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A possible future for VSAT Services in Africa - given the experience of a domestic VSAT operator

By Heinrich Nothnagel, Afsat Communications Limited

During the early 1990s a company, Wilken Group, which had a presence in the East African market (Kenya, Uganda and Tanzania), realized that deregulation of the telecommunications sector (in these countries) was about to take place.
Primarily as a result of:

  • The available telecommunications infrastructure in this region during that time,
  • The cost of developing new terrestrial infrastructure projects and
  • The uncertainty of future returns (given the state of the East African economies at that time).
Wilken Group pursued the award of a license to provide telecommunications (voice and data) services via VSAT Satellite Communications (VSAT) technologies. It also established a new company, Afsat Communications Limited (Afsat), to become a service provider to operate under these licenses.

Afsat was awarded its first license in 1995 in Uganda and the second in 1997 in Tanzania. (Afsat still doesn’t have a license in Kenya and continues to pursue this). The licenses awarded allowed Afsat to provide data (public) and voice (private only) services. The licenses were awarded in a telecommunications environment where there was the public network operator (PTT), one other VSAT operator in Uganda and two other (than Afsat) VSAT operators in Tanzania. Today 8 and 6 years later, respectively, the telecommunications environment has changed significantly:

  • The economies of Tanzania and Uganda improved.
  • Uganda got a second network operator and the PTT was partly privatized.
  • Tanzania since licensed a further 3-5 Data Communications operators (as well as allowing companies to operate VSATs under private licenses) and a number of mobile phone operators (5 including the PTT) started operations in the country. The PTT was also partly privatized.
Afsat’s approach to the use of its licenses was: To be a focused VSAT operator, to operate as a domestic and regional (East Africa-only) operator and to provide the best possible VSAT services to local companies only. By 1999 Afsat realized:
  • That with its approach it cannot achieve the economies of scale (being a domestic/small regional operator) to reduce the cost of its services to a level where a potentially bigger market can be created and it can achieve the returns that its shareholders were looking for.
  • Regulators’ were becoming increasingly frustrated with Afsat’s inability to bring connectivity to the rural areas (of Tanzania and Uganda) at an affordable price.
  • Due to the low level of computerization in the rural areas of these countries, Afsat would find it difficult for some time to sell services in the rural areas unless it could also identify and sell Africa’s “killer” application Voice services.
Based on this, Afsat embarked on a project that would fully address the first two of these “realizations” and partly address the third “realization”. It decided to launch a project that would make access to data services affordable to the Sub Saharan Africa market, independent of location and available infrastructure. The focus of this new product (branded iWay) is affordability and accessibility. This product’s availability in Sub Saharan Africa was enabled by:
  • The bold step by Panamsat http://www.panamsat.com/ to provide a Sub Saharan Ku-band beam, despite all the misgivings about Ku-band satellite capacity over Africa and
  • Hughes Network Systems’ http://www.hns.com/ successful development, while maintaining a “healthy” Balance Sheet, of the DirecWay product range (which made small low-cost VSATs a reality).
iWay addressed Afsat’s three “realizations” as follows:
  • The product is available in Sub Saharan Africa (with the possibility of expansion to the rest of Africa), i.e. addressing a far bigger market than just East Africa. Afsat (based on its own experience, fully realizing the importance of local support for VSAT networks) has spent considerable resources to establish a distributor network for iWay in Sub Saharan African countries. Distributors were selected based on their ability to provide the service within the specific regulatory framework of these countries and their ability to provide sufficient support for the service in these countries.
  • The VSAT that is required to access the service has a relatively small antenna, can be powered by solar energy, is relatively affordable and easy to install and maintain, making it possible for a small number of users (or even just an individual) to secure a solution for data (or Internet) connectivity at a price far below what is required for a solution that offers services to many potential users.
  • As iWay is available in Sub Saharan Africa, it is possible for Afsat to provide access to Voice services in countries/areas where the regulatory framework allows for such services to be provided.
Services like iWay offer significant benefits to Africa:
  • The barrier-to-entry to have access to voice and data services (caused by the cost of equipment) is significantly reduced, and no longer a function of a large number of users (to share the cost) at a specific location,
  • Access to telecommunications services is independent of location, number of potential users or available infrastructure in Africa.
However, with these benefits also come responsibilities:
  • It strengthens the perception that Africa pays too much, in comparison to countries in North America and Europe, per bps of data (or Internet) access services and that services like iWay “eventually” solved this “problem”. The providers of these services have the responsibility to “educate” potential users of these services on why Africa is paying more per bps (of data service/Internet access) than what is paid in North America and Europe and that for some time to come Africa will not have the same low cost access to services as in North America and Europe (amongst other because of the lack of economies of scale and some of the reasons listed further down).
  • Very little is known about the traffic profile of the users of the Internet and data services in Africa. Service providers will have to learn quickly and adapt their services to these specific profiles in order to ensure that acceptable service levels can be provided (to capture the market for VSAT services) in an environment where satellite bandwidth is still a relatively expensive commodity.
  • The availability of Voice services (at relatively low cost) will concern some Regulators as this might erode the income (from voice services) of licensed operators. However in many (probably most) cases these VSATs will be installed in locations far from existing infrastructure (where the existing voice service providers will most probably find it difficult to justify the cost of extending the infrastructure to support such a service, due to the number of users being in that location). The availability of iWay (or similar projects) can therefore offer voice (and data) services where it would otherwise have taken very long to implement such service (or may never have been implemented) because of prohibitive costs.

