Satellite & Cable

October 15, 2004
VSATs: A leap from bullocks to bytes

Convergence Plus Team

With recent government initiatives the VSAT Industry has witnessed a 46 percent growth from 19,101 units in 2002-2003 to 27,870 units in FY03-04. Several government initiatives, introduction of a revenue sharing regime and permission to buy transponder space from foreign satellites has greatly benefited the sector. Worldwide, VSATs have recorded healthy growth rates for several years and continue to do so. But where does the industry go from here?

NEW DELHI -- VSAT services have become an intrinsic part of the telecom landscape in India. There are over 23,000 VSATs in the country, the number having doubled in about 18 months. The VSAT industry received a boost in 1998 when the government gave it infrastructure status.

According to Bharti Broadband Networks Ltd., a merger of Bharti's Internet, VSAT and broadband initiatives, VSAT as a technology was de rigueur just a couple of years ago. Indeed, it was the technology of choice. Where the need was for reliable, available connectivity, VSAT was the default option. No other technology provided 99.5 percent uptime. The extent and speed of wiring, which has taken place across India, thanks to Bharti, Reliance and Tata, has been simply amazing. In addition, the wireless boom in India has been spectacular.

India has 11 licensed VSAT service providers and along with them there are nearly 34 captive networks, used by companies for their own non-commercial work. According to industry estimates, nearly 8,000 VSATs are functioning in the captive network capacity and the remaining 17,000 are installed and managed by satellite companies to provide retail and dedicated services to customers ranging from large enterprises to individual users. These captive networks have to acquire a separate license for operations and de-link from the service providers' networks once they wish to operate independently.

The VSAT industry has witnessed significant evolution since its inception in 1994 when the government opened it to private operators. The industry started its operations in the Extended C (Ext-C) band and, with the recent policy changes by the government, introduced operations in the Ku-band.

VSAT market to grow 30-35 percent annually
Over the last nine years, the VSAT industry has exhibited a healthy growth rate. The Shared Hub VSAT service providers' installed base has shown a growth of almost 50 percent in the last three fiscal years. The captive hub market has also shown significant growth with many organizations like NSE, BSE, WBSEB, RBI, etc. electing for their own private networks. Today, corporates such as BPL, Dabur, Hindustan Lever, Larsen & Toubro, Marico, NALCO, Procter & Gamble, SAIL, etc., have over 15,000 VSATs to connect their offices and factories across India. While the market saw many operators coming in during the earlier stages, the key operators in the country today are Bharti Broadband, Comsat Max Ltd., HCL Comnet and Tata Net.

Does a frenetic wireline and wireless infrastructure build-up mean that it is the end of the road for VSAT? Where does VSAT technology go from here? Globally, VSATs have recorded remarkably healthy growth rates for several years and continue to do so. In the United States, the most widely wired country in the world, VSATs continue to sell at the rate of 10,000 units per month. Indeed, the VSAT industry is likely to show healthy growth well into the year 2010. Last year, in India, the VSAT industry recorded a unit growth rate of 50 percent on a year-on-year basis.

The estimated turnover of the VSAT industry in the country is US$ 80 million ('FY03-04). 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 HCL Comnet and Comsat Max. Bharti broadband and Tata Net are also trying to make a mark in this space. A study by a leading consulting firm says the Indian satellite market is expected to grow almost five times from about 20,000 units currently to over 100,000 units in the next three years.

VSATs revolutionising financial sector
One of the most extensive users of VSATs is the financial sector in India. Close to 14,000 VSATs have been deployed simply because VSATs offers the safest means of transporting mission-critical end-to-end data across a dedicated network that is not at the mercy of the terrestrial operator and the latter's network failures. It quite literally transcends earthly problems. Undoubtedly VSATs have brought about a revolution in the financial sector. Daily transactions in stock exchanges like the NSE and BSE exceed 6,000 crore; 65 percent of this is through 4,800 VSATs. Of the 12,500 ATMs spread countrywide, 7,500 are on VSATs. ICICI, RBI, SBI, UTI and other major banks are connected through 2,000 VSATs, and are making transactions worth millions everyday.

Another sector to bring about significant growth to the VSAT industry is the lottery segment. With a large number of remote outlets, which required to be connected to the central system, VSATs were the most effective solution. With the government allowing Ku-band, smaller antenna sizes and increased speeds for point-to-point connections, the industry witnessed rapid growth. Given the flexibility of selecting satellites, the earlier problems of space crunch for service providers was eased by converting the WPC/SACFA charges from a flat rate of US $1,000 per VSAT to a revenue sharing model of 15.61 percent, which made for a welcome change.

Future hinged on ability to evolve offerings
According to Comsat Max, a leading Indian VSAT service provider with over 5,000 VSATs in India, the rapid growth in the industry have seen a reduction in margins. Despite the government's initiatives, there remain many challenges still faced by the industry. With the terrestrial infrastructure witnessing revolutionary changes and with cable, VPN, CDMA/GPRS being introduced, a critical issue for VSATs has been matching recurring charges with these other options.

