VSAT SERVICES: What’s There in a Number?

If
numbers were to be the only indicators of growth in an industry then nobody
would beat the VSAT services business. Just consider these: the number of shared
hub VSATs installed in 2002—03 was more than the total number installed till
2002.

There was a 382 percent growth in the number of shared hub installations over
the previous year, with one of the service providers registering a whopping
2,041 percent growth. Overall, the shared hub installation base grew by around
115 percent.

However, what was ironical that these numbers did not mean much for the
financial health of the shared hub business. Except for a couple of VSAT service
provider companies, most of them registered either flat or only a marginal
increase in revenues, and that too because of their forays in sectors other than
VSATs. This was largely because hardware equipment, sales of which have always
accounted for a major portion of service providers’ revenues, witnessed a
steep drop in prices. On the other hand, there was only a marginal increase of
9.75 percent in the service revenue. VOICE&DATA estimates that revenues from
services were around Rs 225 crore in FY 2002—03 as against Rs 205 crore in FY
2001—02.

The growing ubiquity of terrestrial connectivity options like leased lines
and VPNs and the drop in their prices affected the growth of VSATs in areas like
manufacturing, where VSATs, in many cases, were relegated to the role of a
back-up medium. Applications like ERP, which even VSAT vendors accept are not
suited for running on VSATs, began to be shifted to terrestrial lines. The fact
that not many new enterprises were adopting VSATs, because of better
availability of leased lines, was worrying for VSAT operators. In fact, to make
matters worse, more than 1,000 VSATs were surrendered during the year. Also, the
much-hyped segments like rural telephony and broadband Internet access failed to
take off.

However, VSATs found a growing market in the retail (banking and lottery)
space and also made a beginning in the area of distance education. The single
biggest deployment of VSATs in FY 2002—03 was for the lottery operator Playwin,
which got 3,506 VSATs deployed (1,867 by HECL and 1,639 by Essel Shyam). Also,
like in many previous years, VSATs remained the preferred mode of connecting
bank ATMs and also their biggest market. Banks like SBI and ICICI took the lead
in deployments. Even though education did not bring in volumes, it surely
emerged as a promising sector for VSAT usage.

Moreover, as large telecom operators like Bharti began selling hybrid
connectivity solutions, of which the VSAT was just a component, operators like
HECL and HCL Comnet too began changing their business models. VSAT service
providers began exploring new business opportunities in network security,
network management, VPN, Internet data centers, and even leased lines and IPLCs.
For example, the market leader HECL is no more a pure-play VSAT operator; it now
offers solutions in network management, VPN, Internet data centers, leased lines
and IPLCs. HECL tied up with Data Access last year in order to bring IPLCs to
its corporate customers. Similarly, HCL Comnet is focusing a lot on network
management and network security services and has already emerged as a leader in
these areas. In other words, the hitherto unbending posture of VSAT operators
that there was nothing better than VSATs started eroding, with many of them
finding virtues in the terrestrial medium.

Even as hardware costs saw a decline of 25—30 percent, there was no let up
in the cost of input bandwidth, which remained prohibitive. For users, at 10,000
Rs per kbps per annum, bandwidth costs were certainly not on the lower side.

VOICE&DATA estimates that in the year 2002—03, service providers would
have earned around Rs 75 crore in terms of revenue from bandwidth.

Even though there was no scarcity of transponders, their costs remained high.
VSAT operators on the whole were using some 12 transponders including C band,
extended C band and KU band on Insat 3A, 3B and 3C.

Outlook

The days of pure-play VSAT service providers are over. While leading VSAT
operators like HECL and HCL Comnet are aggressively engaging themselves in other
pursuits, including hybrid connectivity solutions, large telecom operators like
Bharti and Tata are including VSATs in their total connectivity solutions. In
other words, the emphasis is on offering a comprehensive connectivity solution
made up various technologies and services and not on any particular medium. The
drive is not just from service providers but also from customers who want the
best of both, technology and price. In such a scenario, the argument that a VSAT
service provider would know the satellite communication better than the likes of
Bharti and Tata doesn’t hold good.

As for the future of VSAT services, only skeptics can write it off. The
growth of terrestrial connectivity does not mean a doomsday for the technology.
However, a few things must work in the favor of the sector for a healthier
growth. For example, as of today, satellite bandwidth is too expensive and
cannot compete with terrestrial bandwidth in terms of cost. Things can only
change for the VSAT service providers on the cost front if satellite companies
show interest in the data business. At present, they are content serving
television broadcasters. Moreover, commercialization of KA-band satellites can
further change things for the better as the band offers higher throughput and
switchable- on-demand bandwidth. All this can open up new markets (like home
Internet access) for VSAT service providers.

In the current scenario, ATM would continue to be the biggest market for VSAT
services, followed by lottery. Even though some people would like to term the
lottery market No. 1, VOICE&DATA believes that things in the lottery market
are still uncertain because of bans (or demands of ban) on lotteries in several
states. Last year, Playwin had to dismantle around 1,048 lottery terminals (not
all of which would be VSATs) after they were found to be operating in places
where lottery is banned.

Besides, in urban areas, GPRS is emerging as an alternative to VSATs for
online lotteries. The biggest lottery player Playwin has 750 of its total 4,452
lottery terminals on GPRS. VSAT operators are also likely to get into new areas
like mobile satellite services, reporting services, disaster recovery and
GPS-based fleet management.

Ravi Shekhar Pandey