Despite onslaughts from connectivity technologies like MPLS on the wireline side and CDMA or GPRS-EDGE on the wireless, total installed base for VSATs crossed the 50,000 mark past year. By the end of FY 2004–05. The country had an estimated total installed base of 53,000 terminals.

The industry added 20,655 VSAT terminals in FY 2004–05. However, the growth in additions in last financial year was only four percent, when compared with the 49 percent in FY 2003–04. The industry had added 13,285 VSATs and 19,883 in FY 2002–03 and FY 2003–04 respectively.

In revenue terms, the industry registered 24 percent growth with revenues of Rs 327 crore in FY 2004–05 compared to Rs 263 crore the previous year. There was a 10–15 percent drop in hardware costs. However, volumes compensated for the continued downslide in hardware costs.

The industry continued to complain about the high bandwidth prices and having to going through Indian Space Research Organization (ISRO) to buy bandwidth. Incidentally, ISRO placed huge orders for its EduSat project. It ordered for around 3,000 VSATs and 16 hubs, helping the VSAT industry to maintain its growth.

Vendor Performance
In terms of number of installations, HNS lost ground by a few hundred VSATs. But it emerged as the leader in number of VSATs shipped this year with a figure of 8,985 units. HNS was followed by Gilat at 8,200 units.

For the past couple of years, lottery companies were the biggest buyers for HNS. But this year only 300 terminals were installed in that sector. The reason was a slowdown in this industry on account of certain restrictive government policies. Videocon Lottery was the major buyer with 200 terminals. Banking, ITC's e-chaupal, education, and the stock broker segment filled in for the lack of business from the lottery segment. All these segments individually saw more than 1,000 VSATs being deployed across geographies. In the BFSI segment, HNS altogether had 18 customers with Rs 17.35 crore business in FY 2004–05. Punjab National Bank alone bought 200 terminals from the company. Similarly, Euro net bought over 250 VSATs from HNS and a bank consortium placed orders for 500 VSATs for six of its members.

Amid reports of ITC going slow on its VSAT installations, Gilat and HNS bagged the orders for FY 2004–05 from e-chaupal. HNS got Rs 10 crore.

The stock broking segment also brought in good business for HNS and Gilat. However, in this segment the stock exchanges were not deploying the terminals in a big way. Rather, it was the broker community and their agencies that placed substantial orders. HNS shipped 100 VSATs for over 30 customers in this segment.

Commodity exchanges got active this year. Gilat was the leader with more than 2,000 VSATs shipped for this segment.

Resliance bought 275 DAMA VSATs for its CDMA trunking backbone. Though the contract was signed by HNS, majority of the revenue from this contract is being shared by manufacturers like Xicom, Vertex, Quintech, Terrasat, and Astra (the last one for local components of antennas. Hence, in our market estimation this deal has not been included in the revenues of HNS.

V&D estimates CyberMedia Research

FY 2004–05 was a great year for Viasat. Among all the vendors, its performance was best. It registered the highest (157 percent) growth in sales and was the leader among VSAT vendors in value terms. The vendor did good business across all segments this year. Though the number of projects and installations were less than other vendors, but many of the deal's values were higher to what the other got, giving the vendor a lead over the others. From an estimated Rs 48 crore in
FY 2003–04, it ended the last year with Rs 117 crore.

The biggest deal for Viasat came from ISRO, where it installed 14 hubs. Together with 1,000 sites and with a provision to expand it to 10,000 sites, the deal brought in Rs 36 crore for the company. These would be mainly used by ISRO for distance education.

Besides, not only did they bag an additional hub at HCL Comnet, but they also won the tender for four hubs from Airports Authority of India (AAI), and two more for the army. The AAI deal was closed for Rs 22 crore with installations at over 160 sites. The project from the army was worth Rs 26 crore.

The company also booked huge orders from HCL Comnet and Tata Net. The number of VSATs shipped to these service providers crossed 2,200 mark. They together gave Viasat Rs 27 crore in business. For HCL Comnet, Viasat also installed a new hub in the Ku band.

