In a region that continues to see unprecedented changes brought on by wars and political upheaval, SatellitePro ME asks three MENA-based satellite solutions providers who have weathered and thrived through the turmoil to offer their views on the roller-coaster ride over the past decade and on the years to come.
“Satellite solutions providers that persist with the old culture believe that they will make money only on the space segment. Two years ago, it was close to 100% of revenues for most solutions providers. My aim is to make the space segment 40% of our revenues”- Riyadh Al Adely, Managing Director, SkyStream
With newspaper headlines barely keeping pace with changing political landscapes in the region, it is just as well that the MENA-based satellite service providers are in a business that allows them to shift from operations in Morocco to Afghanistan with the proverbial click of a button. Libya is today’s Iraq and Afghanistan, and there is talk of Syria becoming the next Libya – all in terms of opportunity for the satellite industry.
But underlying this heady talk, there is what one solutions provider described as the industry breaking out into a rash of “ridiculous prices”.
TDMA links are being reportedly sold for as low as USD 100 dollars per Mgz and whereas an SCPC link was being sold for as high as USD 5,000 dollars per Mgz five years ago, the market buzz is that prices being currently quoted are below USD 2,500 per Mgz.
Asked about the drop in prices, Riyadh Al Adely, Managing Director of SkyStream, a Dubai-based satellite solutions provider, says, “There is definitely an uncertainty in the market caused by supply and demand forces. At the VSAT 2012 conference, I had mentioned that while everyone is talking about new products and new verticals and expecting a huge demand, in reality, we are all targeting the same ‘pie’. This approach will definitely impact price because the only way to get clients, other than offering coverage, is price.”
Price drop: The short and mid-term views
Post the onset of recession in 2008, when the satellite industry was still reporting an average year-on-year growth of 14.2%, there was a fear that if the recession lasted long enough, there would arise a situation of excess capacity with dropping prices.
“I don’t want any of my customers or any of my product lines to be more than 10% of my income. In this market, you could end up selling only hubs for one year and so on. However, if that one sector slows down, companies have been known to go bankrupt”- Mazen Nassar, CEO, Mena Nets FZE
With a ringside view of the MENA market as it unfolds, Al Adely, takes a short and mid-term view of the impact of price fluctuations.
“In the short term, everyone will be affected. I know of one company that has sold more Mghz than last year but their revenue has not increased proportionately. However in the long term, the industry will emerge stronger. In the past, because of the high cost for satellite capacity, we were limited to certain geographic and market segments and products. The UAE, for instance was considered out of bounds because of the presence of terrestrial options. When prices go down, new regions and products open up, when, I believe, profit will be generated not on the space segment but on the value-added services such as design, technology, consultancy, training and maintenance.”
This price-driven expansion of the market base will come about in the next couple of years, Al Adely believes.
Libya – the new frontier?
“Ridiculous” prices notwithstanding, the opportunity that Libya currently presents is undeniable. In a decade that has seen business move dramatically between Afghanistan, Iraq and now Libya, coping with turbulence is de rigueur for MENA-based satellite providers.
“Libya is doing very well especially with Ka-band terminals. I am currently selling in the hundreds for broadband needs. Once the controls imposed by dictators are removed, there usually is an upsurge for information and that drives the demand for connectivity and all this is facilitated by the quick response satellite providers can typically offer. We expect Syria to be similar when the crisis is over,” says Mazen Nassar, CEO, Mena Nets FZE, a Dubai-based systems integrator and distributor.
“Our clients are not concerned as to how the 99.97% availability will be met as long as it is met. It is up to us to stay ahead technically to ensure that we sustain our position in the market” – Hisham A. Ansari, Managing Director, HorizonSat
While SkyStream’s Al Adely concurs on the opportunities burgeoning in Libya, he plans to visit the country, get “dust on his shoes” and gauge the ground situation for himself.
Regulations: A double-edged sword
Like the others, for Hisham A. Ansari, Managing Director of HorizonSat, a satellite services provider, Libya was always part of the coverage. Only now, matters have changed dramatically on the ground.
“In Libya, we had a customer base before the fall of the regime and even through the turmoil, we supported some of the ISPs that were providing links to critical sites. The business is recovering slowly, and there is substantial demand, but general order in the country is not fully restored. While we have captured a portion of the business, we understand that a good portion is yet to be captured once the political situation becomes more stable.”
However regulations, SkyStream’s Al Adely believes is not always good news across the MENA region.
