Belief that demand for capacity serving the Middle East and North Africa (MENA) soon will skyrocket has been building for more than a year, spurred by a combination of increasing demand for satellite-based services and government deregulation that is encouraging more providers to enter the market. This optimism remains high, even though the global economy has slumped. “I think the demand will be there,” says Khalid Balkheyour, CEO of Arabsat. “We have a lot of competition from other players, but there is also competition from fiber links going around the whole region. There is an increasing amount of deregulation in the region. There is huge demand for broadband services. It is hard to say whether there will be too much supply. We think there is enough demand to fill up our satellites over the next three to five years.” Jassem Al Zaabi, CEO of Yahsat, a new player that plans to launch its first satellite in the 2011 first quarter, also sees plenty of business in the region. “There are new markets for this capacity. There is more deregulation taking place in the region. There are changing appetites for applications. Satellite TV is seeing growing demand across the region. You are also seeing increases in satellite capacity being used for government services.”

No region, including the Middle East, is immune from the global downturn. If you look at the satellite industry as a whole, I would say we were less impacted by global economic conditions. There was an impact, but there has still been strong demand for capacity and services.

— Al Zaabi, Yahsat

Analysts: Demand Remains Strong

Analysts agree that the Middle East will remain a lucrative place for satellite operators. “Demand in MENA for satellite capacity remains strong, and NSR sees nothing on the horizon that will change that,” says Patrick French, senior analyst at NSR. “Yet, in the next 12 to 18 months, a very large amount of capacity — assuming all launches are successful — will be added to the region, and it is possible that competition among operators to fill up these payloads may ease the current high pricing in the region. Though likely this will be more of a short-term impact.”

MENA is “booming,” according to Jawad Abbassi, CEO of Arab Advisors. “Firstly, a lot of government organizations have a strategic drive to continue in their broadcasting stations. Secondly, there are private investors entering into the landscape. Despite a number of failures, many believe there is a strong case for satellite [free-to-air] channels. There is competition between media cities as liberalization in the Arab world is increasingly allowed. There is a healthy demand for broadcast satellite capacity in the region. For telecoms, you still have a very vibrant market. You have a strong demand from the shipping industry, and as there is an expected recovery in the global economic situation, the region will benefit from that.”

However, French says an overcapacity situation could develop. “NSR does expect some overcapacity, but it is more a matter of scale and time period since NSR does believe that demand will grow over time to fill the supply. Yet, NSR currently does not expect a situation of severe oversupply that would push pricing to below cost of replacement that was the case, for example, in Latin America in the middle of the decade,” he says.

While such forecasts keep optimism high, the economic slump has dampened expectations slightly, says Tom Choi, CEO, of Asia Broadcast Satellite (ABS). “It was not impacting business in 2008, but towards the end of 2009, there was a definite slowdown in demand. Some of the big satellite operators have bought capacity into the market. This introduction of new capacity has led to some price erosion in the market due to increasing supply, as well as the global slowdown. I would say if the war does not continue in Iraq, that would severely depress the market. With that still ongoing, there will be additional demand for capacity.” ABS, a relatively new player in the region, is focusing its efforts on what Choi thinks is a shortage of capacity over Afghanistan. “Most of the satellites are targeting Iraq, but there are not too many satellites offering connectivity over Afghanistan. With the announcement of the acquisition of the Koreasat satellite, we moved that satellite over Afghanistan, and we have seen some very positive responses from our customers.”

Al Zaabi said there had been an “impact,” albeit a limited one. “We live in a more globalized world, so we are much more tied into global economies. No region, including the Middle East, is immune from the global downturn. If you look at the satellite industry as a whole, I would say we were less impacted by global economic conditions. There was an impact, but there has still been strong demand for capacity and services. The telecoms and satellite market has remained focused and has proved to be robust.”

Balkheyour thinks there will be growth across all market segments. “In the broadcasting market, 2010 is the year when we will see different broadcast content come to the market. I think this will be one of the new trends in the region. Also, telecom services including military and governmental services have grown even more rapidly in recent years,” he says. Al Zaabi adds, “I think there will be strong demand across military and commercial segments for capacity. We have seen very good signs over the last couple of years in terms of the use of satellite capacity for military applications. Cellular backhaul and Internet trunking are also segments where there is a strong demand for satellite capacity, both in the Middle East and Africa.”

Satellite technologies also could see growth from telcos. “Satellite is important for a telco like Etisalat but not in the areas of broadband and IP. When it comes to VSAT or some occasional use services, it is more important, but it is really limited to these areas,” says Ali Amiri, executive vice president, carrier and wholesale services, Etisalat. “I think satellite for Etisalat will continue on a path of natural growth. When we see breakthroughs in satellite technology, it could then compete better with IP-based technologies. We could do other deals for capacity for this year.”

Satellite broadband in the Middle East is still a nascent market, but there could be some interesting developments with Arabsat launching a satellite with Ka-band capacity (Arabsat 5C) in the next 12 months, and Balkheyour says the operator could announce a significant Ka-band contract in the next year. “There is a huge demand for satellite broadband, and we are talking to clients about the best model in which to sell Ka-band capacity. We do expect to announce something like that this year. We are looking at what the best model is for Arabsat. I think we will have similar models to what we have seen in Europe and the United States. We see a strong demand for satellite broadband services in the Middle East. Many countries in the region still have low levels of broadband penetration. They are seeking solutions here and we look to provide them with such solutions. We want to be the leader in providing new services.”

Satellite broadband is also a critical for Yahsat. “We think there will also be a strong demand for satellite broadband services across the region. It is one of the main pillars of our growth plan. We have so far been overwhelmed by the feedback we have had from potential customers for these services. We are very keen on the broadband space, in both the Middle East and Africa,” says Al Zaabi.

A new operator that could be targeting the Middle East satellite broadband in the near future is Avanti Communications. The U.K. based operator will orbit its Hylas-1 in 2010 and recently announced financing for Hylas-2. “On a country-by-country basis (in the Middle East), I think yes, there is more room for capacity,” says Avanti CEO David Williams. “We have been quite careful to make sure we have flexibility in our satellites so that we can move power between beams. We can afford to make mistakes even, as we can adjust the coverage on the satellite. There is definitely more competition arriving in the Middle East than there is in some parts of Europe. There is less competition in Africa, but the demand for services from institutional clients in the Middle East has resulted in relatively poor availability of broadband for commercial purposes. I think that is a situation that will continue to exist.”

Mark Holmes is Via Satellite’s Associate Editor.