A review of the past year´s performance of VSAT service providers clearly indicates that the segment is on a revival mode. In units´ terms, the sector witnessed 46 percent growth from 19,101 units in FY 2002–03 to 27,870 units in FY 2003–04. What´s more, the 42 percent growth registered in revenue, from Rs 225 crore during the 2002–03 fiscal to Rs 320 crore in the 2003–04 fiscal, indicates that the growth is now robust and sustainable.

The year saw the sector benefit from several government initiatives. First, the four percent reduction in SAD on all imports, including VSAT, had a rippling effect and caused hardware prices to fall.

Second, service providers moved into the revenue sharing regime by April, reducing their burden considerably. Service providers now pay 14 percent as part of their revenue share deal with the government, which has come as a welcome breather to the industry. Earlier, under the license fee regulation, service providers had to pay Rs 50,000 per terminal, which nearly crippled the industry.

Third, the government allowed service providers to buy transponder space from foreign satellites. This not only eased the availability of transponder space but also improved the quality of connectivity provided.

All these factors greatly helped service providers to target new customer segments and bring them into the fold of VSAT user base. Some recent announcements regarding the decrease in antennae size for different frequencies and the increase in data transfer speed to 2 Mbps is expected to provide further fillip to the sector. In Ku-band, the antennae diameter limitations are down to 1 meter from 1.2 meter for star connectivity and to 1.8 meter from 2.4 meter for mesh connectivity. In extended C-band antennae, diameter limits are down to 1.2 meter from 1.8 meter for star connectivity and to 2.4 meter from 3.8 meter for mesh connectivity. The smaller antennae size is expected to bring down costs by 10 percent per terminal for service providers.

Not surprisingly, the sector became attractive enough to entice a new player into the fold and Tata Net launched services during the middle of last year.

While new players entered the fray, for older players it was clearly consolidation time. The aggression was twofold. Expanding the base of customers to provide vanilla services and up-sell to existing customers through a variety of new offerings. Network management and VPN services became commonplace just as new offerings like distance learning and disaster management became the industry buzzwords.

In an attempt to retain customers and become a one-stop shop for most info-com requirements, top players had no choice but to position as end-to-end solution providers or managed solution providers. Terrestrial connectivity was no longer untouchable, as offering hybrid services became the order of the day.

Some leading players like HCL Comnet have diversified so much that revenue from VSAT services is no longer its major contributor, although it still comprises significant revenues. Both Bharti and Tata Net approach customers in their capacity as integrated service providers. Others, like HECL and Comsat Max, have reluctantly entered the fold of integrated service offerings. There are now hardly any players positioned as pure-play VSAT service providers. The competition is as much from other connectivity providers like leased lines, VPN services, or wireless connectivity as much as from within the industry.

Service Provider Performance
The most active players during the year were HCL Comnet, HECL, Comsat Max, Bharti Broadband, and Tata Net. In terms of the sheer number of VSATs installed during the year, the clear leader was HCL Comnet beating last year´s leader HECL.

HCL Comnet´s big break came with its studied focus on the two high-growth sectors, banking and FMCG, and its ability to break into a new segment namely the online commodity exchanges. In January, the company installed a total of 700 VSATs in the three exchanges: MCX, NMCE, and NCDEX.

Comnet believed that the Internet-based expansion plans of FMCG companies like ITC were going to click in a big way. The company pitched aggressively for such accounts winning the ITC account, in which it installed 2,000 VSATs. The famed e-choupal initiative of ITC is prestigious, since the project has an aggressive rollout plan.

In banking, Comnet struck gold with the SBI account, which began its rollout of ATMs during the year. Last year, Comnet installed 2,000 VSATs for SBI to connect its network of ATMs across the country. The project called for Comnet´s ability to scale up and execute the implementation with speed. Comnet demonstrated its strengths by installing 1,300 VSATs during January alone, for SBI and its associate banks.