In summary then what does the Afsat experience show about the VSAT regulatory and business environment in Africa:

  • Given the state of terrestrial infrastructure and regulatory environment, VSAT is still the best (and in many cases the only) solution to telecommunications requirements in Africa as:
    • A VSAT can be deployed in less than one day (whereas building/preparing a site for conducting business can take weeks) leading to reduced cost of establishing telecommunications services.
    • In working with operators like Afsat, who have an existing distributor network with Distributors that have regulatory approval and proven capability to operate, install and maintain services in many African countries, negotiations, to provide services in Sub Saharan Africa, can be conducted with a single entity.
    • Connectivity is simple as there are few parties/technologies involved, leading to uniformity (and therefore reduced support resources requirements) of connectivity solutions.
  • Even though there has been a significant reduction in the cost of VSAT equipment over the last few years, the cost per VSAT for a relatively small network operating from a central Hub is still high due to the high software license fees charged by the equipment suppliers. (Example: The cost of the license fee for a Hub to operate a 1000 site network in the North America/Europe is the same as for a Hub that would support 20-100 sites in Africa). This makes it very difficult to offer cost-effective solutions for domestic VSAT networks in Africa (for which it must be admitted there is a relatively small demand). It is however expected that this will change (as suppliers remains under pressure to come up with innovative ways of pricing their products while maintaining reasonable margins) and that it will become possible to offer small domestic solutions that are comparable/competitive (in terms of cost) with larger solutions.
  • The reduction in the cost of VSAT equipment (and services) is a great advantage to potential users of these services and should lead to more VSAT services being deployed. It is however questionable if the number of VSATs will grow to the extent that it will justify (through economies of scale) the existence of licensed domestic/small regional VSAT operators. An approach that might be considered, to achieve economies of scale, and in so doing reduce the cost to the end-user, increasing the use of VSAT services (while maintaining local support services), is Africa-wide “blanket licensing” (to a limited number of VSAT operators) and the replacement of local/domestic licensing with a lower cost installation/support license fee.
  • The trend of reducing costs for VSAT services, in Africa, will continue as:
    • The cost of equipment reduces.
    • Competition amongst satellite bandwidth providers, for market share, continues.
    • Pressure on domestic/small regional VSAT service providers to reduce costs of local services (in-line with reduced equipment and satellite bandwidth costs) by becoming more efficient and/or diversifying their business to spread overheads over a larger volume of business.
    • Regulators will be forced to reduce license fees or change the regulatory environment to make access to services more affordable and accessible.

For more information, please contact:
Heinrich Nothnagel: hnothnagel@afsat.com

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