Rascom targets 0.25m rural users with its satellite service due in 2006

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Rascom has now completed its first round of funding and looks set to have its satellite operating in the first half of 2006. It is now putting in place its second round of funding. However the sceptics are still questioning whether the project can find a place for itself in the competitive African satellite market. Russell Southwood spoke recently to Mustapha Elriz, CEO of RascomStar – QAF.

Where has the project got to?

The project has effectively been moving forward since we created the company (located in Mauritius) in early 2003. Our first round of funding closed in May 2003. This first round was for funding the satellite and the ground control design. We anticipate that the satellite will be ready early in 2006 and that it will be operational in March or April of that year.

What capacity will the satellite offer?

There will be 24 transponders offering C-band and KU-band and there will be two segments, northern and southern and that will also give us coverage of southern Europe and the western part of the Gulf.

What services will you be offering?

There will be a rural communications service, the aim of which is to connect 130,000 villages and to connect them to regional gateways. It aims to bring phone and internet services to these villages with a low infrastructure cost and therefore low charges to users.

What will the cost of the infrastructure be at the village level?

Around USD1400. Obviously if you have to add other devices like a solar panel, DVB receiver and a computer will cost more. It costs less because we’re buying in bulk and the technical design ensures low cost. It based on our 44 investors’ needs but we’ve also spoken to non-incumbent operators. We also want to use the regional gateways to make it an inter-urban, pan-African network. For example, there is currently no direct phone link between say Uganda and Senegal. This will provide it. Senegal only has links with 25 countries in Africa. The gateway costs USD0.5m and could connect you to all the countries of Africa. It can make connections within a country and between countries. These are both part of the same service.

What will the cost be?

There are two business layers involved, one between us and the local company selling the minutes and another between the local company and the user. The wholesale price to the local company will be 2-4 cents a minute. The local operator then puts it into his business plan and even with the most aggressive tariff structure in Africa, you will only be adding 20% to this price (2.4 – 4.8 cents a minute). The more terminals attached, the lower the cost. The IRR (Internal Rate of Return) can fluctuate between 10-38%. It’s less than mobiles but it’s still good.

So what’s the other service?

The third of the three services would be leased bandwidth to do things like support GSM backhaul, data transfer connectivity, corporate networks for any type of business networking and infrastructural projects needing pan-African coverage (for example, university networks).

And the costs?

We’re not going to publish tariffs. We know where the market has gone over the last three years. It used to be USD2-2.5m for a transponder but it costs half that today. Whenever operators need longer-term commitments, we can provide. Obviously there’s a lower price for smaller segments. We’re trying to keep capacity for those needing our specific features like better coverage and higher levels of power. In this case we would be keen to sell customers on the low range of the figure mentioned above. But we’re monitoring if we will need to sell at a more aggressive price. Because of the slowdown in capacity investment in African satellite coverage, we’re better positioned than we might otherwise be and we also draw strength from the fact that we’re a company in African ownership.

What’s your revenue split between three areas likely to be in percentage figures?

50% from the rural service, 20% from the Gateways and 30% from bandwidth sales.

What studies have you carried out to scope potential markets?

We have carried out two types of studies, one by Frost and Sullivan and the other by Apoyo Consultario. One has created a demographic and economic model. It has also made some segmentation between different regions. The other study gives detailed country-by-country analysis, including universal access issues. It seeks to identify the consumption power of different countries.

So what numbers came out of the studies?

The initial figures showed that there was potential for 8 million rural lines. Out of this potential market, 2 million were capturable by satellite and of that segment, Rascom would capture 1 million over 10 years. However in the short-term, over 4-5 years, we would capture 250,000.

What will be the size of your selling operation?

We plan to have two marketing officers, one covering the north and the other covering the south of the continent. We’re also keen to partner with non-hostile actors like resellers.