The year also saw Comnet execute some technically challenging projects. The company deployed a technology called flexi-trading VSATs. These allowed two different communities, commodity exchanges and e-brokers, to execute business on the same network at different times. The key requirement was to provide excellent security systems so that the two domains of work remained mutually exclusive.

The other deployment was for Indian Oil, which had installed both DAMA and TDMA VSATs. Comnet created a hybrid technology with a single network and did away with the need to have two different RFs requiring two antennas. Comnet set up different modulating units and did away with the necessity to so set up different outdoor and indoor units for the DAMA and TDMA VSATs. This brought down the project cost considerably.

Some new offerings launched by Comnet during the year include: Space Train, providing multicasting capability; SmartManage which gives live reporting of VSAT uptime, network availability, workflow tools, etc; and SpaceWorks which gives an indication of bandwidth utilization and network availability.

HECL may have come a distant second this time in terms of incremental numbers but judging by other parameters it seems to have done more business than the leader in the segment. For instance, if bandwidth utilization were anything to go by, HECL has 5695 VSATs on Hi-Ku band in GE1A satellite while HCL Comnet has none. Comnet has transponder space only on INSAT. While INSAT gives throughput of 24 Mbps on Ku-band, GE1A gives 45 Mbps of throughput on the same frequency, which is a reliable indicator of the kind of applications deployed and the quality of service delivery. While it may be argued that the cost of transponder space in the Hi-Ku band is that much higher, at Rs 7.2 crore per transponder as against only Rs 4.4 crore on INSAT, we entrust service providers with that much economic sense. However, capacity-wise, both the service providers are at almost at a par with HECL at a total of 102 MHz and HCL Comnet at 106.75 MHz.

No surprise that during the year, the company came heavy with its value-added services particularly with its distance education and disaster management initiatives. It was the only service provider with a broadband offering in India.

Lottery continued to dominate the company´s business as did ATMs. But, clearly the company´s mind is more set on projects like the one for HLL, which was a broadband network with all enterprise applications. Although the size of this project is small, with just 200 VSATs, it falls among the high net-worth customers brining in more business than its entire network of 2,500 VSATs deployed for ATMs. ATMs are indeed profitable projects for service providers since they are low on bandwidth consumption but with high margins. With bulk buying of bandwidth, efficiency levels of service providers have gone up which enables them to make a killing in low-bandwidth applications.

With the increase in throughput speed to 2 Mbps, HECL will now offer satellite VPN services. During the last year, HECL had another first to its credit with the launch of a new technology called IPoS that enable IP over satellite.

Going by new customer acquisitions HECL does not seem to have done badly, garnering 42 new enterprise customers and 225 SME customers. Its heavy emphasis on the education sector saw many tie-ups with institutes like XLRI, IIM Calicut, IIM Bangalore, Manipal University, Career Launcher, and Cornell University to name a few.

Lottery continued to be almost an exclusive preserve of HECL, selling 3,000 VSATs to the segment during the year. Although the segment did suffer reverses with fluctuating policy, it is expected to yield growth now.

ATMs continued to bring good business although the dynamics seem to be changing now with the entry of players like EuroNet and IndiaSwicth, who offer shared services on the ATMs. Travel industry was another lucrative sector with HECL setting up a network for Galileo and Amadeus. Other notable customer wins for HECL include ITC´s e-choupal, connecting 1,500 locations; e-government project for Orissa government connecting all the districts; and the Mandi project for MP government called MP Mandi.

Some of the services launched during the year include broadband satellite services, satellite VPN services, DirectWay Wi-Fi services, Wi-Fi with satellite, CEO broadcast services, and satellite back-up services.

Bharti Broadband was basically positioned as an integrated connectivity provider and VSAT services as its strategic differentiator. It targeted three kinds of customers: low bandwidth usage across multiple locations, enterprises with remote locations, and enterprises with a high premium on uptime. Besides, the company also targeted some niche segments like lottery, brokerage, distance education, and e-governmenance projects.

