highly professional and motivated team now put together. These people are important in this type of market, because regional and local market intelligence and personal contacts are of paramount importance in making any business succeed.

SN: Will the customer take-up be faster or slower in Europe or Africa? In terms of competition, is there likely to be any competition from the telcos in Africa? When is the business expected to be profitable?

Kayser: There is competition in the African broadband market. There are other satellite operators in the market. But we have decided to go for an integrated approach here. So, we are not just selling the product to resellers, but we are really going into this market and proposing an entire package of related, value-added services. Yes, we are offering broadband access, but we are also offering the customer premise equipment [CPE], distribution channels, customer care services, etc. The business is expected to be profitable in two to three years. Most of the costs here are variable, as they are really about marketing and selling the product. The costs of investment, in relation to the platform provided by HNS [Hughes Network Systems], is on the other side a fixed upfront investment.

With respect to customer take-up, the assumption in Western markets is that over the next five to 10 years, broadband access will become ubiquitous. However, around 25 percent of Europe will never get terrestrial broadband. In the African market, the overall market structure is quite different. First of all, the demand for being online and for having broadband access is much lower overall. But, there are international groups/companies doing business there, and they need broadband access for their day-to-day business operations. Needless to say, the percentage of the population that will never have access to a terrestrial network is also much, much higher. In my conservative calculations, there are terrestrial phone lines for only 0.45 percent of the population. But, there is plenty of mobile reception and the demand for mobile services has recently been so strong that MTN, a major mobile operator in the region, had to stop taking new subscriptions because their networks were overloaded. There are also no monthly subscriptions in the mobile market. It is all prepaid cards. The success of mobile in these markets illustrates a real demand for communications services. Due to their ubiquity and easy deployment, satellites are particularly well suited to respond to the existing demand for broadband services in Africa.

SN: You invested millions of euros with SatLynx, and now in this investment. When do you expect to see a return on these investments? How have your experiences at SatLynx shaped this investment?

Kayser: The activities in SatLynx have definitely encouraged us to go into Africa. We believe very strongly in the future of broadband, but there are important differences between the various markets. I think that what is important for broadband in the short- to medium-term is to find the right way to play a role in each market. You have to sell a subscription to each user individually. That is different than what we have previously done in the broadcasting sector. With broadband, we have realized that you should not only be dependent on resellers and resale activities. We have to acquire the respective market knowledge and acquire the marketing and sales competencies in order to be in a position to sell this product. This is an important lesson we have learnt from SatLynx, and which we will be using in Africa. We are working with competent people to go into the market … So it is important to have offices in Lagos and be able to sell the product locally.

SN: On a different note, you recently announced expansion of satellite broadband into Eastern Europe. How do you see the broadband opportunities for SES in Eastern Europe? What are your plans in terms of expanding services in this area?

Kayser: We believe it is easier to sell broadband via satellite in this kind of market rather than the highly competitive Western European markets. We do not believe satellite broadband will be a direct competitor to terrestrial broadband. It will complementary. In Eastern Europe, the proportion of people not having access to terrestrial broadband is much higher than in Western Europe. Therefore, it is a very interesting opportunity for us.

(Yves Feltes, SES Astra, e-mail: [email protected] ; Dirk Saelens, KBC Securities, e-mail: [email protected] ; Maury Mechanick, White & Case, e-mail: [email protected] )