Why African operators battle for control of regional satcom market

In spite of Africa’s GDP per capital (USD 2,532), the region still counts as many as 22 satellite operators. By comparison, five to six satellite operators in Europe and the US represent 80 per cent of the capacity supplied over the respective region; twelve operators operate 80 per cent of the capacity over Africa.

One of big Africa’s players, StarTimes Communication Network Technology, recently signed a 10-year contract on SES’ SES 5 satellite at 5 degrees east to expand its media footprint in Africa and deliver direct-to-home (DTH) broadcast services across the continent.

StarTimes, which is the fastest-growing digital TV operator Africa and currently has over 2.6 million digital terrestrial television (DTT) subscribers, also acquired SES’s 20% shareholding in South African pay-TV operator Top TV. The contract will see StarTimes use four transponders from October 2013 and a fifth transponder from February 2014 to grow their DTH subscribers in Africa.

In 1993, M-Net leased a satellite transponder, which gave C-band footprint over sub-Saharan Africa. This was leased from INTELSAT, the global communications satellite network. At that time, the world’s governments, through their Posts and Telecommunications Authorities, controlled INTELSAT. M-Net set up MultiChoice to be a satellite platform for delivery of television services throughout Africa. Over  30 years later, the lease of Intelsat transponders continues.

Despite the reliance of African DTH businesses on international satellite operator’, eighteen regional operators have been formed in Africa, a majority of which primarily to target their national territory thereby benefiting from favourable regulatory conditions.

However, stiff market conditions combined with a highly fragmented market have resulted in the poorest fill ratio in the world with an average 53 per cent, below Middle East and Latin America. This over supply situation is furthermore unlikely to be solved in the short term as all existing fleets are planned to be maintained or even expanded, and as new projects are still planned. For instance, the Nigerian Communications Satellite Limited currently has plans to launch NigComSat 2 and 3 Satellites respectively.

A survey to evaluate the minimum transponder prices that the various types of operators can offer without putting their business at risk, ie assuming an EBIT margin close to zero indicates 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.

With this, 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 improved their fill ratios.

While national flagship operators have been somewhat preserved on their domestic markets benefiting from a unique market access with high entry barrier for foreigners, the other regional operators can only struggle to contain serious price erosion while keeping financial sustainable.

Consolidation is thus bound to occur. 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. Finally, 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 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.

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.

In the African market, the current situation forces a consolidation process, the sooner the better. African 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.

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