Too much capacity?

You will have heard the expression about buses – you wait and wait for one to come along, and then they all arrive at once. Well perhaps this analogy could be used for the situation with satellite capacity over the MENA region. Over the past couple of years the shortage of satellite capacity over Africa and the Middle East has been debated at conference after conference and has been the cause of widespread concern. However, with the launch of Telstar 11N and other operator’s ambitions to ensure they move in on this highly lucrative market, is there a danger of over capacity?

The Middle East and North Africa is the most dynamic region on the planet in terms of satellite-based services and the potential for the use of satellite. And it is not just North Africa where services are in demand; the rest of Africa is also hungry for satellite services. It is a region where operators want to be doing business. Over the past couple of years there has been a well-documented shortage of satellite capacity over Africa, but as operators send up and develop new satellites to satisfy demand and find solutions to the issue of lack of capacity, could there be a potential problem of oversupply in the future?

According to Northern Sky Research, the Sub-Saharan African market could be looking at a case of oversupply in terms of capacity. In their latest Global Assessment of Satellite Demand, they have noted that additional capacity has been relocated to the region on existing satellites and there has been huge investment by operators in new capacity – but perhaps too much. This, in conjunction with the economic downturn the whole world is facing at present, there is a danger that the issue of low capacity will be the least of the industry’s worries. In fact, capacity could be going spare as there is not enough money to pay for it and there is simply a glut that will take time to level out.

However, the pendulum could just as easily swing the other way and this extra capacity that is being generated could be snapped up and used.

According to atrexx, the German-based satellite service provider, there is definite evidence that more capacity is becoming available over the Middle East and African region. This has been confirmed through their global market exchange where capacity and services are traded. Jean-Claude Bisenius, Managing Director of atrexx told Satellite Evolution EMEA: “From the atrexx market exchange which is one of the leading market exchanges for satellite capacity, we get quite a good overview of what is going on in the market. We know the people that request capacity and we know the people that offer capacity. Since the final quarter of 2008, the capacity situation over the Middle East has become more flexible.”

When asked about Africa, Mr. Bisenius commented that there could potentially be problems ahead but that it is difficult to predict what will happen: “With regard to Africa, it is a different story. There was a lack of capacity for years and that was mostly down to the cellular operators who used satellite capacity to backhaul their services. However, from the end of the first quarter of 2009, we have seen new satellites such as Telstar 11N and Eutelsat W2A being launched but with the economic situation as it is, the demand for satellite capacity has not really grown. We are seeing people who have long-term contracts looking to sub-lease their capacity for the rest of their lease time. Now we have these new satellites there is additional capacity on offer. So in Africa, the situation is different due to the economic situation and the new satellites that have recently been launched. Satellite operators are heavily targeting Africa.”

It is difficult to say whether the market will have a case of over capacity or not. It will be a case of wait and see. There is a great deal of new capacity waiting in the wings and only time will tell how factors that will influence the capacity situation will play out such as the economic crisis and whether the satellites are safely launched. It could go either way for the region, or some parts of the region could experience over capacity when others do not. It is something to think about. There can be no doubt that there is great demand across Africa and the Middle East for satellite services and that satellite is a huge asset for this region due to its difficult geographical nature and dispersed population. However, nobody wants to see a repeat of the problems that Asia experienced with over capacity in the 1990s and therefore operators must consider first whether this could be a problem in the future.

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