Network Middle East electronic edition 21st March, 2005

The VSAT business is growing rapidly in the Middle East, with numerous new players entering the market. However, It doesn’t take a genius to work out that what goes up must come down and for the VSAT business, this may happen sooner rather than later.

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By  Simon Duddy Published  March 20, 2005

VSAT business boom|~|sat-pic-2_m.jpg|~||~|The VSAT business is growing rapidly in the Middle East, with numerous new players entering the market. However, It doesn’t take a genius to work out that what goes up must come down and for the VSAT business, this may happen sooner rather than later. The Middle East has traditionally been a steady market for VSAT, with many parts of the region sparsely populated and with the economic opportunities brought by oil exploration and extraction. However, in recent years, the business has boomed considerably and this growth has been fueled by several key factors. The American-led war in Iraq is the most important of these factors. The invasion pounded Iraq’s already puny communications infrastructure to a stage where there was hardly a fibre cable left un-shredded or a mobile phone transmitter left standing. In the chaos that followed the official ending of hostilities with the overthrow of the Hussein regime, precious little has been done to re-build Iraq’s communications. This has led to a massive reliance on VSAT to oil the machinery of government and also provide links for entrepreneurs to communicate with the outside world as they begin the long task of re-building the country’s shattered economy. Across the border in Iran, there are also opportunities for VSAT players. The burgeoning IT-based economy in Iran, which is hampered by poor communications infrastructure, increasingly sees VSAT solutions as a cost effective answer. Along with improving market opportunities, VSAT-related vendors have never had it better on the supply end, as the prices for satellite equipment has sharply decreased in recent years. This allows players to make more confident expansion plans, as well as pass cost savings on to grateful customers, encouraging further use. There has also been an increasing tendency to concentrate hubs in the Middle East to serve the regional market. This has come as users have expressed dissatisfaction with European-based services. As the Middle East is a price sensitive market, European hubs have tended to over-subscribe when serving the region, in order to make healthy margins. This has led to users in the Middle East complaining about lack of bandwidth and has prompted companies like AIC, Streamlink and SatPath to set up VSAT hubs in the GCC. But, despite these rosy prospects, can the VSAT boom last? Many are arguing that the presence of the US military is distorting the picture. A large chunk of VSAT vendors’ business is catering to homesick American soldiers based in Iraq, Afghanistan and elsewhere in the region as they communicate with loved ones back in the States. The argument goes that once the troops go home in large numbers, the bottom will fall out of the market. By the time this happens, VSAT players could be getting hit by a double whammy, as the authorities in Iraq and Iran are not likely to lag behind forever in terms of traditional fixed infrastructure. It is certain to be a priority for both nations to build sophisticated and diverse communications as quickly as possible. When this happens, VSAT will not be able to compete with the traditional methods of communications in most circumstances and will once more slip back to a peripheral role. This means that while short term prospects are great for VSAT players in the region, only the biggest and most successful companies are likely to stay in the race in the long term. While pricing will be important, reliability will prove to be a key differentiator, especially when aiming for the enterprise market. Those companies that can build up the strongest brand in terms of reliability in equipment and service are likely to be the most successful in the long run.||**||

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