The Middle East and Africa remain fertile grounds for satellite with the demand for capacity significantly increasing. Yet, with fiber rollouts growing, do these markets still represent a golden opportunity for satellite?

At a time of gloomy reports from the world’s financial markets, the news that mobile telephony is nearing the end of its worldwide period of double-digit growth has barely been noticed. According to the International Telecommunication Union’s (ITU) 2010 world statistics, however, this growth should not have gone under the radar.

Mobile telephony growth rates decreased from more than 20 percent in 2005 and 2006 to around 10 percent in 2009 and 2010 — a drop of more than 10 percentage points in a period of five years.

The global picture of diminishing growth, however, belies regional realities marked by major differences. At the end of 2010, the African region’s mobile telephony penetration rates had reached an estimated 41 percent, compared with 76 percent globally. At the same time, Internet penetration reached 9.6 percent of the population, far behind the world average of 30 percent and the developing world’s country average of 21 percent — Arab states notched 24.9 percent.

When it comes to fixed broadband, Africa lags even further behind with a penetration rate of less than 1 percent illustrating the challenges that persist in increasing access to high-speed, high-capacity Internet access in the region. With a penetration rate of less than 5 percent, Arab states fare better than Africa, though not much better. By comparison, Europe’s penetration rate is about 25 percent.

The silver lining is, because of their current low penetration levels in Information and Communication Technologies (ICTs), regions such as Africa and the Arab States have a significant potential for growth. Conversely, in mature markets such as Western Europe and North America, this potential is markedly smaller. This represents a major opportunity for the satellite sector.

“I see demand for telecom satellite services continuing to outstrip forecasted supply in Africa and the Middle East,” comments John Finney, chief commercial officer, O3b.

There is little doubt that the telecom sector is bubbling in the Middle East and Africa. In 2010 and 2011, new undersea fiber rollouts such as ACE, MainOne, Eassy, Teams Cables, to name a few, triggered significant changes in the market. This new capacity, for example, has ignited the interests of mobile operators to deploy 3G broadband networks in the regions.

“Fiber is making high-speed Internet available and affordable to large parts of Africa,” comments Aidan Baigrie, head of business development, Seacom, a privately owned and operated pan-African ICT enabler. “It is having an impact similar to that of the railways in the 19th century: it is infrastructure that brings development,” he says. 

Opportunities

Yet, besides coastal areas, most of the region remains underserved by fiber, leaving a host of opportunities for satellite solutions, explains Idan Segal, chief investment officer, Convergence Partners, an investment management and advisory firm focused on the telecommunications, media and technology sector in Africa. “This rollout has surprised many market participants in terms of speed and reach, although the Continent remains predominantly wireless. This is due to the vast distances, difficult terrain and challenging economics, which render links between major cities difficult and rural deployments generally unfeasible, on a commercial basis, at this time.”

Universal Service Obligations (USOs) and rural connectivity goals set by the regions’ governments, for example, drive the development of satellite backhaul and other services. This is particularly true for landlocked Africa where USO investments and public sector funding is leaning towards satellite to guarantee supply at confirmed rates void of cross border taxes and challenging operational issues associated with fiber optic cables.

“While sub-Saharan Africa has six fiber cables to date, landlocked countries are very unlikely to benefit from fiber in a reliable way due, in the majority of cases, to the lack of telecoms regulation and disagreements between interconnection, border rights and accountability for security — all of which result in high prices and limited availability,” comments Finney. “Most worryingly, for the operators concerned there is a lack of certainty around future prices as governments can levy taxes on fiber routes at will.”

This is an analysis widely shared by the region’s ICT service providers that have the pulse of the market. “Satellite solutions are used primarily for enterprise broadband access and GSM backhaul and, of course, as international gateways in some countries,” explains Job Ndege, managing director, iWayAfrica Services. “Satellite use in the broadband IP and GSM backhaul is growing, while for other enterprise use it is stagnating due to the increased availability of in-country terrestrial networks, limited cross border activities for firms in the region and non-coordinated licensing.”

On the whole, many believe that the arrival of fiber has disrupted certain satellite applications, notably international bulk connectivity from cities at or close to the coast. However, to an extent this loss of market share for satellite is made up in other ways. An explosion in demand as bulk/wholesale pricing drops and massive capacity increases due to fiber connectivity brings new users and new applications into the market, which can benefit satellite applications.

“History has given us examples of where initial drops in satellite usage in countries that get fiber connectivity for the first time are more than compensated for by overall market growth within 24 months,” says Segal. “For the medium-term, much of Africa will remain uneconomic to connect in any manner other than satellite.”

The relationship between satellite and fiber seems to be one of cooperation rather than competition. “Fiber deployments are forcing satellite to look introspectively at its strengths, as satellite is not suited for providing large amounts of bandwidth,” says Baigrie. “Just two of Seacom’s customers in Africa, for example, soak up as much bandwidth as that made available by satellites over the entire region.”

Yet, this leaves plenty of room for collaboration as satellite has plenty of opportunities in reaching remote locations, or in applications involving the transfer of highly sensitive, critical information, according to Baigrie.

