Africa 2008: New Satellites, New Hopes

The launch of a pair of satellites owned and operated by African interests have given new hope to communications providers that transponder prices will come down and enable more networks and other services to be developed throughout the continent. But that may not be the case, as demand for services continues to outstrip growth in the number of available transponders.

The launch of the Nigerian Communication Satellite, or Nigcomsat-1, and Rascom-QAF1 in 2007 promise to mark the start of a new era in Africa where, until now, customers have been completely dependent on satellite assets operated by companies based outside the region. But according to some industry analysts, the pair of satellites may not have a major impact in a market against better-established competitors.

According to Patrick French, Singapore-based senior analyst at NSR, Rascom-QAF1 (which at press time was in a parking orbit as the satellite manufacturer worked to solve a helium leak that could reduce the satellite’s lifetime) would add only eight C-band and 12 Ku-band transponder equivalents to the African market, while Nigcomsat-1 adds about four C-band and about 12 Ku-band transponder equivalents plus some Ka-band capacity. “This amount of capacity is significant but not substantial and will only alleviate somewhat the supply crunch in the region,” he says. “Clients for various video services will nonetheless migrate to the established video hotspots like those offered by Eutelsat, SES and Intelsat in the region because of established audiences at these satellites and because of greater reassurances for backup.”

International operators like Intelsat and Eutelsat are in a favorable position because they are already providing capacity into Africa with roadmaps for more capacity, says Gerdus van Eeden, chief technology officer at South Africa-based Multichoice Africa. “In general, (their) satellites provide service to several regions like the Middle East and Europe and are therefore more cost effective than a dedicated satellite that provides only service to Africa,” he says. “I am skeptical that these two (new African) satellites will make a significant impact.”

The launch of the new African satellites comes at a time that Intelsat is preparing to retire several of its 700 and 800 series satellites. Thus, the new capacity will do little to offset the loss of existing capacity, which senior analyst Stephane Chenard of Paris-based Euroconsult estimates will produce a transponder shortage of between 100 and 200 transponders and may leave coverage gaps over parts of Africa. “The gaps are well known and are taken care of by upcoming satellites, regardless of whether they add enough capacity across the board,” he says.

Recent video contracts, including Eutelsat deals with Télédiffusion d’Algérie, Entertainment Highway and Canal Satellite Réunion; Intelsat with MY TV; and SES New Skies with STV Cameroon and France 24 indicate not only that capacity for African video services can be found in the form of blocks of multiple transponders but also that capacity pricing for Africa is not deemed overly expensive by eager customers, says French. “Rascom and Nigcomsat will more likely impact markets like VSAT networks, cell trunking and IP trunking where the specific satellite is less important than the cost of the capacity,” he says, adding that other new satellites such as NSS-12, Telstar-11N, W2A and Sirius-4 will impact the market as well.

Pricing Trends Hard To Pinpoint

Abdul Bakhrani, CEO of Nairobi-based Intersat Africa Ltd., points to high transponder charges as inhibitors of economic growth in Africa. “Rascom and Nigcomsat are going to increase competition and hopefully force the prices to be lower, but the costs may not necessarily come down,” he says. These two satellite operators “have to make a deliberate effort to lower prices. Like NileSat which was launched in 1996, these two may succeed in lowering the cost of bandwidth in Nigeria and to some extent the West African region, but it may not affect the pricing in other African countries.”

Lowering the amount of money paid by African companies and governments to satellite companies abroad is a worthy cause in itself because money that remains in Africa and will develop the continent, says Bakhrani. “Right now, many entities cannot afford the capacity they require. Lower costs mean that the ministries of health in Africa can interconnect all hospitals and offer telemedicine, which will improve the quality of life for many rural communities, for example.”

Jones Killimbe, Rascom’s director general and CEO, is optimistic about the impact that the African satellites may have on the market because pricing depends on a number of factors such as length of the contracts. “The price structure of the Rascom satellite transponder capacity will be competitive on the market,” says Killimbe, who would not comment on the status of Rascom-QAF1. “The global trend will be towards lower prices. African operators will be vital in the creation of the volume of users and traffic which will play a big role in guaranteeing the critical mass. All these factors will contribute to the expectation of prices being lowered. European operators are not paying the same prices as African operators and the explanation one gives is related to the volumes.”

But Flavien Bachabi, Intelsat’s vice president, Africa, says demand in Africa is so strong that, at the end of the day, it is the amount and type of demand that determines pricing. “Our key selling feature includes access to a global system, one that has flexibility and resilience, and we can provide customers with redundancy and more complete global and regional coverage,” says Bachabi. “When you look at per megabit rate usage — the actual cost in transponder use — it actually has decreased in recent years. According to industry analysts, Africa is significantly below the global average when it comes to transponder pricing.”

