Networking Special

VSAT industry stays on the growth path

As newer communication technologies come in, the VSAT industry is fighting them and also coming out with new services that customers can opt for. Joyjit Chatterji writes about the present state of the industry, regulatory issues and where the industry is looking for future growth

The VSAT industry has witnessed significant evolution since its inception in 1994, when the government threw the door open to private operators. In the last nine years, the country has seen over 25,000 VSAT installations, of which 8,000 are captive installations. The industry started operations in the Extended C (Ext-C) band and, with the recent changes in policy by the government, has now also introduced operations in the KU band.

Initially, TDMA VSAT technology was employed by private operators for providing solutions. Soon, market requirements saw the need for DAMA VSATs, which were subsequently introduced. With time, VSAT manufacturers introduced broadband VSAT technology and in the recent past the same was also included in the kitty of solutions offered by VSAT service providers. While the market saw many operators coming in during the earlier stages, the key operators in the country today are HECL, Comsat Max, HCL Comnet, Bharti Broadband and Tata Net.

The existing license fee structure works on the revenue-sharing model (approximately 15 percent of revenues). The estimated turnover of the VSAT industry in the country is $80 million (2002-03). The market share ratio of TDMA to DAMA works out to 86 percent for TDMA and 14 percent for DAMA. The market is pegged to grow at 30-35 percent annually. Currently HECL is the leader in the VSAT industry with about 31 percent market share, followed by Comsat Max with 20 percent and HCL Comnet with 17 percent.

The VSAT industry has exhibited a healthy growth over the last nine years. The shared hub VSAT service providers’ installed base has shown a growth of almost 50 percent in the 2001-02 fiscal, growing from 10,000 installations to almost 15,000. The captive hub market has also shown significant growth with many organisations like electing for their own private network, like NSE, BSE, WBSEB, RBI, etc.

Success stories

Significant developments and growth in the banking, financial services and insurance (BFSI) sector saw the deployment of remote office connectivity and ATMs across the country. The demographical diversity and telecom infrastructural obstacles were easily addressed by the VSAT industry and this sector saw the deployment of over 5,000 VSATs and is still growing.

Stock Exchanges have moved into real-time online trading with bourses like the NSE catering to 1.4 million trades daily from over 10000 terminals across the country. The average daily trading value is presently in excess of $3 billion. Again, VSATs offer the most viable and efficient mode to connect these remote terminals to the central trading system of the bourses.

Other sectors that catered to the growth of the industry include the manufacturing and distribution sector, which saw the deployment of ERP, SCM and CRM systems to facilitate efficient functioning of organisations so as to maximise profits. The services sector also saw the entry of VSATs in the hospitality, travel, logistics and infrastructure building consultant segments.

Another sector to bring significant growth to the VSAT industry was the gaming and lotteries segment. With a large number of remote outlets requiring to be connected to the central system, VSATs were the most effective solution.

Growth drivers

The industry, to a great extent, attributes the government’s changes in policies and regulations for the VSAT segment as drivers for growth. With the government allowing KU band, smaller antenna sizes and increased speeds for point-to-point co7nnections, the industry has witnessed rapid growth. Given the flexibility of selecting satellites, the space crunch problems faced earlier by service providers has eased, and converting WPC/SACFA charges from a flat rate of $1000 per VSAT to a revenue sharing model of 15.61 percent was a welcome change.

Other factors that facilitated the growth of the industry include the high growth rate of the Indian economy, with the GDP averaging 5. Globalisation brought a focus on service orientation. Technological advancement brought about reduction of VSAT hardware rates and efficient utilisation of bandwidth. Bandwidth rates also became more attractive with the new policies of the government and the option of KU band.

Threats

With success stories come threats as well. With the rapid growth in the industry and multiple players, margins have come under pressure. Despite the many regulatory changes incorporated by the government, there remain many challenges that the industry faces. With terrestrial infrastructure witnessing revolutionary changes and various connectivity options like broadband, VPN and CDMA/GPRS being introduced, matching recurring charges for VSATs with these other options has become critical. The perception of user organisations on the capital expenditure incurred on VSAT networks is also becoming a matter of concern. Service providers are faced with managing increased subscriber bases while maintaining high service levels and increased uptime demands from customers on networks. The pressures on the bottom line are significant as service revenue is witnessing a progressive decline and trends indicate decreasing interest on account of hardware price points. The industry is expecting that the government will allow an Open Sky policy, which will bring down transponder costs and thereby enable improved margins.

Opportunities

The future of the industry is hinged on the new opportunities that have evolved. These are rural telephony, where over six lakh villages are to be connected with public booths and the segment is expected to grow to over 30,000 VSATs over three years. Distance education has also come to the forefront with the need for content delivery and learning management systems (LMS) significantly felt by institutes and corporates alike. Even this segment is poised to grow to over 30,000 VSATs in a span of three years. Amongst the other new segments is the online gaming/lottery segment with a potential of over 20,000 VSATs in three years, and the Internet delivery segment, which has tremendous potential for growth and an extremely large domain market. We are witnessing a shift in VSATs being preferred for traffic applications in short bursts, such as bank ATMs, online lotteries, etc. The ability to reach anywhere, anytime in a reliable and secure environment remains a clincher for VSAT industry.

In summary, the VSAT industry’s growth will be fuelled by new applications, but pressures on margins will continue. Service providers will have to evolve and offer value-added services in order to stay abreast. A positive regulatory framework will aid in growing the segment significantly and given the environment, consolidation of service providers is likely to be a continued trend.

The author is vice-president with Comsat Max. He can be contacted at joyjit.chatterji@comsatmax.com