Satellite and fibre: Good friends or the best of enemies?
Before SAT3 most of Africa was served by satellite. With the introduction of SAT3 in May 2002 things were bound to change in Africa’s connectivity markets and the ensuing competition should have spelt cheaper prices. Russell Southwood looks at what has actually happened and how things might change in the future.
SAT3 goes from Lisbon down the west coast of Africa to South Africa. SAT3/WASC/SAFE (to include all its legs) was financed and built by a consortium of 36 organisations including the incumbent telcos of the African countries it connects which include: Angola Telecom, Camtel, Cote D’Ivoire Telecom, NITEL, OPT Benin, OPT Gabon, SONATEL, Telecom Namibia and Telekom South Africa. There is no fibre covering Africa’s east coast and few internal fibre connections on the continent except in large cities.
Telekom South Africa is the administrator of the consortium and key decisions are taken to consortium meetings: for example, the recent decision to double the capacity from 20 Gbps to 40 Gbps. Full capacity will be 120 Gbps.
Access to fibre capacity can be obtained in one of two ways: either directly through the national national operator (say SONATEL for Senegal) who is responsible for selling from their country to Lisbon or through unused "pool" capacity. Operators can bypass the incumbent telco through an Indefensible Right of Use (IRU) from the cable’s network administrator Telkom South Africa. However the consortium’s incumbent members have first right of refusal on that capacity. They also cannot charge more than the pool price.
Otherwise on their own capacity operators have a monopoly for the lifetime of the fibre, which would be fine if there was competition from other fibre operators but currently puts them in a fairly unassailable position for reasons we’ll come to later.
The steady introduction of SNOs raises competition issues. As latecomers they will have to claim their capacity under the IRU clause and how much and at what cost will be decided upon by the administrator, Telkom South Africa, one of the most powerful incumbent telcos on the continent. In order to compete effectively at an international level SNOs like Nigeria’s Globacom will need access to competitively priced fibre.
Although there are no current market overviews of fibre and satellite connectivity to and from Africa, best guesstimates are that fibre has between 10-15% of the overall market with the balance going via satellite. Incumbent telcos have been slow off the mark in some countries and some have made a marketing decision not to wholesale the capacity, fearing things like VOIP calling from ISPs.
Actual capacity is probably more like a 40/60% between fibre and satellite but satellite operators are currently not worried about their markets for three reasons.
- Firstly, in order to connect to SAT3 you need a fibre connection and at present getting one of these can present a problem even in cities. NITEL’s management is promising to deliver these connections but it will take time. Not unnaturally, satellite operators remain sceptical. As Peter McBride of Panamsat told us: "In Nigeria for example, you can make a success of Victoria Island but it will take 5-10 years to make a reality of cable nationally. "
- Secondly, both fibre and satellite operators are predicting growth in the market.
The consensus on growth in the market is almost unanimous. As one leading international carrier told us: "Conservatively, our sales of SAT3 cable capacity will go up by 50% a year. The bottleneck is going to be access to fibre in country. "Dan Goldberg of New Skies is reporting 6-11% growth globally and believes these figures will be reflected on the continent. It has had good demand between the USA and Africa and the Middle East and between West Africa and the Middle East and Asia. Further down the chain a solutions provider like Q-Kon has experienced 100% year on year growth.
- Thirdly, Africa is a continent with a high proportion of its population spread out in rural areas that will be served by satellite for the foreseeable future.
Even in the gloomiest future scenario for satellite operators, all point out that satellite remains a niche option in Europe and North America. As Rodney Benn of Panamsat told us: "All European companies with dense fibre networks also have satellite networks. They won’t die away. They’re more expensive on a monthly basis but the nice thing about satellite is that you have direct control. "
Pricing is almost impossible to compare directly but the impact of fibre on satellite should be becoming clearer and the best one can say is that it’s having a modest downward pull. While some of the incumbent telcos have adopted a fairer pricing policy, others are simply keeping prices a heartbeat behind satellite prices. Luckily for the user, competition in the satellite market seems to be pulling rates down overall.
The cost of an E1 via SAT3 is based on distance but if you take somewhere like Nigeria or Ghana a half circuit costs around USD6000. However the same half circuit to South Africa costs USD12,000. But the significant price differential is on the other half of the circuit. In the West African example, the incumbents charge around the same amount for their half circuit. Telkom South Africa charges 4-5 times for its half circuit. Why? Because there’s no competition and it can get away with it. Will this change in the near future? Not unless satellite prices go lower or there’s an alternative fibre route to Europe.
By contrast the cost of the route beyond Lisbon is subject to quite intense competition and as Nicky Popoola of Cable and Wireless observes: "There’s little difference in pricing between the foreign carriers. We’re competing against a whole load of carriers. "
There are four main satellite operators covering the continent: Inmarsat, Intelsat, New Skies and Panamsat. Giving satellite prices is always complicated. There are issues like beam strength and level of support service. However if you take what we might describe as "raw" bandwidth, prices are coming down to the point where several operators believe they are becoming economically unfeasible. They would say that, wouldn’t they? might be your first reaction but the operators may be right.
According to operator talking about West Africa, prices have gone from USD5000 mbps to USD3000-3500 mbps: "It’s reaching the point where we cannot physically sell it for less and break even. " Another reports prices going as low as USD2000: "We can’t go much lower. Our cost structure has already been lowered. " On the other hand, prices vary across the continent. Telkom Kenya told us they were paying USD6000 mbps and selling at a loss. East Africa has no access to a submarine fibre cable. Some operators report finding themselves competing for business with a competitor offering as low as USD1000 mbps.
And as Dan Goldberg of New Skies told us: "At some point you reach a point below which you can’t operate. If we reach that point anywhere, we’ll exit that market. We’re quite rigorous about margins. But we’ve not reached that point in Africa yet. " The cost and availability of satellite is also affected by regulatory issues. Most notably South Africa has not licensed VSAT. Also the cost of buying VSAT licences remains absurdly high in some countries.
As one satellite operator told us: "In Africa, the first question is always price. Everyone using satellite is very price sensitive but this is a very short-sighted view. You get what you pay for. "
Those able to charge more than the "raw" bandwidth price by offering service back-up and through setting up inter-country networks. For example, Q-Kon’s Dawie De Wet sees himself as "the IP infrastructure solutions supplier. " Others also in this market include: IP-Planet, Gillat, Afsat and the newly arrived IP Direct (see Internet News below).
The point has already arrived where resellers are offering both satellite and fibre to clients on the basis of price and appropriateness. Satellite and fibre will happily co-exist in a growing market but fibre has yet to make its full competitive impact on the market.