INTELSAT, PANAMSAT MERGER SET TO TAKE ADVANTAGE AS BARRIERS TUMBLE IN AFRICAN TELECOMS INDUSTRY

Mergers, Acquisitions and Financial Results

Intelsat has completed its $6,4bn acquisition of PanAmSat to become the world's largest provider of satellite services to telecoms companies, governments and the media.

The deal is important for Africa because about 80% of Africa's international voice and data traffic is carried via satellites, and one of the few major remaining players has just been swallowed by a rival.

PanAmSat's biggest customer in Africa is the pay-TV company MultiChoice. Intelsat's customers include Telkom, Vodacom, MTN, Sentech, internet service providers MWeb and Internet Solutions, voice and data carrier Gateway Communications, and Transtel, part of SA's yet-to-arrive second network operator.

It also transmits educational material for the African Virtual University, an organisation broadcasting training courses to students in 27 countries. Telephony has reached only 2% or 3% of the population in some countries, and 80% of Africans live in rural areas with no land-based telecoms infrastructure.

Pressure is mounting on Africa's substandard systems as demand for data services and internet access is booming by 40% a year, says research house BMI-T. Intelsat believes satellites are the answer, as fixed-line or wireless facilities cannot straddle continents to link the most remote locations.

Satellite will remain the most common delivery mechanism for years, since two undersea cables designed to connect Africa to global bandwidth have proved disappointing.

SA's government has yet to act on a promise to force Telkom to cut the cost of bandwidth on the Sat-3 cable around the west coast, and the $300m EAssy cable around the east coast has been delayed until 2008.

Intelsat's takeover of PanAmSat creates a constellation of 51 satellites, and that capacity will benefit new voice and data carriers springing up as Africa's telecommunications sector is liberalised, Intelsat says. Satellite airtime is, however, notoriously expensive, and could become more expensive as Intelsat increases its monopoly.

That will not happen, promises Flavien Bachabi, its vice-president of sales for Africa. Globally, the satellite operators must compete with carriers that use cable or microwave technologies, so they cannot overcharge. The fees should actually drop as the takeover creates greater economies.

In fact, satellite services are only grossly expensive because of the exorbitant mark-up added by Africa's monopoly operators. "It's not our fault," Bachabi says.

"The problem in Africa is that there is very little competition because the market is highlyregulated. We sell a basic telephony service to our customers at 5c a minute and they resell it for $4 a minute. We have no control over that."

Intelsat and PanAmSat both have offices in SA which will gradually merge and recruit new staff. Intelsat opened locally in 2001 to capitalise on an anticipated boom under promised deregulation of SA's telecoms sector -- a move that took four more years to happen. Now business is on the rise as deregulation finally lets private voice and data carriers offer services previously monopolised by Telkom. Similar moves are happening in the rest of Africa, generating business worth $240m last year, or 17% of its global revenue.

"In 2001 we had 70 customers in Africa and today we have 240," said Bachabi. "There is not a single African country where you can't find antennas pointing at our satellites."

Absorbing PanAmSat gives the company more than 20 satellites over Africa, increasing its capacity to offer newer services such as mobile TV and broadband internet access, he says.

Intelsat bought PanAmSat for $3,2bn and picked up its hefty $3,2bn debts. Consolidation has already wiped out dozens of operators in this industry.

A few years ago, many countries were launching their own communications satellites, and even SA considered the option. Yet the long-delayed Rascom project shows how difficult -- if not impossible -- that is.

Rascom involves operators in 44 countries. They aim to launch Africa's first dedicated satellite so government and private companies can use its bandwidth instead of paying international suppliers. Rascom would provide radio and television broadcasting, direct telecoms connectivity between all African countries, international connectivity, and take voice, data, internet and television coverage to all rural areas.

But the well-intentioned 15-year-old project has gone awry. A switch-on planned for 2003 was delayed until mid-2006. The vice-president for international relations at Rascom, Leke Casimir, says the launch is now scheduled for next year.

The construction is complete and the founding partners are now seeking funds to launch and insure the system. African financial institutions should put in that cash to make Rascom fly and help Africa benefit from more access to technology, Casimir says. But his plea may fall on deaf ears, given Rascom's slow progress and ambitions by the new-look Intelsat to more actively serve African businesses.

Business Day