The country´s highest VSAT installation (13,800 ft) at Thegu in Sikkim. The VSAT was deployed for an ATM of UTI Bank. The ATM is geared to handle rough weather and sub-zero temperatures with its heat-generating facility. Primarily meant for army jawans, the ATM can also be used by tourists and traders once the Silk Route to China is re-opened. The VSAT was installed by Comsat Max

It bagged the Martin lottery deal with 700 VSATs, and Kotak-Mahindra, ICICI, Motilal-Oswal (over 100 VSATs each), Manipal Education Society, Delhi Public Schools, and e-government projects with the governments of Assam and Punjab.

The company was very clear on keeping away from the ATM sector since its bandwidth consumption is very low and therefore not within it business goals. Not surprisingly, Bharti Broadband was the number one consumer of bandwidth in the GE1A satellite, clearly indicating its business positioning.

Comsat Max did well by focusing on the banking sector and on value-added services. During the year, Comsax expanded the ATM networks of HDFC, ICICI, Citibank, UTI, and GTB. A remarkable achievement was setting up of the country´s highest ATM at 13,800 ft at Thegu in Sikkim for army jawans and for those who would use the city as a trading post with China, once the old Silk Route opens up again.

Among the noteworthy projects executed during the year was the hybrid network for Pfizer across 49 locations in which about 15–20 locations were on VSATs. The company launched its e-learning initiatives called Learning Management Systems and increased its focus on network management and disaster recovery solutions which were launched earlier.

After the revenue sharing regime came into being, HFCL split its broadcast business, which uplinks to the satellite directly, into a separate company called India Sign while the traditional VSAT services came under the fold of HFCL Satellite Communications. Its noteworthy projects include the total network for CMC with over 60 TDMA VSATs and five DAMA VSATs; National Hydro Electric Power Corp (15 VSATs), and a private network for Indian Army.

Tata Net just started services last year and bagged a few accounts like Nicholas Piramal and Kotak-Mahindra.

Among the service providers, HECL buys VSATs only from HNS; HCL Comnet and Bharti Broadband from Gilat and Viasat; Comsat Max only from Gilat; and Tata Net buys only from Viasat.

Outlook

The emphasis on value-added services will continue as stand-alone VSAT service providers like HECL, Comsat Max, HFCL, and Essel Shyam begin to feel the heat. The rules of the game will be slightly different for integrated service providers like Bharti Broadband and Tata Net, and solution providers like HCL Comnet—with emphasis on ability to provide best-of-breed solutions.

With the easing of regulatory conditions, prospects are expected to become considerably better for service providers. The increase in connectivity speeds up to 2 Mbps and decrease in antennae size already bring good news for the sector.

With the cost of VSATs fast declining due to decline in hardware costs, reduction in customs duty, and moving to revenue-sharing regime: customers with low bandwidth requirements at multiple locations find VSATs more cost-effective than leased lines.

While competition may increase from different modes of connectivity including leased lines, GSM, and CDMA clearly VSAT is no pushover and shall give every other connectivity media a run for its money.

Traditional sectors like banking and financial institutions will continue to drive growth. Just as lottery or ATM will be favored applications; distance education, a much-hyped concept, is expected to take off soon as more corporates get into the learning mode.

New segments like commodity exchanges and digital theatres will be new big-time deployments. As digital cinemas find favor, VSAT deployment will surge with distributors using digital transmission to kill the piracy issue.

The expansion of VPTs is likely to be a key driver for VSAT growth during the year. BSNL has already floated a tender for procuring 19,000 VSATs.

With TRAI recommending an open-sky policy, the industry is waiting for government approvals, which will overhaul the delivery of services. It is in anticipation of this policy that GE Americana is expected to slash bandwidth rates, with revised rates expected to be at a par with the INSAT rates.

However, there are still some loopholes that need to be done away with. For instance, the numerous SACFA clearances cause unnecessary delays in VSAT deployment and need to be done away with, and service providers want the government to exclude the cost of hardware, installation, and maintenance from the revenue-sharing formula.

The industry is sure that if the government meets these conditions, they will be on a level-playing field with the other connectivity providers—ushering in an era of broadband connectivity.

Balaka Baruah Aggarwal