Operator Series: Arsat growth plan covers fiber, satellite and datacenter

Thursday, December 7, 2017

When Argentine President Mauricio Macri came to power in 2015, he was quick to modify laws from the 12-year Néstor Kirchner-Cristina Fernández Kirchner administration that had tied the hands of telcos in terms of the kinds of services they could offer.

However, one thing he left intact was state backbone network operator Arsat, which at that point represented an investment of US$800mn in two satellites, and at least US$246mn in the federal fiber network (Refefo).

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Macri himself pledged further investment of some US$236mn to expand Refefo and recently reactivated plans to add a third satellite to Arsat's roster.

However, in July 2017 the Macri administration passed Decree 513/2017, which modified the nation's "ministries law," and among the clauses pertaining to the modernization ministry was a line to the effect that this ministry would "administrate the state's participation in Arsat." This gave rise to fears that Macri would bring foreign capital into Arsat, although one local lawyer quickly pointed out that Arsat's statutes only allow such changes if backed by a majority vote in congress.

Whatever the political wranglings, the fact is that Arsat remains dedicated to expansion and bringing services to previously neglected areas of the country. 

In August of this year, Arsat announced landfall of its fiber backbone on the coast of Tierra del Fuego, but gave no timeline for connecting the final stage to provincial capital Ushuaia.

Arsat vice president Henoch Aguiar now confirms that Tierra del Fuego provincial government has issued bidding rules for contracts to connect Ushuaia to the coast, and is in talks with several suppliers, most likely awarding different sub-sections to different firms.

As a result, Arsat expects to inaugurate the 370km terrestrial section of the cable within roughly 15 months, Aguiar told BNamericas.

The new section will complement the 23,734km of illuminated fiber that makes up Refefo today, and will work entirely in concert with the core sections that have been installed directly by Arsat, he said.

On paper, Arsat currently has access to 35,000km of fiber infrastructure, including 33,000km of buried fiber deployed by the operator along major highways during 2013-15, and at least 2,000km strung along high-tension overhead cables owned mostly by distributor Transener.

However, Arsat aims to secure agreements with other grid operators and provincial network owners, so the total on paper is subject to evolution, Aguiar said.

The active sections of the backbone serve 366 localities today, out of 1,300 localities that are to be connected by year-end 2019. Arsat has said previously that it expected to serve 500 municipalities by end-2017, rising to 750 during 1Q18.

On the whole, the sections that are active today have a capacity of 120Gbps or more, and Aguiar expects Arsat's future investments to fall comfortably within the industry standard of using technology upgrades to double capacity at least every three years.

Also designed with growth in mind is Arsat's 4,200m2, Tier III datacenter, built alongside its Network Operations Center (NOC) and satellite ground station at Benavidez in Buenos Aires province.

Arsat now leases roughly 45% of the datacenter's capacity to private clients, up from 5% in March 2013, when the center became operational, Aguiar said, adding that there is scope for growth both for Arsat and for its private clients.


Aguiar estimates that there are probably 700,000 homes in rural Argentina that are out of range of microwave backbone links, to say nothing of the fiber infrastructure.

"There are many areas where the only option is 2G mobile, and some with no mobile service at all," the executive said.

The operator is therefore keen to invest in a third satellite that will use Ka-band, which can provide internet service with download rates of up to 25Mbps. This is an exciting development from Aguiar's perspective, considering that most DSL connections in Argentina give homeowners only 10-15Mbps. "Maybe in three years we'll start seeing 4G going into these places, at least in those localities with more than 500 inhabitants," he concludes.

Arsat CEO Rodrigo de Loredo recently confirmed that state technology research body Invap, which designed Arsat's two previous satellites, has settled on a design using two spot beams to give full coverage of Argentina, abandoning a previous plan to provide coverage for all of South America. However, he thinks this model will only be able to serve some 300,000 homes.

Arsat's two existing satellites use Ku-band and C-band, which lend themselves more to TV broadcasting than to internet connectivity, and Arsat-1's coverage extends to Canada, while Arsat-2 covers only national territory and immediate neighbors.

De Loredo expects Arsat-3 to require an investment of up to US$250mn, and the firm is currently seeking a partner to put up US$100mn of that. One possibility is a joint venture with Hughes, setting up a company that would be known as Newco, in which Hughes would have a 51% stake.

This rekindled the accusations of privatization, but De Loredo recently stressed that the deal refers only to this one satellite and the Argentine state would retain all rights to the orbit slot in question. Furthermore, Invap would remain in charge of the design and manufacturing of the unit.

Arsat believes it can finance the remaining US$150mn itself, since it has been registering positive operating income since 2016 and expects to end 2017 with Ebitda of 180mn pesos (US$10.45mn). This, as a result of leasing 90% of Arsat-2's capacity in 2016 and now deriving 60% of Refefo's revenue from the private sector.