The VSAT industry continued with its growth trajectory this year as well, to record a growth of around 36.2%. Its installed base on shared hub operations reached 82,063 VSATs by March 2008, up from 60,210 VSATs as on March 2007. In total, there were 21,873 VSATs installed in the last fiscal.

The overall size of the market stands at Rs 600 crore, including the equipment and services segment.

Hughes retained its leadership in the services category with its revenue from the services segment reaching Rs 135 crore in FY 2007-08, up from Rs 120 crore in FY 2006-07. Its biggest order worth Rs 40 crore came from State Bank of India for 1,430 VSATs. Apart from this, Hughes also bagged orders from ICICI Bank, Infotel Satcom, Reliance Retail, BPCL, Canara Bank, and UFO Moviez. The company is targeting a growth of over 25% in the current fiscal.

It is also planning to launch a new product, HX, a high, end solution for branch connectivity. The product is mainly targeted at the BFSI segment, but will be useful for other segments that have branches across the country as well. Hughes is also in the process of launching more dynamic digital signage for the retail segment. The services offered by the company include a hybrid broadband VPN network, which is a mix of DSL and VSAT, which has emerged as the key offering of the company.

While HCL Comnet occupied the second slot last year, it is not the case this year. Bagging some major orders, Bharti Airtel managed to dethrone HCL from the second position.

It was an exceptional year for Bharti Airtel. The company increased its installed base from 13,500 VSATs in 2006-07 to 23,475 VSATs in 2007-08 leading to a substantial increase in its market share, from 22.6% in 2006-07 to 28.6% in 2007-08. Bharti recorded a revenue of around Rs 90 crore from the services side of its VSAT business. Bharti picked up significant orders including the prestigious e-Gram connectivity project from the Government of Gujarat, an order for common service center connectivity from 3i Infotech, and another from World Health Partner.

HCL Comnet on the other hand installed just 3,055 VSATs last fiscal. The company got orders from the Indian Navy, Unicon, Punjab National Bank, Bank of Baroda, United Bank of India, and Sew Constructions.

Essel Shyam saw a major increase in its VSAT installations last fiscal. The company installed 4,949 VSATs by March 31, 2008, up from 2,300 VSATs by the end of March 31, 2007 recording a growth of 115%. Consequently, the market share of the company came up from around 4% in March 2007 to 6% by the end of March 2008. The company recorded revenue of Rs 97 crore in FY 2007-08.

Tata Net increased its installed base from 3,868 VSATs by the end of March 2007 to 5,060 VSATs at the end of March 2008. The company is creating a `Pan-Africa' communication network for telemedicine, tele-education, Internet, video conferencing, telecommunication, and e-governance services across 53 African countries.

Apart from this, significant new entrants in its order book for FY 2007-08 included ACC, Tata Motors, Kingfisher Airlines, Gujarat Ambuja, Defence Electronic Applications Lab, E Edge, and NTPC among others. Tata Net is also renewing its SME initiative with thrust on Internet connectivity for remote towns for small enterprises, hotels, and education institutions.

Small players like ITI and GNFC stood with an installed base of around 45 and 5 VSATs by the end of March 2008.

Based on the installed VSATs, Hughes has a market share of around 31% in FY 2007-08, which is a little less than its market share of 33.6% in FY 2006-07. Bharti, which boasted of a market share of 22.4% in 2006-07, has substantialy increased its market share to 28.6%. This increase of course is at the expense of HCL Comnet, which lost its market share in the last fiscal. HCL had a market share of around 33% in 2006-07, which has come down to around 28% in FY 2007-08.

Market Dynamics
One of the biggest achievements of the VSAT industry last year was the emergence of big orders of more than 500 VSATs each, unlike previous years. For instance, of all the contracts that Hughes bagged, only one amounted to less than 500 VSATs. This trend reflects the increased acceptance of VSATs.

There has been an increase in the awareness concerning VSAT as a large number of verticals are beginning to adopt the technology. However, earlier VSATs were restricted mainly to thin route applications like ATMs or lottery. Whereas today, sunrise segments like retail and digital cinema are increasingly deploying it.

The VSAT industry, atop this trend is inevitably expected to witness a boom. As vertical segments realize the importance of reaching closer to the consumer in the remotest corners of the country, they find that VSATs are the most suitable medium considering the ability to provide ubiquitous coverage, high reliability, ease of network management, and cost-effectiveness. Traditional segments like BFSI, retail, and rural services are also growing at a scorching pace, and this will continue to contribute to the growth of the VSAT industry.

Over the years, the role of VSAT has transformed from being the only available means for connectivity, to its present complimentary role in supporting the more prevalent terrestrial solutions. Technology has emerged as a winner in broadcast and multicast applications, which are being extensively used in banking, broking, and manufacturing segments, for their enterprise core networking requirements.

There is also an increased adoption of multicast, which is good news for the industry. Segments like digital cinema, digital signage, e-learning, business IP television (a way of streaming audio/video content within the organization) are using the multicast solution very effectively for content distribution.