So it will remain very difficult to know how aggressive African operators will be in their pricing. “It again depends on application and how competitive they feel compared to the larger operators,” says French. “Exactly how much national demand, especially in the case of Nigcomsat, may be directed to the African operators, is another unknown element. Nigeria has talked about national broadband connectivity initiatives and there are many precedents for national governments to direct capacity leasing for national programs to go to the local incumbent.”

Open To New Bandwidth

Robert Bednarek, president and CEO of SES New Skies, sees Africa as experiencing a powerful growth in demand for bandwidth, particularly IP bandwidth, and he labels Africa as the fastest-moving mobile market in the world, creating considerable demand for GSM backhaul services via satellite, among other things. “Internet penetration is still low at around 3.5 percent,” he says. “At the same time, applications such as enterprise WANs, Internet cafes, rural telecommunications, educational networks and basic IP trunking, including [Voice Over IP] telephony, will continue to drive demand. In the medium term, we therefore expect prices to remain rather robust.”

Terrestrial infrastructure simply does not exist over vast areas — “or is hopelessly outdated,” says Bednarek. So satellites often serve as the only viable option, and this absence of any credible land-based infrastructure also translates into an ability to make aggressive leaps forward in terms of wireless and satellite communications technology in general. “We certainly do share with our customers the latest technology trends and consult them on the most efficient equipment to use. New $500 VSAT terminals for example do make a huge difference to a service providers margin. And our broadcast customers are advised to use MPEG-4 compression, carrier-in-carrier coding and improved DVB-S2 modulation techniques to improve efficiency and stay ahead of the competition,” he says.

According to French, at least one undersea cable project will become operational by 2009, and this will have an impact on the IP trunking market in the region. This involves satellite capacity connecting African ISPs to Europe or North America along with termination services for international VOIP calling. “NSR is not claiming the market for IP trunking will disappear, but it will certainly become much weaker than the current demand indicates,” says French.

“In terms of demand, although fiber — and submarine fiber with its sharply reduced pricing in particular — is making inroads, the need to interconnect customers with adequate capacity across borders is playing into satellite’s hand especially when so many potential customers are so far from the beach. That is, they simply have no access to submarine fiber,” says Chenard.

While the SAT3 submarine fiber link connected Western Africa to Southern Africa it did not necessarily result in improved telecom services for all players, says Bakhrani. “Some countries like Namibia that are part of the SAT3 fiber link do not have landing stations, and they have continued to use satellite as the cheaper option (despite the fact that) they have paid to be part of the SAT3 consortium,” he says.

Regulatory Barriers Persist

Although the vast majority of African nations have embraced some form of deregulation with lower licensing fees, there is anecdotal evidence of the fact that steep fees persist in many places. “The good news is that Africa has generally opened up in terms of telecoms and satellite regulation, particularly in the past years,” says Bednarek who points to several specific examples such as South Africa recently granting five new pay-TV licenses, Kenya awarding new mobile and VSAT licenses and opening up its market to VOIP. “Nigeria, for example, has drastically deregulated with new network operator licenses and the privatization of Nigeria’s main telecommunications provider, Nigerian Telecommunications Ltd.

Still, regulatory barriers are not the only roadblocks in the region. “In most African countries, a customs duty charged on telecom equipment is still high, which makes initial installation and bandwidth costs high. The cost of freight to Africa is also high. Foreign exchange regulations in many countries form a barrier to timely payments to satellite operators thereby branding customers in these regions as high risk so they often have to pay a premium as a result,” says Bakhrani.

Another factor playing a role in the African satellite sector is the fact that many African nations have economies that are based on commodities at a time when commodity prices are surging, says Chenard. “In investor circles, Africa is still a hard sell despite the fact that the overall trend is quite positive,” he says. “While political stability is becoming the rule rather than the exception across the region, satellite infrastructure is not an easy sell at this time, and this is true even when there an extremely strong demand for trunking services to support Africa’s rapidly growing cell phone sector,” he says.

While the latest chapter in Africa’s telecommunications still has to play out, satellites, including ones operated by Africans, will continue to play a commanding role. “The Rascom and Nigcomsat satellites are a clear tribute to Africa’s commitment to develop their own satellite capacities. We believe (growing demand today is enough) to sustain both these domestic systems as well as regional/intercontinental systems like ourselves,” says Bednarek. “Provided customers are free to choose the system which best suits their needs in terms of back-up, coverage, interconnectivity and capability, we are satisfied that this growth in demand can be maintained.”