Demand for satellite services in the region remains high. Mobile operators such as Bharti, Orange, MTN, Qtel and Etisalat all have a clear roadmap for 3G in Africa. The infrastructure contracts are being announced to support these deployments, the most recent being Bharti’s contract with Huawei for 3G infrastructure and supported by a significant contract award to Comtech for related satellite backhaul.

There are other areas, though, where growth is expected. “The mining and oil exploration sector, for example, and applications for the financial sector,” explains Ndege. “The use of satellite for multi-site enterprise networking, however, is declining; only firms that require very high reliability still use satellite for WANs even where alternative terrestrial services are available.”

In this landscape, satellite operators with a strong presence in the orbital slots overlooking the region are already making a push in the region. “We see developing markets such as Africa and the Middle East as critical to SES’ future,” says Nicolas Baravalle, SES’ vice president of sales for Africa. SES has already been actively closing deals in the market. In June 2011, it announced it had joined forces with Kenyan television and broadband operator Wananchi to launch a new DTH line-up called Zuku TV in East Africa. According to Wananchi Group’s CEO Richard Bell, East Africa is rapidly becoming the Silicon Valley of Africa.

“There has been tremendous growth here over the last few years, particularly with the arrival of undersea cable,” he says. “Media and IT industries have started to grow explosively on the back of this growing sophisticated middle class.”

The success enjoyed by mobile telephony in the region certainly bodes well for the entire spectrum of ICT services. Wananchi is taking advantage of this favorable landscape, emulating triple-play providers from the developed world. “We have a cable operation so we are very much into broadband as well as TV. We could look to bundle broadband with our satellite TV service,” says Bell.

Observers should not be deceived by the relative low income levels of the region’s population, Bell warns, because, as the case of mobile telephony clearly shows, peoples’ spending habits do not necessarily follow them. “People will prioritize where to spend their small amounts of disposable income, and mobile phones were something that people really wanted and were prepared to spend a large amount of their income on.”

Meanwhile, Intelsat is also eyeing up the African market, says Jonathan Osler, managing director of Intelsat’s Africa Sales team. “The market is strong as there are opportunities in all of the region’s areas, similarly to what happened in Latin America in the recent past. We see a transition taking place; one going from data networks to a media-centric marketplace.” 

Middle East Operators

Established satellite operators like SES, Eutelsat and Intelsat are clearly focusing on the region’s growth potential, but they are not alone. Besides traditional players, new operators are also emerging, says Jawad Abbassi, founder and general manager, Arab Advisors Group, a Middle East-based telecom consultancy company. “Yahsat has entered the market, while Qatar is also planning to launch its own satellite operator. They add to established regional players like Arabsat and Nilesat, that have a strong presence in the Middle Eastern markets and are now making inroads in Africa. Their strategy includes availing new capacity and new technologies to their coverage area,” he says.

The situation is creating new dynamics in the market, with possible conflicts looming ahead. In coming years, all operators will closely watch demand dynamics to avoid price wars, Abbassi adds. On the demand side, it is interesting to note that it is the higher frequency bands that are expected to attract much interest.

“We are seeing a significant amount of interference issues in the market in particular around C-band and terrestrial systems such as WiMAX. This is driving interest in Ku- and Ka-band offerings as the link availability is free from such interference issues,” says Finney.

Whatever the bandwidth, it is becoming clear that satellite will play a significant role in meeting the region’s telecom needs. “In Central African countries satellite delivers unhindered capacity to the heart of the operators’ network,” comments Finney. “In addition, regions with some geopolitical conflicts, such as Iraq, continue to show significant demand for high-capacity satellite services, either because the deployment of fiber is too challenging from an operational point of view, or because the infrastructure such as power plants required to repeat and regenerate optical signals is still several years away,” he says.

Other experts identify other drivers for satellite solutions. “Vertical industries such as transportation and oil and gas are still driving demand all over the region, but especially so in countries like Saudi Arabia, the Middle East’s largest market,” says Abbassi. 

Tourism

Tourism is driving demand in traditional destinations like Egypt and the rest of Northern Africa. “Broadcasting and VSAT connectivity are also all rising applications,” Abbassi adds. The deployment of fiber is seen as an opportunity in its own right, as satellite capacity is often used as redundancy for fiber links. “Many links have suffered outages, which can be complex and time-consuming to restore, making satellite a key component in stable, resilient networks,” says Segal.

In addition, satellite’s proposition remains strong in point-to-multipoint applications. “This is a unique application for satellite that presents it with continued strong growth prospects,” explains Segal. “Particular media platforms such as DTH and corporate networking are likely to perform very strongly in the future. There is also significant new investment and increasing hype around new consumer broadband via satellite services.”

Market players with a traditional strong presence in DTH clearly identify this as a unique opportunity and bandwidth-heavy applications are seen as on the rise. “We see strong growth ahead for DTH,” says Baravalle. “In three to five years from now, the region’s DTH landscape will have changed dramatically. Broadband and rural connectivity are also expected to grow.”

Osler adds, “The migration to video applications is driven by DTH, of course, but also education, with school programs that aim at bridging the digital divide between cities and rural Africa, being rolled out in many countries.”

Giovanni Verlini is a communication executive and freelance journalist based in Europe. Email: [email protected]