“In this part of the world, governments continue to believe in monopolies. Bahrain is an exception and one of the few countries that has liberated its market. At the end of the day, companies such as SkyStream are local entities and we are adding value, however small, to the local economies.
“Moreover, technology undermines monopolies and regulators need to accept this fact sooner rather than later and encourage the growth of indigenous companies that can hold their own in the face of international competition. The current issues with VOIP are evidence that monopolies are short-sighted in approach.
“The onset of regulations typically brings in monopolistic tendencies on the part of governments and that leaves service providers with huge satellite capacity and no takers. This has happened in Africa leaving many providers indebted”
“In countries such as Libya, where regulations are not clear, I can operate aggressively but we have to be careful not to shoot ourselves in the foot. The onset of regulations typically brings in monopolistic tendencies on the part of governments and that leaves service providers with huge satellite capacity and no takers. This has happened in Africa leaving many providers indebted.
“The private sector needs to be treated as an ally. Historically, regulators do not follow the best practices which would involve a professional body managing spectrum and looking at the sector holistically from the commercial, economic and social points of view.”
‘Can do’ in the face of uncertainty
In this uncertain scenario, it is difficult to make accurate forecasts unlike in markets such as Europe where insiders say, 90% of the business can be forecast. Muddying the situation for local solutions providers is the word ‘embargo’. To ensure that military-grade satcom products are not shipped to Iran, solutions providers and other satcom dealers should expect a visit from the US consulate that would, as witnessed by this writer, involve extensive questioning and visits to warehouses, if any.
Happily, it is all in a day’s work for providers who have over the years seen the ‘embargo’ shift across countries in the region. As a response to the uncertainty, there is an undeniable ‘can do’ attitude among solutions providers.
Hisham Ansari of HorizonSat recalls an instance when, in response to a sudden demand for almost 110 megabits of Internet connectivity, his team was able to provide service via satellite within a span of three hours.
In an uncertain market, providers are willing to unilaterally pass on the benefits of lower prices to customers to ensure that they do not consider other options. A client in hand is obviously worth his weight in gold for the satellite service provider.
When a local broadcaster and an erstwhile customer approached Mazen of Mena Nets for the installation of a 4.5-metre antenna, the project had to be executed despite pricing and logistical odds.
“Between the time the project was signed and the antenna manufactured and delivered, police regulations with regard to cranes had changed bringing in the added, unanticipated cost of USD 6,000. With an ingenious system of pulleys, trolleys and half a dozen Afghan workers, our team managed to get the antenna and pedestal onto the terrace. From the initial purchase order and the time it took to manufacture the antenna, to getting the client to renew their import code and finally changing the feedhorn from circular to linear, it has taken a year. Though the project has barely covered cost, it was important to service an existing client.”
Diversifying to stay afloat
As a certified GVF trainer, Mazen Nassar is often called upon by satellite operators to validate installations. While the satellite industry veteran concedes that it is a privileged position to be in, he reiterates a common mantra among solutions providers in the region about not putting all of one’s eggs in one basket.
“ I don’t want any of my customers or any of my product lines to be more than 10% of my income. In this market, you could end up doing broadcast for a whole year or sell only hubs for one year and so on. However, if that one sector slows down, companies have been known to go bankrupt.”
Without sugar-coating the painful learning curves in the tumultuous decade that saw satcom go from boom to almost bust in the region, Riyadh Al Adely recalls : “About 10 years ago, all of us reacted to the huge demand from Iraq and Afghanistan and we started supplying to the US military and contractors. It was undoubtedly a boom time for us given our strategic presence in the region. However the situation soon stabilised and rapid roll-out was not required anymore. Budgetary restrictions came in when the realisation dawned that the war will take longer than expected and will be more expensive than anticipated.
As the competition started to become very cut-throat, most of us started focusing on retail. We became resellers for companies setting up hubs in Afghanistan and in Iraq.
“I then realised, around 2008, that we were creating competitors. SkyStream decided to shift course and work on verticals. However while we did offer capacity to verticals, the service was centered around the satellite space segment with little by way of value added services.
“In 2010, the team realised that we needed to differentiate ourselves and we identified three verticals – maritime, military and oil and gas. With maritime, we have focused on the leisure yachts, with military, our focus has been the UAE, Iraq, Qatar and Yemen. And lastly with oil and gas, our focus is mainly on Iraq and Yemen.“
The focus on verticals has worked, says Al Adely. He is slated to open two offices in Basra and an office in Baghdad to cater to the oil and gas sector. In addition, the company has bagged contracts with one of the largest mega yachts in the world that prompted Al Adely to invest in premium Ku-band capacity on Intelsat for the maritime sector.
