The Middle East has become one of the globe’s most vibrant regions for satellite communications. With diverse TV markets, strong demand for satellite capacity to support military operations and businesses looking for advanced communications, a number of operators are looking to gain a slice of this growing market.

A number of operators — from industry heavyweights such as SES, Intelsat and Eutelsat to emerging regional players Arabsat, Nilesat and Yahsat are active in the Middle East, and all agree there is strong potential in the region for satellite players.

"There is a lot of demand for communications within the Middle East, and satellite connectivity is providing infrastructure as this region’s economy thrives," Jean-Philippe Gillet, Intelsat’s regional vice president of Europe and the Middle East, says. "Demand is expected to outpace supply, even though new operators are entering with additional capacity to that provided by existing operators. The VSAT market within various industries in the Middle East is also growing particularly with respect to the oil and gas and maritime sectors. The applications used by these companies consume large quantities of bandwidth, which is delivered by satellite to all of their locations. Additionally, we see cellular operators using satellites as a way to expand rapidly their service territory, complementing existing microwave or fiber networks. This market is growing quickly. Finally, one of the main drivers of change within the Middle East region that we see is deregulation. Regulatory reform in countries such as Saudi Arabia and Egypt, for example, is resulting in new telecom providers entering those markets who require satellite links to expand their businesses."

Robert Bednarek, CEO of SES New Skies sees stronger links between the Middle East and Africa fuelling the demands for capacity. "One of the things that perhaps people don’t focus on as much is that many Middle Eastern satellite customers are now also reaching out of the region, particularly to Africa. Generally speaking, capacity will be required to satisfy in-region demands as well as to go into other regions. There is presently demand for both types. Some is appropriate for inter-region distribution, some is appropriate for a broader network building role." There also are many other areas which Bednarek pinpoints as potentially strong growth areas. "I think you will see growth in all of the market segments served by our industry. Broadcast will continue to grow, both in pay and free-to-air modes. Then there are the government needs in the region, both the U.S. government and the non-U.S. government needs on the defense as well as the civil side. Applications range from logistical support to broadband connectivity on the move, and all the things related to government business."

"One of the main drivers of change within the Middle East region that we see is deregulation. Regulatory reform in countries such as Saudi Arabia and Egypt, for example, is resulting in new telecom providers entering those markets who require satellite links to expand their businesses." — Gillet, Intelsat

Regional players also see a chance to expand their businesses. "We see a lot of growth coming from the Africa region," says Khalid Balkheyour, Arabsat’s CEO. "We see strong growth in terms of links between the Middle East and Africa. There are also opportunities in terms of broadband and telecoms services. Three years ago, our revenues were two-thirds broadcasting and one-third telecoms. Now, it is almost 50-50 and we certainly see a lot of growth coming from the telecoms area. People are eager to be connected and have high-speed data services…. Current market forecasts say there is a strong demand for capacity. There may be new players like Yahsat in the market. but there will be growth for a few years to come in the market. How much that growth will be and how sustainable it will be is questionable. The Middle East has a number of markets so it is difficult to predict. However, the indications are that growth will be stable over the coming years."

More Capacity Needed

Demand for satellite capacity is so great, some operators are having problems serving customers simply because they do not have the needed capacity. Nilesat says it is in a "desperate" situation, as it has no more capacity to sell and little room to maneuver. "In 2006, Nilesat 101 and 102 became fully occupied so we leased capacity from Eutelsat (Nilesat 103) which is now also full," says Salah Hamza, Nilesat’s CTO. "Unfortunately, Nilesat satellites are full, carrying 450 TV channels on board." Nilesat signed a contract with Thales Alenia Space in March for the Nilesat 201 satellite. The spacecraft will carry 24 Ku-band and four Ka-band transponders, but launch is not scheduled until May 2010. "There are plans to lease a satellite even before the launch of Nilesat 201, perhaps early next year," says Hamza.

Yahsat, a new United Arab Emirates-based satellite operator, is investing $1.6 billion in a dual communications satellite system which will add capacity to the region, but those transponders primarily are intended to serve the needs of the United Arab Emirates, including capacity already leased by the country’s armed forces. "A big chunk of the satellite is dedicated to government services, and the UAE Military was engaged with us in this exercise a long time ago," says Jassem Al Zaabi, Yahsat’s CEO. "They have now committed officially to a significant portion of the overall system capacity for a long period of time." With its remaining capacity, Yahsat is keen to position itself as an end-to-end solution provider. "We are going to provide as many services as possible," says Al Zaabi. "We don’t just want to provide raw capacity but also services. We believe ‘Yahsat Advantage’ starts not just from the services but understanding the requirements within the region and trying to provide these services. We are already building the competence within the company to be able to help service providers. If they need the full value chain, we can help them. This is one of the strengths we will have, in addition to our robust system."

Market Drivers

Satellite broadband could be an interesting area to follow in the Middle East. Globally, there are multiple examples of innovative satellite broadband strategies, and Nilesat intends to launch a service in the Middle East. "Our new satellite will offer broadband service via Ka-band, which will be assigned for professionals and on an interactive basis," says Hamza. "However, we hope the Arab world will permit end-users and households to use satellite transmission for broadband. We expect this service to be launched in the next couple of years, but there is no clear regulation for home use. In the past, we could not compete with terrestrial alternatives in terms of broadband, but now we feel as though we are in a position to compete."