The perception of organizations on capex for VSAT networks is also becoming a matter of concern. Service providers are faced with managing an increased subscriber base while maintaining high service levels and increasing uptime demands for customers on the network. The pressures on the bottomline are significant as service revenue is witnessing a progressive decline and trends indicate a decreasing interest because of hardware price points. The industry is expecting the government to consent to the open sky policy, which will bring down transponder costs and thereby enable improved margins.

The future of the industry is hinged on the ability of service providers to evolve their offerings. With clients increasingly looking at single point outsourcing of IT requirements, HCL and Comsat Max have moved up the value chain to meet such expectations. Some of the value-added services rolled out in the last couple of years are disaster recovery (DR), intellectual resource management (IRM), network infrastructure management services, overseas technical support services (OTSS), security services, etc.

VSAT enable stockbrokers to play bulls and bears!
Wg. Cdr. B.G. Bhalla, secretary general, VSAT Services Association of India, noted that in the next stage, VSATs could take the capital markets to rural India! Today, anyone can become a stockbroker, sit in one's own house/office, even in a small town, and conduct their business. By a very conservative estimate, this activity adds almost 2 percent to the GDP. VSATs can enable brokers in remote locations across India to plug in - and play Bulls & Bears! Not many of us realize that most of the e-banking services provided by major banks run on VSATs. In addition, the use of ATMs countrywide has exploded by hooking them on to VSATs.

The government has also been an extensive user of the VSAT advantage. Having realised this advantage, government organisations and the public sector made large scale deployments to set up defence and police networks, ERNET, NIC-NET, as well as communications networks for BPCL, BSNL, GAIL, IOC, NTPC, ONGC to connect offices and sites in remote locations.

Innovative apps for delivering public services
VSATs have also been used as innovative applications to deliver public services. Over 1,500 VSATs have been deployed for rural telephony alone by private BSOs. BSNL plans to deploy thousands of VSATs for village public telephones services. Apart from these, a slew of applications drive VSATs in rural India. How many of us know that postal money orders are delivered in rural areas through VSATs? More than 1.5 million of these "Sky Money Orders" are handled every month.

VSATs are spearheading the concept of distance education. IGNOU, ERNET, ISRO and private VSAT operators are connecting schools and colleges, including IITs, through VSATs. This is the only technology, which holds the promise of taking education to the rural areas in a much more pervasive manner than before - also allowing for the removal of many un-motivated villages teachers. VSATs make it possible for patients and doctors in small towns to avail of specialist diagnostic/advisory medical service. It facilitates voice, video and data links between top city hospitals and healthcare clinics in remote towns/villages.

VSAT empowering Indian farmers
One of the most successful initiatives in modern times toward empowering Indian farmers has been spearheaded by ITC. Close to 3,500 VSATs, with 2,500 more in the pipeline, have been deployed under ITCs e-Choupal program to provide e-commerce services to villagers in Maharashtra, Madhya Pradesh, Rajasthan and Uttar Pradesh, covering 2.4 million farmers.

Farmers can use the e-Choupal service to simply check the weather forecast, or tally the prices of soyabean at the nearest government market, or on the Chicago futures exchange. Alternatively they can order fertilizer and herbicide, or consult an agronomist by e-mail when their crops turn yellow. Some users are already buying life insurance, while local shopkeepers order salt, flour and sweets, and children check their exam results through this service.

The most significant aspect of this deployment is that ITCs e-Choupal initiative has proven beyond doubt that VSAT connections, despite the higher set-up costs, help recover investment faster than non-VSAT e-Choupals.

Consolidation of service providers likely
According to HCL Comnet, a subsidiary of HCL Technologies, government initiatives, such as the 4-percent reduction in SAD on all imports (which includes VSATs), the introduction of a revenue sharing regime, and the permission to buy transponder space from foreign satellites; have led to the growth of the sector and the addition of a new customer base. New applications areas have also emerged such as ATMs, distance learning, online lottery agencies, etc. Moreover since leased lines are yet to reach remote areas, increasing rural connectivity requirement has given a huge boost to the industry.

It is clear that industry growth will be fuelled by new applications and pressures on margins will continue. Service providers will have to evolve and offer value-added services in order to stay ahead. 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.

Bridging the digital divide
VSATs are being rapidly deployed for broadband and Internet access in the SME segment, not to mention the consumer or residential segment. Driving this momentum are diverse factors such as the rapidly reducing equipment costs; reduction in dish sizes; higher throughputs; reduced bandwidth charges; etc. In a country like India with its numerous small towns, the cable TV operator will also play a crucial role in delivering this always-on, reliable Internet access to residential customers using VSAT technology.

What is needed though is a strong vision from the present government that translates into concrete action on the ground. After all, rural upliftment is on the top of the agenda!! Rural India has to make the leap from bullocks to bytes, and VSATs can make it happen. There is a need to adopt an innovative approach to bridge the digital divide. Approach it in reverse -- connect rural India to urban India rather than the other way around!!

As we have seen in the advanced US market, VSATs will remain a strong technology even in India. While the Chinese are seen to have a closed mind towards VSATs, India is likely to emerge as a major VSAT hub in the region.