The Future of Satellite Broadband in Middle East & Africa

The Middle East and Africa continues to offer one of the largest addressable markets for satellite broadband. With just 15 percent of African households having internet access, challenging geographies, underdeveloped infrastructure and an urgency to not be left behind in a digital world, where are the opportunities for satcom?

Is Trunking Really Dead?

Demand for satellite trunking links plummeted rapidly in the last few years. International backbone fiber now populates virtually all major African coastal cities, and inland deployments have evolved quickly as well. However, Africa continues to be the largest market for this type of demand and some opportunities still exist.

Landlocked territories are at a clear distance in terms of capacity availability and pricing. Here is where satellite is still highly relevant. The average price for end-user connectivity in landlocked countries is $439 per Mbps, a benchmark current and future generation satellites can meet and outperform. After the initial rapid development of fiber, expansion is slowing down and Internet Service Providers (ISPs) need to balance the priorities of continuing to extend networks or focusing on improving the services in high-value, easy-return urban areas. A large proportion of fiber backbone in Africa is single-thread and prone to disruptions. As an illustration, Akamai reports internet traffic levels to South Africa dropping by about 40 percent for two hours when construction resulted in damaged cables. Demand for back-up services is growing and in many occasions even if fiber lands locally, operators keep their satellite links to ensure critical connectivity. Flexibility, reliability and ubiquitous connectivity are still the key selling propositions for satellite trunking links.

Despite declining numbers of sites and migration to back-up services, more subscribers going online and increasingly engaging in rich media content translates into continued growth for capacity demand. Pricing will drop drastically and demand is moving to HTS; overall revenues will weaken as capacity growth will be unable to mitigate the decline in pricing. Demand for satellite trunking will always exist in Africa, however, with a radically new price point, operators willing to engage in this aggressive market can still capture opportunities.

Cellular

Mobile phones are the first and only way to access the internet for many in Africa. The region has shown solid subscriber growth in the past, but recent symptoms of slowdown are emerging; continued coverage expansion is necessary to keep growth. Globally, satellite plays a minor role backhauling less than 1.2 percent of global mobile base stations, but its contribution to the Sub-Saharan market surpasses 7 percent. The drive to continually expand network coverage together with the new economics of HTS ensure a brilliant future for satellite backhaul in the region.

The new economics of HTS open opportunities across the board. Lower capacity prices make satellite more competitive in front of other alternatives, and the most economical option even in some semi-urban areas. Lower costs open markets that were economically unattractive due to low Average Revenues Per User (ARPUs). More importantly satellite backhaul can now support 3G and 4G services. Mobile operators generate growth from these broadband services, and as the price of smartphones declines, services will penetrate into more remote locations requiring the support of satellite.

More than one-quarter of the population in Arab countries and more than half of the population in the Sub-Saharan region still lives outside the area of coverage of 3G networks. In the Wireless Backhaul via Satellite, 10th Edition report, NSR estimates the total addressable market for extending the 3G network coverage in the region is close to 93,000 base stations.

VSAT and Corporate Networks

The Middle East and Africa region presents one of the most solid demand prospects of any region for VSAT and corporate networks. Despite obvious short term challenges due to low commodity prices, energy and mining continue to be a major driver in the region. Another growing vertical is banking services as branch expansion, enhanced connectivity needs and ATM deployment saw continued demand.

Demand for social inclusion projects is not as developed as in other regions such as Latin America, where sites are counted in tens of thousands, or Asia, where governments increasingly rely on satellite and new projects are starting to flourish. Remote connectivity programs will progressively develop as new cheap(er) capacity becomes available and ground networks reach saturation. Interestingly, the private sector also proposes innovative business models to offer connectivity to the unserved areas.

Ground networks only cover 46 percent of the Sub-Saharan population with only one in every four individuals connecting to the internet. The addressable market is obviously massive, but key barriers need to be solved. Instead of developing a consumer-oriented distribution arm, current HTS actors in the region have preferred to partner with telcos and service providers that have primarily targeted Small Office/Home Office (SOHO) and Small-to-Medium Enterprise (SME)-type of customers to alleviate the barrier of disposable income.

Obviously the market has very different dynamics to developed regions where consumer broadband has already shown tremendous success. Unique business models need to be developed to tackle the issues in the region; however, the opportunity is sizable. Affordability is the first and most obvious barrier. Whereas the cost of the Customer Premise Equipment (CPE) is completely out of range for many in the region, Wi-Fi hotspots where the cost is spread among multiple end-users may be the most obvious solution. Distribution channels in the region are another key challenge. Finding the right partners or investing heavily in a distribution arm will be crucial for the growth. Other key barriers many times overlooked are relevant content and digital skills. Facebook’s internet.org or the partnership between Afrique Telecom, Eutelsat and Wikimedia to provide free access to French-language Wikipedia are good examples of how to promote the usage of services and educate end-customers.

Launching capacity and declining prices are not enough to build a profitable business in the region despite the tremendous latent demand. Space actors need to think about the entire ecosystem. Should the industry succeed in creating value for end-users, NSR is bullish on the development of the market, forecasting 1.5 million subs by 2024.

Bottom Line

Africa presents tremendous growth opportunities for the satellite industry. The need to get connected is clear and urgent. Through the drive to extend cellular networks, growth in traditional corporate networks and social inclusion projects or connecting the unconnected, the region is prone to generate unprecedented growth. However, actors must be keenly aware the “build it and they will come” approach leads to underwhelming results, as the region needs customized business models and the development of entire ecosystems to thrive. VS