Closing the gaps in current business models
With a predicted 332% increase in satellite launches from 2019 to 2028 (Euroconsult report), we are living in the era of Smart Satellite Services. Despite this profusion, limited information has been made available concerning the business models and go-to-market strategies underpinning this exponential growth. With no single satellite service provider having established dominance in the African market, the question arises as to whether these breakthrough satellite technology achievements are supported by sufficiently robust business models to deliver large-scale service delivery models across the continent.
What are the critical elements that will deliver long-term success for large-scale satellite service delivery in Africa? Why does the African market lack a clear leader from amongst the various satellite-based Telcos and Service Providers?
Digging still deeper, are the investments being made at satellite constellation level enough to force through a successful on-the-ground business delivery?
But the demand is there…
True, but we are not discussing market demand. The digital divide is real, the economic benefits of connecting everyone have been proven, and there is no longer any debate around the benefits of broadband internet connectivity. The issue is more nuanced and complex, and centres on integrated business delivery structured around successful business models and effective service provision.
Remember that satellite technology is a relatively niche and specialised field which has only very recently undergone the necessary technology shifts needed to potentially support widespread adoption. According to Morgan Stanley, satellite broadband has struggled to achieve greater than a 2% market penetration share in the US and a mere 1% globally due to its capacity limitations and high relative cost.
Assured market demand and decreasing costs may not be sufficient to guarantee future business success and mass adoption of LEO, MEO and VHTS services. Experience and a critical review of the current business models can help identify business model issues that are yet to be addressed.
Setting the standard: comparing the mobile and satellite industries
While ongoing cost reductions will open up larger market segments, this is not the only unresolved issue that stands in the way of a watertight business case for large-scale satellite deployment. Considering elements of the business model of the MNO industry in general and specifically the network operators in Africa could yield valuable insights and perspective for the satellite industry – even in the absence of data that proves which elements are responsible for mobile industry success.
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MOBILE INDUSTRY |
SATELLITE INDUSTRY |
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STANDARDISATION |
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Standards-Driven The European Telecommunication Standard Institute (ETSI) was created in 1988 to enable network operators and equipment manufacturers to become involved in the specifications for the Global System for Mobile Communications (GSM). The GSM standard of communication was subsequently defined by ETSI in 1992. This has allowed the mobile industry to develop rapidly through a coordinated and standards-based effort that has consolidated and aligned industry technology development and deployment efforts. |
Lack of Standards McKinsey reports that for the consumer market - the one with ultimately the most potential - to be unlocked, the cost of electronic steerable antennas (ESAs) must fall by at least an order of magnitude. While some companies have recently claimed breakthrough reductions in manufacturing costs, none have yet brought a low-cost design to market; nor have they produced ESAs at scale. With no equipment standards body to coordinate and guide industry-wide efforts, the quest to develop steerable antennas remains fractured. This lack of a consolidated industry approach will not only limit current development efforts but will also constrain attempts to deliver large-scale production, deployment and life-cycle support. |
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INITIAL PRODUCT POSITIONING |
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Business-Focused (B2B) In the early 1990s, mobile phones were expensive and marketing strategies had to carefully nurture early adoption. In the case of MTN and Vodacom in South Africa, these strategies were focused on the mobile phone as status symbol. They targeted the corporate sector and service-focused industries and sought to position mobiles as an alternative to incumbent Telkom landline services. |
Consumer-Focused (B2C) Marketing from Starlink, OneWeb and Kuiper is aimed at the consumer market, yet at the current equipment price point of around USD500 (which is already heavily subsidised) or around R7 250, average South African and African consumers are unable to afford the equipment. When monthly service bundle options (typically around USD100 or around R1 450) are factored in, it is clear that these services are targeted more at the prosumer and business markets rather than general consumers. There is a clear parallel here with the fibre-to-the-home (FTTH) industry. |
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SPECIALIST NETWORK OPERATORS |
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New Mobile Operators Formed In South Africa the mobile industry was developed, and is still largely dominated, by MTN and Vodacom. These organisations date from the dawn of the industry and have always had an exclusive focus on driving the success of the mobile industry. Incumbent fixed-line operators did not get involved in this development and consequently, fixed-line and mobile operators were seen as competing players. |
Room for Key Players to Emerge As a niche technology, satellite services, even with large-scale deployment metrics, offer a limited return on investment (ROI) for first tier Telcos. To put this in context, a satellite service deployment of 10 000 sites at USD100 average revenue per unit (ARPU) would only contribute 0.2% of Vodacom’s current annual revenues. Furthermore, satellite services require a very specific business operation with specialised operational capabilities, niche marketing messaging, and customer-centric delivery. Understandably, this proposition is not especially attractive to current first tier Telcos and they have therefore not adopted leadership positions when it comes to LEO/MEO market development initiatives. |
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COMMITMENT TO INVESTMENT |
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100% Commitment Building and expanding network service coverage required significant investment in local markets, capabilities and assets. To enter new countries and to continue growing, Mobile Network Operators (MNOs) had to be fully committed to the local investments required to achieve regulatory approval, business establishment and infrastructure deployment. A great deal of capital was sunk into towers and network building, which represented a risky (albeit necessary) strategy, as this expenditure cannot be readily recovered or transferred should the business in a particular market not prove successful. |
Minimal Commitment In relation to the very substantial investments being made by LEO operators to realise satellite constellations, ground segment and local terrestrial infrastructure investment is minimal. As these local investments are often structured through third-party relationships, such projects cannot be repositioned should a specific market not materialise. This investment paradigm places satellite operators above the local market with a contingency option that fails to demonstrate the levels of focus and commitment shown by mobile operators. |
Defining a plausible business model
There are lessons to be learned from the growth of the African mobile industry during the 1990s. Considered together with an understanding of current market and technology dynamics, we can discuss the relative merits of three business models from the perspective of a Satellite Operator.
