Northern Sky Research

AID/NGO Market Carving a Niche

May 23rd, 2012 by Jose Del Rosario   More from this Analyst | Profile

The shifting global military agenda and challenging fiscal picture have signaled decreased procurement from many countries for peacekeeping purposes.  However, agencies in the humanitarian assistance sector (the NGO community as well as vendors serving these customers) are seeing increased demand for commercial satcom services in recent years where the impetus to support operational requirements as well as fund poverty alleviation programs could lead to increased spending over the long term.

Humanitarian aid and NGO work is largely tied to disaster assistance where thousands of links are installed within days or weeks by agencies such as TSF to restore critical communications capabilities.  Once terrestrial networks are restored, satcoms are usually removed and replaced by terrestrial wireless and wireline solutions.

What is little known in the industry is the growing number of permanent or long-term satcom networks used by the AID community for operational requirements as well as poverty alleviation projects. Humanitarian aid is by no means a large component of satcom demand and will likely remain a niche within the government/military market, but opportunities do exist. NSR estimates there are currently close to 14,000 global in-service units supporting long-term use by the AID/NGO community with a mix of platforms that include VSATs, COTP, COTM and handheld satellite terminals.  In the overall gov/mil sector, humanitarian aid satcom units represent about 2.3% of the entire market. Based on historical and current trends, by 2020, the number could increase to about 25,000 units for a lackluster CAGR level of about 7%. 

The market is certainly small and growing at single-digit levels, and many large players have bypassed this market in favor of larger, more lucrative civil opportunities such as digital divide initiatives. However, there is tremendous pent-up demand as many (if not most) AID agencies and NGOs operate in far-flung and remote locations. 

So why such low take-up rates? Cost is the single-most important consideration for the AID/NGO community. Take World Vision, which has about 600 VSAT sites installed. A large part (or approximately 500 sites) are on its “internal network,” meaning the NGO procured ground equipment and bandwidth, then manages the network itself instead of outsourcing to a third party. The remaining 100 sites are outsourced, but this is from the original sites installed that were contracted to a service provider. Once contracts for the 100 expire, these will likely move to terrestrial service providers or move to the “internal network.”  Other NGOs have followed similar implementations for cost considerations.

So how would a service provider address the pent-up demand and cost elements of the AID/NGO community? Requirements are tied to budgets such that application requirements are largely for basic corporate communications services, including voice, email and Internet access.  This means that ARPU levels have to be maintained to retain long term telecom costs. However, the business case for maintaining steady ARPU levels in a small market niche may not be too enticing for vendors that will likely push higher-end or premium services in order to raise ARPU levels, which lead to revenue growth.  Herein lies the basic dilemma of the AID/NGO market where tight budgets mean lower ARPU levels while vendors push for premium services such as videoconferencing and video streaming to raise ARPU rates.  In a way, vendors and clients are not in sync, which has largely led to an under-tapped market potential.

Bottom Line

The realization of opportunities in the AID/NGO sector can only be accomplished with a game-changing solution that both addresses the tight budget aspect of AID agencies and NGOs while pushing premium services to these clients.  Lower cost per bit via an HTS platform, for instance, can address the cost requirement while at the same time provisioning premium services that do raise ARPU levels but only at incremental levels.  Equipment costs have to be part of the equation as well where CAPEX and OPEX fit within the client’s budget.

Current solutions are likely to lead to steady growth, while a game-changing solution can lead to higher penetration. Sustained cost structures with minimal increases in ARPU via the addition of premium services should lead to volume sales and enlargement of networks.  This, in NSR’s view, is the only way increases in spending and outsourcing to third parties can be justified by the AID/NGO community, and thus increase the revenue and market potential.