According to V&D estimates, Gilat lost some ground both in terms of revenue realized and number of VSATs shipped. The company was very active in the commodity markets and almost 25 percent of its 8,200 VSATs went to this segment. Similarly, the banking and financial sector was a big buyer of Gilat terminals.

One of the major deals for Gilat in FY 2004–05 was from HCL Comnet. Here, the company commissioned a new hub for the extended C-band and 1,500 VSATs.

Nortel DASA Satcom was again active only in niche segments like defense. It also bagged orders from nuclear power companies. The company also had some small orders from couple of public sector units. For ND Satcom also, there was a quantum leap in revenue realization. Its sales for the year were Rs 16 crore, even though the number of terminals came down from 40 to 30 last year.

Outlook for 2005–06
Even if VSATs were being used as a backup to MPLS, ISDN, or any wireless technology, volumes show the satellites are still there on the minds of CIOs. As such, VSAT equipment vendors are expected to continue their bull run in FY 2005–06 too. The cutthroat competition among the four vendors is putting pressure on margins, which is not expected to stabilize this year too. The prices are expected to crash by further 10 percent while the number of additions would go up by almost 30–50 percent. High volumes would keep vendors in the black.

In fact, everything except the open sky policy seems to be working in favor of the industry. The broadband policy supported usage of VSATs in high-speed Internet connectivity. The SOHO and SME segments have huge potential but the general perception towards VSATs and a cultural mind block prevents mass usage in these segments. Unless volumes pick up, this segment would not be a viable business proposition for vendors.

Who Will Buy Them
Though VSATs are still not affordable for Indian retail users, enterprises might see increased throughput. In the US and Europe, VSATs are used as platforms for multiple applications including Internet and cable TV, mostly through a rental model. In India, lack of a retail credit rating agencies and lack of proper recovery mechanisms has kept vendors away from this segment. Also the cost of satellite bandwidth is still very high for home users. 

The government, including ISRO would be the prime driver for market in FY 2005–06. ISRO is expected to expand its EduSat-linked VSAT base and might come out with bids for three more hubs with a provision for ramping them to a total of 40 hubs. There are plans to connect almost 60,000 schools through the EduSat, but less than one-fourth have been implemented till now. If government clears the HealthSat project, being conceived on the lines of EduSat-to take health services to every corner of the country-another round of VSAT bids would take off.

With the Planning Commission and the Manmohan Singh government chalking out plans to take e-governance to the panchayat level, VSATs would be the primary drivers for providing connectivity to remote and rural areas. The December Tsunami, as well as many manmade disasters have drove home the necessity of making disaster recovery sites and early warning systems. Here again the government would be evaluating VSATs closely to connect the disaster affected areas.

Defense, police, and the armed forces are more or less a stable segments and keep coming out with tenders at regular intervals for their requirements. ND Satcom has already booked orders from the army for 60 terminals, both fixed and mobile. ND Satcom, which has traditionally been supplying to the Department of Atomic Energy, also has an upgradation order for 20 VSATs.

The BFSI sector would continue to expand its network and the value proposition of ATM centers would prompt them to have more ATMs in class B and C cities. This is good news for the vendors. But they have to keep a close watch on the competition from fiber and CDMA connectivity service providers. Though the volume in this segment is huge, the value generated is very less. The prime reason is low capacity utilization, because only a small quantity of data is transferred over the VSAT links.

With the equity culture growing in India, and the markets looking up leading to expansion by the brokering fraternity, vendors can look forward to gains in this market too.

The oil and gas companies have been evaluating VSATs for their retail outlets for sometime now and this year might see their plans taking shape. Manufacturing and automotive sector is also looking up and the pricing of the terminals would attract many new customers.

The VSAT vendors are also expecting a lot of activity in the retail segment. Fast food companies like Barista, Pizza Hut, and McDonald's are expanding their business and seriously considering the satellite route to connect their outlets. Similarly, multi-brand stores like Shoppers' Stop and Globus would look at VSATs to link their shops.

If the vendors are not able to cut on the hardware costs, innovative applications based on rental models may also be offered.

Anurag Prasad