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Channel Model |
Direct-to-Market |
Joint Collaboration |
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This involves satellite operators providing services at wholesale to in-country Telcos and Service Providers for reselling to end-users in the market. Advantages of this classic business model for Satellite Operators include limited business set-up requirements, reduced time to market and access to an established customer footprint. These must be set against the fact that the Satellite Operators do not own the market in question, and that Telcos may lack the focus needed to drive business development efforts based on what to them is a potentially marginal business case. |
Here, Satellite Operators establish operations in each country and sell directly to the end-user. This is the preferred model for some of the new LEO operators and also has been applied to the US market by Starlink and Viasat. In the context of the South African and African markets, a Direct-to-Market model would allow the Satellite Operator to more aggressively drive the marketing channel, brand building and customer acquisition. The greatest limitation is obtaining the regulatory approvals required to operate in each jurisdiction and the requirement to both bill in local currencies and comply with applicable consumer protection legislation laws. |
We now propose a new collaborative model between Satellite Operators and local specialised Service Providers which could offer an alternative approach to unlocking revenue streams and mitigating risk. In this model, a joint venture (JV) agreement would be reached between an established specialised Satellite Service Provider and the Satellite Operator. This represents an attractive “best of both worlds” scenario with long-term advantages to both the Satellite Operator and the specialised Service Provider. It gives the Satellite Operator in-country business and delivery capability, 100% focus on market development and ownership of the product brand. A collaborative approach also balances the revenue and exchange rate risks. At the same time, it provides the specialised Service Provider with a go-to-market model based on a leading global service built at scale and underwritten directly by the Satellite Operator. |
It gives the Satellite Operator in-country business and delivery capability, 100% focus on market development and ownership of the product brand. A collaborative approach also balances the revenue and exchange rate risks. At the same time, it provides the specialised Service Provider with a go-to-market model based on a leading global service built at scale and underwritten directly by the Satellite Operator.
Business models viewed from the perspective of the satellite operator
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Business Establishment |
Business Development, Marketing & Sales |
Operational Delivery |
Nett Revenue |
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Channel Model |
Benefits |
Minimum effort |
Established customer footprint |
General delivery in place |
Secured contracts in USD |
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Limitations |
No ownership of the channel to market |
Possible lack of focus on satellite as niche technology |
Satellite teams required |
Revenue at wholesale rates |
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Direct-to-Market |
Benefits |
Full control over current and future positioning |
100% control over marketing, customer acquisition and sales |
Can leverage global teams |
Revenue at retail rates.
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Limitations
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Onerous regulatory process |
No existing long-term enterprise customer footprint |
No existing in-country capability |
End-user contracts in local currency and not fully enforceable |
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Joint Collaboration |
Benefits |
Minimum effort with full channel ownership. |
100% focussed and dedicated customer acquisition |
Local and global teams in place |
Operator contract in USD |
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Limitations
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Limited niche Service Providers available. |
Limited established product brands available to fit this model. |
Need to scale |
Retail pricing to be adjusted on 6-month cycles for exchange rate. |
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Conclusion
Comparison with the growth of the mobile industry suggests that existing business models are insufficient to support the proposed mass deployment of communications satellite constellations. In order to make this business more attractive to investors by unlocking revenue streams and mitigating risk, a new approach is required. Only through a collaborative business model can the issues that are constraining the growth of the satellite services industry in Africa be addressed. Failure to close these gaps could condemn the proposed constellations to the role of orbiting white elephants.
