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Where are ‘local’ operators going?

Special Correspondence

 

Africa’s increasingly tech-savvy population is perhaps the reason her future is so bright and the most significant contributor is the youth. About half of its population are under the age of 35. Its growing economy in terms of GDP per capital, together with its insatiable appetite for content and connectivity has continued to attract many investors and operators. In spite of being one of the lowest GDP per capital (USD 2,000), Africa counts as many as 25 satellite operators. Ironically, about five to six satellite operators in Europe and the US represent 75 per cent of the capacity supplied, while twelve operators operate 80 per cent of the capacity over Africa. The recent entry of the Abu Dhabi based YahSat has increased the number of operators playing on Africa’s hotbed of satellite business.

In Europe, satellite operators such as SES, Eutelsat, New Skies, Inmarsat, Hispasat have over the years successfully penetrated much of African satellite markets providing broadcasting and internet services. More than a year ago, SES announced its plans to launch at least five additional satellites with capacity dedicated to providing services to customers in Africa in the next three years. At the moment, of the SES 50 global satellite fleet, six currently serve the African continent.

So far, four regional operators have been formed in Africa, a majority of which primarily to target their national territory thereby benefiting from favourable regulatory conditions. These regional operators have only one or two satellites in their fleet. In contrast, Intelsat’s African fleet recently grew to 25 satellites, representing a multi-billion dollar investment in the region. “For more than 40 years, Intelsat has forged partnerships with service providers across Africa fostering economic growth throughout the continent”, Says Flavien Bachabi.

Determined not to be left out, other operators are also building alliances with provid­ers aimed at helping their ventures succeed and grow. Like in Asia and Latin America, most of the demand for capacity in Africa is coming from DTH. Some DTH providers, such as MultiChoice the region’s premier pay-TV platform operator and programming distributor, is currently expanding its commitment for capacity on Intelsat 904 for contribution services.

In addition, the promises of WTO of satellite services especially in African markets, and the potential development of broadband services have attracted European satellite operators. However, deregulation and liberalisation in the African market remained the game changer. The European Countries and its Member States have pursued in the WTO and in regional negotiations the liberalisation of satellite-based services of transmission of broadcasting signals of TV and radio programmes. “In addition, the EU requests African countries to commit full market access and national treatment for satellite-based services of transmission of broadcasting of radio and TV programmes”.

Moreover, there is no provision in the EU framework for satellite-based services of transmission of radio and TV programmes that has been challenged under the provisions of articles II, VI, XVI and XVII of the GATS. Thus it has been possible for the EC and its Member States to make market access and national treatment commitments in the WTO on satellite-based services of transmission of radio and TV programmes without putting its regulatory   framework at risk. Africa’s liberalised market conditions have resulted in the high fill ratio with an average 70 per cent. Operators’ fleet expansion plans are unprecedented. Twelve satellites are set for liftoff between mid 2011 and 2014 alone. That’s an aggressive strate­gy that has satellite operators poised to turn the ambitions of Africa’s broadcast and telecom industry into reality.

Satellite operators have thus been facing steady price growth over the pasty three years, remaining at USD 0.8-1.0 million. Average standard prices are around USD 1 million while premium prices can reach up to USD 1.9 million. Low end prices can even be found in the range of USD 0.5-0.8 million.

The road to consolidation

Recent analysis conducted to evaluate the minimum transponder prices that the various types of operators can offer without putting their business at risk have shed light on the position of the industry. It results from this research that the lowest prices that  operators can afford while remaining sustainable reach USD 0.75 million for large satellite operators, USD 1.19 million for small emerging operators and USD 1 million for medium size established operators. Hence, global operators are in a position to enter a price war that no regional or local player is able to sustain. This situation has been further worsened by the surging need of operators owned by private equity forms to rapidly improve their fill ratios.

While national flagship operators have been focused on their domestic markets benefiting from a unhindered market access, the other regional operators can only struggle to contain serious price erosion while keeping financial sustainable.

Analysts have argued that consolidation is thus bound to occur. To this end, it would enable consolidated operators to enlarge their fleet and coverage thereby benefiting from economies of scale. In addition, the combined know how and track record of merged companies could make them look more attractive to customers while optimizing their service offering on a wider customer base. According to a satellite commentator, consolidation could allow operators to mitigate the risk associated with their operations by giving them the benefit of satellite backups, fleet rationalisation and diversification of revenue sources. From a general standpoint, consolidation would lead to wider groups with larger assets, lower risks and superior access to corporate and project financing.

The fate of National operators

The so-called “Nationals” are flagship operators that have typically been set up as national standard bearers with the mission to serve their country’s interest and needs in space telecom infrastructure. On the other hand, their capital structure remains largely under government control, thereby preventing potential predators to contemplate acquisition. On the other hand, their political constraint and, in most cases, their limited financial strengths bar them from looking for a global presence through internal or external growth. These operators would thus be natural candidates for consolidation, should they be allowed to, which remains unlikely in most countries.

According to a satellite commentator, operators’ financial health, their ability to build up a strong business case and to optimise their assets will determine their ability to become either a predators or an attractive prey. The roles are not that rigidly defined, presumed preys could fight to become predators, while weak predators could be forced to review their ambitions.

However, analysts are of the opinion that, the current situation is gradually forcing a consolidation process. Nonetheless, the sooner the better as national operators still have the opportunity to forge stronger companies able to face global operators’ competition. “This window of opportunity might soon close to leave them with no choice but being absorbed by one of the major global players”, says a satellite market analyst.

 

 

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