Gateway Communications will launch a new direct-to-home (DTH) platform in sub-Saharan Africa one of the biggest potential markets for DTH services anywhere in the world, with a target market of more than 40 million households, according to one of the company’s top executive.

"It is an underpenetrated market," Julian McIntyre, president of Gateway said. "It is a very large market, and here I am talking about the immediate potential in terms of the number of households in sub-Saharan Africa that have a color TV set and can afford to buy discretionary services. … If you look at that market, 75 percent of those households have an earning stream to afford a pay-TV service."

Gateway is targeting markets such as Kenya, Uganda, Tanzania, Ethiopia, Ghana, Namibia and Botswana and also has acquired Portuguese content to target Angola and Mozambique. Gateway also wants to move into French-speaking markets, although not from day one, and sees a substantial opportunity in the Congo, Cote d’Ivoire, Senegal and Cameroon, McIntyre said.

While there is a potential target market of more than 40 million, Gateway’s targets are on the conservative side initially, McIntyre said, "The first major benchmark in our business will be getting 100,000 subscribers," he said. "I think this could be achieved within 12 to 18 months of operations. That is also a conservative target. We plan to invest substantially in developing a product that will be profitable to sell at a price point that opens up the middle market. The economics of pay-TV are built on economies. I believe that pay-TV operators in eastern Europe have proved the concept that you can make money without having millions of subscribers."

One of the challenges will be marketing a service to households that need to be educated about the benefits of pay-TV.

"I think a large part of that in Africa is going to be about how do you get the product out there and demonstrate it so that people can see it and see the benefits," McIntyre said. "There will be outdoor displays, showing football games, running concerts. From a distribution point of view, I believe the distribution strategy in Africa today for the incumbents has been very much go to the city, put up some billboard with some Hollywood stars, put some [set-top boxes] in some retail outlets and wait for the customers to come to you. In an [expatriate] market, that works because people are familiar with it from their home market. It does not work when you are addressing the local market. I believe that we need to go to the subscriber and we need to go and talk to people and putting a lot of time and awareness of promoting pay-TV.

Gateway can learn from mobile operators such as MTN, which very quickly has turned mobile into a mass market, McIntyre said.

"Consumer services marketing in sub-Saharan Africa is much less developed and complex than in Europe," he said. "If you look at the companies that have been very successful in building brands, the most successful ones in recent times have been mobile phone companies. Brands like MTN and Celtel have gone from nowhere to being more recognized than brands like Coca-Cola. I think a lot can be taken from the powerful and successful branding that mobile operators have used."

The mobile market offers an apt comparison for Gateway when looking at the potential of the African market, McIntyre said. "I believe the opportunity lies in delivering a bouquet of content that is highly desirable but at a price point which is more comparable to a utility," he said. "If I look at the mobile phone market, there are 200 million people in Africa spending between $15 and $20 a month on a telephone. I believe that a price that is closer to a utility will open up the mass market for pay-TV."

One of the other challenges facing the operator is reducing the upfront costs of equipment such as set-top boxes.

"One of the biggest impediments to real pay-TV penetration in Africa is the cost of getting started," McIntyre said. "In most developed markets and an increasing number of emerging markets the set-top-box is subsidized. In Africa, that is not the case. One of our focuses on day one is what can we do to reduce the price of the set-top-box while recognizing there is not a developed credit or microfinance industry in Africa where we can offset the risk of subsidization. We have looked at set-top boxes, which are highly reliable, proven to work with large numbers of subscribers in developing markets but are very cost-effective. Our strategy on the CPE, is how can we get the dish, box, and the smart card into someone’s house which is approximately half or under half of what they are paying today without subsidization."

Gateway is working with vendors such as NDS to meet this goal.

"People might debate as to when and how much potential the market has, but it is clear there is immense potential and it is exciting to be there at this early stage with a player who seems to be very, very serious," Philip Waterman, director of European platform sales for NDS. "I think over the years that NDS has dabbled in this market but everything has fallen by the wayside, and we have come across some very dubious business groupings. But this is clearly a serious operation, and that is why it is good to be part of it."

With all the pitfalls of introducing a new service, it is going to quite a while before Gateway introduces advanced services such as a personal video recorder and high- definition TV, McIntyre said.

While it maybe the first real operator to attack some of these markets in sub-Saharan Africa, McIntyre believes more competition in these markets would really benefit customers.

"I believe the market now needs to be grown by having a different product focus, a different pricing focus, a different distribution focus," he said. "I think the fundamentals of the market are strong. I believe competition will come from a domestic country level rather than a regional level. I would look forward to the emergence of smaller DTH or cable networks in individual countries, although I think it will be difficult for cable players."

In terms of how the digital TV landscape will develop in Africa over the next 12 months, "I see the consumer electronics market growing in Africa extremely rapidly," McIntyre said. "I think the African economy in most sub-Saharan countries is very robust. I think you will see a substantial uptake of consumer electronics with a focus on television sets. These will grow very rapidly."

— Mark Holmes