VSAT: Up, Up, and Away

Despite increasing threat from leased lines and wireless connectivity like
GPRS and CDMA, the VSAT industry not only held its own but also registered good
growth in units as well as revenue. The growth was aided by cuts in customs
duty, reduction in revenue sharing, and a decline in hardware costs.

The industry grew by 50 percent during 2003—04 selling a total of 19,983
units, up against 13,285 units sold in the 2002—03 fiscal. The market was
valued at Rs 263 crore which is an increase of 12 percent over previous year's
revenue of Rs 234 crore. The growth in value was not in tandem with unit growth
due to the decline in hardware cost and duty structure. The market was
predominantly TDMA though DAMA as a technology continued at a steady pace
despite the many epitaphs written about it.

Vendor Performance

HNS maintained the clear lead both in unit terms and turnover, followed by Gilat
and a distant Viasat. Nortel Dasa Satcom continued to remain a marginal player
with its DAMA focus.

While in 2002—03 HNS' lead was largely because of its big ticket win with
the Playwin lottery (5,000 units), this year the growth was propelled by wins
across different sectors. HNS sold 5746 units to corporates (lottery comprising
3,000 units), 3314 units to the government sector, and 533 units were sold to
the SME segment comprising channel, education, and retail.

Having carved a niche in the lottery business with the Playwin order, HNS
continued its focus in the segment. Some big wins in lottery include Best &
Co (600 VSATs), Apollo (500 VSATs), Modi (750 VSATs), Martin (500 VSATs), and
Inlott (250 VSATs). The total units sold by HNS into the segment stands at 9,000
units with 6,000 units sold in the previous fiscal.

The government sector proved particularly lucrative for HNS as some good
value deals comprising hubs and even DAMA VSAT were closed during the last
quarter of the fiscal.

Some noteworthy wins in the government include Damodar Valley Corporation 22
DAMA VSATs with hub, GramSat 354 VSATs with hub, BPCL 300 VSATs with hub, ONGC
200 VSATs with hub, MP Treasury 200 VSATs with hub, and ministry of home affairs
200 VSATs.

Other big orders include 1,000 VSATs sold for ATMs and 1500 to ITC, 1200 of
which were sold during the last quarter. During September 2003, HNS launched
DirectWay Compact with IPoS (Internet Protocol over Satellite), positioned as
major technological thunder.

Gilat did impressively well in the banking sector with over 2,500 units.
These were deployed in ATMs and stock-brokering houses. SBI was the largest
buyer in this segment with over 2,000 VSATs. Gilat's other big account in the
year was ITC which bought more than 1,500 VSATs. The company also tapped a new
segment, the commodity exchange sector, and expects good business from it during
the current fiscal.

V&D estimates CyberMedia Research

Viasat sold 1,000 TDMA units to Tatanet. Its DAMA customers include NTPC
(with hub), ERNET, and Indian Oil (250 Vsats with hub). It launched a new TDMA
product during the year called LinkStar with 1.2 Mbps throughput and is upbeat
about its TDMA prospects during the next fiscal.

The Market

The year 2003—03 marked the expansion of the market as VSATs became more
affordable. In April 2003 the government announced reduction in revenue share
from 40 percent to 10 percent. This spurred the service providers and the sector
witnessed resurgence of activity as Essel Shyam went into active mode and
Tatanet launched its services. Another favorable factor was that the basic duty
on import of VSAT equipment for service providers was reduced to zero.

With service providers passing on this benefit to customers, lowering of
customs duty from 38 percent to 32 percent and decline in hardware prices by 10—12
percent, the cost of VSATs went under one lakh rupees, throwing them open to a
new set of target customers. Segments like retail chains, fast food chains like
Pizza Hut and McDonalds lapped up VSATs both for reliable connectivity as much
as for easy deployment and manageability. Commodity exchanges as a segment were
a new discovery.

Lottery saw tempered growth but ATMs as an application continued to drive
VSAT growth despite competititon from CDMA and GPRS operators. Last year, SBI
took the lead in taking ATMs to secondary towns and cities with the help of
VSATs.

V&D estimates CyberMedia Research

The year saw unabated growth in the government sector particularly in the
banking and oil segments. ONGC, HPCL, and BPCL rolled out VSATs to link up their
retail outlets.

Outlook

The VSAT industry will continue its onward march fuelled by action in the
oil sector, retail and fast food chains, and commodity exchanges. Hardware
prices are expected to stabilize during the fiscal registering better
bottomlines for vendors.

While connectivity could still be the major driver in rural and semi-urban
areas, in urban areas growth will come from the innovative offerings by service
providers like Wi-Fi, credit cards, and customized applications. Although the
education sector has not picked up momentum, it is still a promising segment
with distance education driving the adoption.

Government will continue to foster growth and oil PSUs will take the lead as
more and more retail outlets get connected to the network. HPCL has already
linked 300 distribution points this year. With their ERP in place both HPCL and
BPCL plans to link up 4000 petrol pumps each next year.

V&D estimates CyberMedia Research

While it may be difficult for vendors to expect expansion into new markets,
growth will come from existing segments and expansion plans of customers.

The industry's growth can be aided considerably by a few positive measures
from the government. The most pressing issue amongst VSAT service providers
today is the need to have an open sky policy. VSAT service providers are not
allowed to directly connect with foreign satellites having footprints over India
as compared to other services providers like ISP and broadcasters. Currently
VSAT service providers have to buy space through ISRO which makes the process
tedious and time consuming.

Simplifying clearance procedures is another aspect that needs to be
addressed. Besides simplifying the WPC clearance a number of clearances need to
be done away with.

Balaka Baruah Aggarwal