Investors in Gulf must eye space infrastructure next - Emirates24|7

Investors in Gulf must eye space infrastructure next

People in the Gulf love their mobile phones, which can be frustrating when they interrupt a business meeting to argue with their wives or children.

This taste for mobile communications has turned many of the region's telecom providers into corporate heavyweights. Etisalat, Orascom, Zain, QTel and Saudi Telecom are all positioning themselves as potential global leaders in this market due to rapid growth and heavy usage in their domestic markets.

This trend seems set to continue as mobile devices will become more capable and offer more services in the future. Mobile internet will soon be standard and streamed video and television will also become the norm. The amount of data that is sent across the airwaves will increase dramatically and this will drive telecom earnings, despite intense competition from international and regional rivals.

But there is a limit to how fast the telecommunications industry can grow and it is dictated by the infrastructure needed to support the mobile network. Everyone will have experienced the frustration of dropped calls or the inability to get a signal in a crowded area and telecom providers are being forced to invest in extra capacity.

This includes more relay stations to improve local connectivity and access to satellite capacity.

Satellites are vital to mobile communications because they are used to transfer calls over longer distances. Satellite sales collapsed after the dotcom bubble burst in 2000, but have picked up again recently because of an increase in mobile demand from fast-growing regions such as the Middle East.

ThalesAlenia Space, one of the world's largest satellite makers, estimates that the total satellite market is worth $77 billion (Dh282bn) a year, but only $19bn comes from the commercial market. This is less than the United States military spends on its satellites – apparently we would rather spy on each other than talk to each other, which is probably symptomatic of a wider problem in the world.

Middle Eastern companies have ordered a number of satellites to cope with talkative mobile phone users and I had an opportunity recently to watch a couple of them being built. Yahsat 1A is being assembled in Cannes, France by ThalesAlenia and it will be put into orbit by an Arianne rocket in a couple of years. Another satellite under construction is Arabsat 5A, which will beam satellite television to the Middle East.

If your mental image of a satellite is Sputnik, a small ball with antenna attached, then think again. Modern satellites look more like giant packing crates and cost up to $400 million each.

At four meters long and around five tonnes, Arabsat 5A will be one of the most sophisticated pieces of equipment in the world – and soon to be off-world. Up close these devices look fragile and the thousands of components inside have to be connected by hand.

But these devices are also built to be tough. They must be capable of withstanding the violence of takeoff, which would destroy most machines, and must also be capable of withstanding extremes of devastating heat and cold depending on where the sun is. They also have to be as light as possible as it costs about $20,000 per kilogram to launch a satellite.

At first glance I thought that satellite manufacture could be exactly the sort of high-tech, value-added industry that would be attractive to Gulf countries looking to diversify their economies. Each satellite costs so much that it is easy to assume this industry has a licence to print money.

However, the enormous US market is sewn up by defence contractors such as Boeing, which builds its satellites in Los Angeles at the old Howard Hughes aircraft factory, and Lockheed Martin.

Meanwhile, the European manufacturers are being squeezed by cheap offerings from China and Russia – both of which are desperate to win commercial contracts to keep their space industries alive. The Europeans are struggling and are likely to focus on EU projects with fat budgets rather than ultra-competitive commercial satellites in the future. The real value in satellites is, therefore, not in the manufacture but in the ownership of the devices once they are in space. Satellite capacity is a potential bottleneck for the communications industry so whoever controls these devices is likely to make a great deal of money.

A number of companies in the Gulf have clearly realised this: Yahsat, for example, is a subsidiary of the Mubadala sovereign wealth fund in Abu Dhabi. I expect other Gulf investment houses to realise the potential and make a move to own the infrastructure of space.

-- David Robertson is a business correspondent with The Times of London