African satellite prices rise in the wake of NSS8 burn-out

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At Satcom Africa 2007 in Johannesburg this week, industry players were all talking about the shortage of satellite capacity in Africa following the failed launch last January of the NSS8 satellite commissioned by New Skies (now owned by SES-Americom).

Satellite operators and satellite connectivity providers alike made plain that the shortage is real. Just back from the conference Isabelle Gross was unable to get any clarity as to how bad the shortfall actually is, and which countries in Africa will be the most affected. In the absence of hard facts, the “rumours mill” has already begun to fill the gaps. However, a Kenyan ISP owner did tell us that prices there had already begun to go up.

Although the industry seems unsure as to exactly what the future holds, there is no doubt that the purchase price of new satellite segment has already increased and practices such as capacity auctions have reappeared. Word has it that a company about to auction off one particular transponder reckons that it is going to get 50% more than it is currently paying!

This pricing trend for new capacity is also going to have a knock-on effect on the cost of current capacity as contracts expire. The effect will likely be felt quite quickly, since over the last couple of years contracts have been signed for shorter periods of time. Further down the food chain, prices of retail bandwidth may also rise or stay static over the next six months in those countries that are satellite-reliant. All in all, many African customers are likely to pay more for their Internet connection in the near future and that’s not great news.

The failed launch of NSS8 not only has an impact on the business of satellite connectivity operators and providers but will also impact the overall growth of the ICT sector in Africa. Some projects relying on the bandwidth that NSS8 would have provided have already been put on hold, and many new services that telcos and data networks planned to roll out will be postponed. These delays will further affect equipment vendors and manufacturers as the number of orders decreases.

At industry gatherings like Satcom, those attending are prone to exaggerate the situation, but it is worth questioning if the current shortage is simply the result of one missed launch or rather a sign that providers have gravely miscalculated future capacity demand across Africa. Key satellite operators may have taken their eyes off the ball a little as they absorbed their new acquisitions (SES Global completed the acquisition of New Skies in March 2006 and Intelsat bought PanAmSat in July 2006). The more paranoid of satellite capacity buyers believe that the satellite capacity operators are not too worried by this tightening of supply.

The short to mid-term shortage of capacity is likely to benefit those African countries involved in launching their own satellites. Nigeria, for instance, will soon launch Nigcomsat and there is still Rascom in the pipeline.

As fibre and satellite prices are intimately related in many countries on the SAT3 route, there is now little pressure for the relevant African incumbents that own SAT3 to make an effort to lower their wholesale prices. This leaves the high-price incumbents like Angola Telecom and Camtel immune from competitive pressure.

There are currently four projects to bring fibre to East Africa: EASSy, TEAMS, Flag Telecom and a Blackstone-funded initiative. One of them will complete a connection within 18 months to two years and a fairly rapid migration from more costly satellite capacity will begin.

In the meantime, the announcement of a satellite project funded by Mubadala Development Company, the investment arm of the government of Abu Dhabi, has come as a lifesaver. Shawkat Ahmed, the CCO of Yahsat, the company in charge of running the project, explains that the satellite’s launch is planned for 2009 and will offer coverage to the Middle East and Africa in C-band and Ku-band. The satellite has two payloads, one reserved for government and military applications, and one for commercial services such as direct to home TV broadcast and backhaul of mobile operators’ data and voice traffic. The satellite has an overall capacity of 50 transponders and the company has already signed a contract with the manufacturer for a second satellite to be launched in 2010. According to Ahmed, running two satellites would enable Yahsat to make savings on operating costs in the mid-term.

Among the satellite connectivity providers there have also been some bold moves. Gilat Satcom, an Israeli based company, has in the last few months opened a subsidiary in Nigeria, Gilat Satcom Nigeria Ltd. With 65% of its sales revenues generated in Africa, and Nigeria being their biggest market, the company has taken the opportunity offered by the Nigerian Communication Commission’s introduction of new licensing rules to strengthen its foothold in the country. Last year the NCC introduced new communications licenses for full gateway and International Data Access (IDA) gateway licences. As Avihu Bergman, Executive Sales & Marketing at Gilat Satcom explains, the latter licence covers the provision of satellite connectivity. The cost of the licence is 25 million Naira (about $200,000) and it will be valid for a ten-year period. At the end of February of this year, the Nigerian subsidiary of Gilat Satcom was granted the first licence of this type. Although the company has a strong position in the country, Avihu reckons that there are other unlicensed satellite providers operating in Nigeria, and so far it remains unclear if they had made any move to comply with this new licensing scheme. He deplores the fact that in an effort to regulate this market segment, the NCC has not yet announced any plans to enforce the IDA licensing scheme.

Avihu also mentioned that Gilat Satcom would soon launch a new platform offering Ku-band services targeted at the high-end market. The new service will complement the company’s existing satellite offering in C-band, which provides backbone connectivity to telcos and corporate customers.

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Reliance misses out on SNO Licence in Kenya

The Communications Commission of Kenya has cancelled a tender for the second national operator (SNO) licence that it had awarded Reliance Communications, after the consortium failed to pay for the fees.

This is the second cancellation, after CCK annulled the licence it had given a consortium led by Dubai-based Vtel Holdings in January, for failing to pay the US$169 million (Sh12 billion) licence fee it had bid.

Reliance, which was the second highest bidder at US$111 million (Sh7.8 billion), was allowed to apply for the licence, but on condition that it pay Sh12 billion to match Vtel's bid. Reliance confirmed that it would take up the offer and requested for more time to prepare for the licence.

CCK said last week Reliance had a deadline of March 15. "By the expiry of the said deadline at 4.00 p.m. yesterday (Thursday) Reliance Communications had not made a formal application for the licence as required," CCK said. The Commission's director-general John Waweru said they had resolved to immediately restart the tendering process for the licence.

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