Yahsat also is looking at the broadband market but has not made any commitment. "It is a very delicate market. We have been studying this very carefully, doing our homework and want to make sure we send the right signals to the market. We want to ensure that our system is thoroughly equipped," says Al Zaabi.

Intelsat also plans to play a role in this market. "I am not sure of the ultimate market size, but I do think there will be sustained growth," says Gillet. "For example, today we are providing Orbit Data Systems Limited a two-way, satellite-based broadband Internet access service available directly to consumers and small office [and]home office users in the Middle East. Orbit has grown quickly and is one of the largest VSAT networks in this hemisphere. Orbit’s success underscores the opportunity for broadband in the region, and we are well-positioned to grow with Orbit and provide more of these services."

While broadband is a hot topic, the traditional broadcast market most likely will provide the strongest growth, says Patrick French, a satellite analyst at NSR. "Broadcasting is and will remain the key market. There is a good chance that governmental VSAT networks for USO or educational projects will emerge in the region that will add to the demand as well," he says. "Also, there is some possible future growth for backhaul of cellular and broadband wireless access networks, but it’s hard to predict exactly when this demand will emerge."

Satellite pay-TV operators in the region such as Art, Orbit Satellite Television and Radio Network and Showtime Arabia also are vying to build businesses across a number of countries, as direct-to-home (DTH) services in the Middle East have seen "phenomenal growth" over the last four years, says Samir Abdulhadi, CEO of Orbit. "The landscape has changed tremendously," he says. "The challenge for the industry as a whole is to sustain this growth and also to keep the momentum going. If you look at the structure of the industry, you have the three major players in pay-TV. The challenge is to create a viable industry. Most of the [free-to-air] channels do not have the ability to continue because the environment has become extremely competitive. Advertising revenues in the Middle East are some of the lowest per capita anywhere in the world."

Showtime relaunched its platform in 2007 and since then the operator has grown its business 30 percent, says Marc-Antoine d’Halluin, CEO of Showtime. "The key challenge is to continue to grow the business by increasing customers and building ARPU (average revenue per user) despite the very competitive environment and the rampant piracy which is a major issue for the industry." Jawad Abbassi, general manager of Arab Advisors, a regional based broadcast and telecoms consultancy agrees that piracy is one of the main issues holding back pay-TV operators in the Middle East. "The region has an extensive and booming users of free-to-air satellite TV. Legitimate satellite pay-TV subscribers are much lower, but piracy is rampant and many users (such as in Egypt and Lebanon) get pirated signals through neighbourhood operations."

While overcoming those challenges, the operators also need to introduce premium services such as high-definition (HD) channels and video on demand in order to attract more subscribers. "The problem in the Middle East so far is that there has not been enough HD receivers. They can be counted on one hand," says Abdulhadi. "You will see an increase in the number of HD receivers in the market over the next two to three years. At Orbit, we will certainly be offering HD channels (by 2009) as part of our subscriber growth strategy. " d’Halluin would not commit to a timeline on when Showtime might launch HD services. "We are well prepared and have the technology to deliver HD when it becomes more popular in the region from both an industry and customer perspective. In the case of HD, its a case of when, not if, but I do not believe the market is ready for it yet."

IPTV services also are being introduced, but the question of what impact they will have in the region and how much business they may bring to satellite operators remains very much open to question. "I am a great believer of IPTV in the Middle East," says Gillet. "There are two main challenges for IPTV in the Middle East. First, the DTH satellite players have very significant penetration. You have many households that are already connected via satellite. Second, telecom operators either are not involved with video distribution or have a very limited involvement. These two factors make it challenging for IPTV to be successful," he says.

"We believe IPTV will eventually find its way to the Middle East but as an additional service distributed via satellite," says Hamza. "We are still an emerging market and people are still consuming TH services. We don’t think that IPTV will appear soon in big countries like Egypt, but in countries like Bahrain and Dubai, where there is fiber network, it could appear sooner. But as IPTV use satellites for distribution to the hubs and so on, I don’t think it will come soon to the Arab world."

Balkheyour remains more skeptical of the potential impact of IPTV. "I don’t think IPTV will have an impact in the Middle East over the next five years," he says. "I think Internet penetration is not that high. There is a lack of DSL penetration. I think satellite reception will continue to be the preferred method to gain TV services. Fiber-to-the-home to the end user is not a very viable option right now, at least on a large scale. I don’t think there will be much of a massive impact in the near future."

The other revenue question marks is military demand, which has been a driver of satellite revenues in the Middle East for years. But the continued demand for capacity by the U.S. military is hard to forecast, says French. "The U.S. presidential elections will be a key determinant in satellite demand in region for military operations," he says. "The potential of a fairly rapid pullout would not at all mean every military contract for capacity being cancelled, but the certain reduction in demand would occur just as new satellites are being launched and further exacerbate a potential oversupply in the region."

BOTTOM LINE

Whether military, telecoms or broadcast, the Middle East is an exciting region for satellite communications with many opportunities for the operators to derive strong revenues. There is a strong demand for capacity throughout the region and operators such as Nilesat are desperate to get new satellites up so they can start meeting this increasing demand. With strong demand across the board, it seems there will be enough room for all players to grow their business in the region.