With a teleport in Germany scheduled to open in the third quarter of 2013, HorizonSat is most definitely on the path to expansion. The company initially provided data communication over satellite and with the setting up of the teleport, the Dubai-based satellite service provider plans to diversify into the broadcast vertical.
“In Saudi Arabia, for instance, you cannot run a satellite link unless the gateway is located in Saudi Arabia and the current architecture of Ka-band satellites does not always support this. Perhaps future Ka-band satellites will address this issue”
“Broadcasting brings in long-term stable customers. As a service provider, we have always believed in catering to a diversified range of customers from ISPs to government entities including oil and gas verticals” says Ansari.
“As a satellite capacity and service provider, you have a wide market to cater to and you can shift from region to region within the satellite coverage. You need to have good partners in each country and carefully chose them as they make a substantial contribution to the stability of service in terms of troubleshooting and maintaining installations. The ability to be at the forefront of new satellite technologies in order to optimise link budgets and performance is a vital ingredient in sustaining one’s niche as a satellite capacity and service provider,” asserts Ansari.
He adds, “We believe Horizonsat is the largest hub operators using iDirect broadband technology in the region. In 2005, we were one of the first few companies to run higher modulation services like DVB-S2 when it was launched.”
HTS, Ka, O3b: Looking ahead
Commenting on the year ahead and future trends, Hisham Ansari, believes Ka-band has its advantages but will face regulatory challenges over the MENA region due to the spot beams design.
“In Saudi Arabia, for instance, you cannot run a satellite link unless the gateway is located in Saudi Arabia and the current architecture of Ka-band satellites does not always support this. Perhaps future Ka-band satellites will address this issue.”
Bucking the popular view, Mazen believes consumer broadband in Afghanistan will slow down drastically after the Americans pull out. “The big concern is when the Americans pull out, there could be turmoil and the money would resultantly dry up. If a war breaks out, it may bring in a different kind of market for the satcom industry, but we could be entering a difficult market situation.”
From O3b to Yahsat, Eshailsat and Intelsat’s EPIC, Mazen covers his bases by saying “we will sell everything”.
He adds that more Ka-band additions to the geostationary belt are planned from Es’ShailSat, TurkSat and others. This is in addition to the existing Ka platforms provided on YahSat, Avanti’s Hylas I,II and EutelSat’s KaSat. In addition, there is the EPIC platform from Intelsat, the expected launch of O3b and other technological developments. Mazen believes that these offerings coupled with a growing demand for mobile communications and smaller, more powerful terminals will be the future growth trend.
“At Mena Nets. we plan to exhibit the ThinKom flat panel antenna at CABSAT. This, we believe will provide a smaller, lighter and less costly mobile terminal that can replace the traditional fly away and man-pack antenna. I also expect increasing sales of satcom-on-the-move antennas such as the ThinSat 300 that mounts discreetly on the roof top of a compact vehicle.”
“Once lower prices become the norm, the military will have more satcom-based applications. Governments will implement long-term remote education projects when they realise that satellite capacity and running costs are affordable. The same with telemedicine and SCADA applications”
Commenting on the merits of the O3b system, he observes: “O3b is betting on high power, but hardware wise they will need two motorised antennas and they will in theory have downtime because of the way the two dishes will rotate to receive the satellite. Moreover the satellite is not geostationery and there will be blind spots. The installation, I believe, will be expensive and complicated. While EPIC is also an amazing idea and the company has the history and money power to ensure success, it is not an industry-wide technology.“
The industry is in flux as the “ridiculous” prices demonstrate, but the message, in Al Adely’s words is still not loud and clear to the potential customers.
“Once lower prices become the norm, the military will have more satcom-based applications. Governments will implement long-term remote education projects when they realise that satellite capacity and running costs are affordable. The same with telemedicine and SCADA applications.
The message is not yet loud enough for the potential customers to consider space segment as viable.
“Satellite solutions providers that persist with the old culture believe that they will make money only on the space segment. Two years ago, it was close to 100% of revenues for most solutions providers. My aim is to make the space segment 40% of our revenues. Just as aggressive price reductions have brought more business into places like India, I believe, it is a matter of time before we expand our markets with revenues coming from value-based services as against just the space segment.”