Network expansions in rural domains will further fuel the growth of the VSAT segment. Bharti Airtel's e-Gram project is a case in point. The company has partnered with the Government of Gujarat in the e-Gram connectivity infrastructure project. Airtel will set up telecom infrastructures to connect 13,716 village panchayats and common service centers in the state. Once connected, the panchayat offices are expected to form a socio-economic network supporting information dissemination and facilitating e-governance initiatives in the state.

Following the market one can see that there is a clear movement toward shared hub as compared to dedicated hubs. As on March 31, 2008, total VSATs on the shared hub stood at approximately 80,000, as compared to 20,000 on captive hub. The dedicated network model is also facing a slow down and the shared network model is growing at a faster pace. Even government users have started adopting the shared network model.

In a dedicated hub, the charge for the license fee per remote VSAT per annum is Rs 15,100, whereas on the shared hub, the charges are 10% revenue share. Since the average VSAT bandwidth annual ARPU is Rs 40,000 per annum, it translates to Rs 4,000 per VSAT per annum. Hence, there is a big overhead on license fees in a dedicated hub model. This is the main reason for the movement toward outsourcing of VSAT services.

As terrestrial networks continue to penetrate, VSATs continue to play a critical role in providing access continuity services. This has led to the emergence of hybrid networks that has probably been the biggest development in favor of the industry. Telecom operators provide the bulk of the infrastructure, along with VSAT service providers equipped to provide a managed network service that comprises satellite backup for the urban sites and satellite as the primary medium for semi-urban and rural sites.

Significantly, VSAT companies are fast moving up the value chain to garner the maximum market share. There is clearly a movement toward a more holistic offering that bundles software, hardware, and services in one package. Digital signage, digital cinema, e-learning, and other content distribution areas are some of the examples of this movement.

The segments, which are likely to contribute substantially to the growth of VSAT in the coming two-to-three years are:

Remote Education: India, which has a huge geographical spread, needs an alternative way to impart education to masses in rural areas. Distance learning, which allows two-way communication between schools, and project's headquarters, and also among the schools themselves are likely to be major growth drivers for the VSAT segment. The EduSat project is an appropriate example of the effectiveness of this technology.

Telemedicine: This could be one of the applications that would drive VSAT connectivity in the future, with its appropriateness for medical consultation for people in remote. Though, the cost of the technology is a barrier at present.

Digital Cinema: About 80% of films made in India do not get the expected returns because of a high price of distribution. Electronic movie distribution will benefit the owners of B- and C-grade centers, making it possible to participate in the first week of movie release. This is one of the unexplored areas but is likely to emerge as one of the drivers for the VSAT industry.

Retail: VSATs are emerging as a cost-effective option, as compared to dial-up connection, in credit and debit card authorization. It also saves time. One example could be of Hughes that has significant retail customers like Reliance and Vishal.

e-Governance: The government is one of the traditional segment that uses VSAT technology extensively. This is likely to continue as many new schemes like e-Gram are soon to be implemented.

Mobility: Mobility is another important area that can witness tremendous growth for VSATs since, transportable and satellite on the move applications have a tremendous potential for land, sea, and air vehicles. Though, regulatory norms are the main obstacles in this arena.

Some Worries
The VSAT industry is currently facing pressure on margins. Though, the year gone by saw sharp decrease in the price of VSATs. The price of VSAT units had come down to Rs 45,000 from Rs 70,000 in April 2007. The other side of the coin is that this will also act as a major growth driver.

The industry is also facing challenges from the regulatory side. While high growth in GSM and CDMA businesses have provided a big opportunity for VSATs to link up the remote towers of operators to base stations, the highly complicated and long regulatory process has taken away considerable business potential from the industry.

Apart from these, satellite bandwidth availability and cost, both pose a challenge to the industry, hindering its speedy growth. Bandwidth availability in Ku-band is a major constraint and the industry is keenly awaiting the launch of new satellites to bridge the demand-supply gap.

Going Forward
The industry aims at crossing an installed base of more then 90,000 VSATs by the end of FY 2007-08, and further ahead, plans to increase its installed base up to 10 lakh VSATs in the next three years. There is a robust demand for both Ku as well as Ext-C band services. The key industry segments expected to contribute strongly to the growth in the VSAT segment in FY 2008-09 are banking, e-governance, stock/commodity trading, defense, distance education, and retail. Apart from this, there is higher acceptance of VSATs as a broadband access medium by a much larger market of SMEs, which is likely to provide additional growth compared to the traditional enterprise and government segments.

Considering all the above stated facts, the future seems to be bright for the VSAT industry, as it expects to record a growth of 20 to 25% in the current fiscal. It is poised to play a critical role in bridging the digital divide by addressing remote rural segments. There is also a cultural shift with regards to VSATs as sunrise industries adopt this technology.

Gagandeep Kaur
gagandeepk@cybermedia.co.in