Current models do not close the Digital Divide - why not and what is needed?
Collectively, satellite industry engineers have delivered. Innovations in HTS GEOs, LEOs, MEOs, software defined satellites, new antenna technologies and more are all opening up new and promising options to connect unconnected locations in Africa and globally. Low-latency, high speed and cost-competitive services sound like a dream come true and are very much needed to close the Digital Divide in Africa.
Yes, these technology innovations are critical and a precondition to any further discussions around delivering large-scale satellite services in Africa. They are not however the final step on this journey. It is now time for business architects and commercial analysts to define the new models needed to service Africa.
But why do we need new business models?
We need applicable business models that match the specific African landscape; that balance the risk and reward for both Service Providers and Satellite Operators. The business models currently being applied in the industry don’t meet the requirement of delivering large-scale managed satellite services. Merely modifying or adapting these models through discounting etc. will only serve as a short-term fix.
In traditional business models, satellite operators mostly supply bulk capacity to first tier Telco’s, Mobile Network Operators (MNOs), government or other users of large segments of satellite capacity, and mostly as bulk space segments in MHz. This model worked when the Telco’s and MNOs used the capacity to implement internal requirements for cellular backhaul and other applications within their own networks.
In the case of end-to-end managed services, i.e., selling bulk Mbps or even end-to-end managed user services, the Telco’s, MNOs etc. no longer apply the capacity within their own networks as an “internal resource”. In this case the requirement has shifted and now the business case must deal with selling end-to-end managed services to the market as an end-user product. This is a very different scenario, and currently not one that’s feasible.
Why is it not feasible for telco’s?
In short - the business case return doesn’t justify the investments.
First let’s look at the numbers. A typical large-scale managed services project could be 100,000 end-users with an average monthly revenue of $100 and annual revenue of $120M. Considering that Vodacom’s annual turnover in 2021 was $6.5bn, then the potential income from such a satellite services project might be as low as 1.83% of the revenue, which does not make for a very compelling case.
Factor in the niche engineering skills required, the specific marketing messaging, the bespoke customer support, the billing adaptions and all the other unique business requirements applicable to supplying managed satellite services, and it becomes clear that this is not currently a very feasible proposition for Telco’s and MNO’s. It could also explain why no major Telco has yet adopted a leading position in the managed satellite services sector.
This outcome leads the formation of an opinion that large-scale managed satellite service rollouts are “too small for the big ones and too big for the small ones”. In other words, the potential revenue is too low to make it feasible for the first tier Telco’s and MNOs, while the skills, market development, project and delivery capacity requirements exceed the capabilities of regional ISP’s and wireless providers.
In the case of a typical project, our models show that the rollout numbers have to be substantial in order to bring a tangible return to the Telco’s.
Vertical Integration - also not the best option
The next option is for the Satellite Operators to step up, vertically integrate, and take the services directly to market. This is already happening with Yahclick services from Yahsat and the Konnect Africa service from Eutelsat. Starlink has also announced a similar direct-to-market model and others are in the pipeline.
While this vertically “direct” model has a higher likelihood of success, the on-the-ground outcome depends very much on the specifics of the implementation strategy. Different Satellite Operators follow different models in a bid to find solutions for regulatory requirements, in-country end-user terminal stock, implementation costs, key account engagement, in-country business compliance, customer service, etc.
One variation of this model is to implement a “vertical wholesale” option in which case the Satellite Operator provides managed services on a wholesale level to regional operators and services providers who then resell to the end-user. In this scenario, the in-country elements such as regulatory, business compliance, key account engagement, etc. are readily resolved, yet the profitability is a challenge. In this case, business engagement is on a contracted wholesale Mbps rate to the regional service providers who are left to solve the challenges of product marketing campaigns, user terminal equipment funding and creating and maintaining a profitable platform. These factors combine to form a weak proposition and have delayed market rollout success.
Hybrid option
We now propose a new hybrid model between Satellite Operators and local specialised Service Providers which offers an alternative approach to unlocking revenue streams and mitigating risk. 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 capabilities, 100% focus on market development and ownership of the product brand. A collaborative approach also balances revenue and operational 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. That is, a win-win scenario.
In numbers
Graph 1: Project Revenue percentage for different project business models.
Table 1: First Order Project Revenue summary for different project business models.
Noted: This is a simplistic first order model and doesn’t include additional elements such as the cost of unused capacity during the project rollout, the discounts Service Providers must offer the channels, etc. Also, the project income was calculated without including other operational and business delivery expenses.
Conclusions
Recent LEO, MEO and HTS GEO satellite constellation and technology innovations have created new and exciting prospects for providing connectivity to all and addressing the Digital Divide in Africa. It is now time to match the technological innovations with the appropriate business model innovations needed to enable large-scale satellite service deployments.
Neither the current “wholesale-to-Telco’s” or “vertically direct” models represent an optimum solution to really unlock the market potential. It is time to consider new and creative options between the global satellite operators and leading regional niche service providers such as Q-KON Africa. Q-KON’s recent Twoobii-on-Flex project has demonstrated the potential impact and success of business model evolutions, and therefore deserves to be part of the conversation.
