Guest Column: VSATs: The Road Ahead

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In earlier years, practically all the blue-chips companies in India had either installed their own VSAT networks or hired services from the commercial service providers. Today, the user base is spread across various sectors such as banking and financial, fast moving consumer goods, consumer goods, industrial goods and services sectors. The list of VSAT users includes many state governments, TATA, SAIL, Reliance and many other big players.

New Growth Markets
The market share of VSAT services in the urbanized fraternity of customers is on the point of saturation. We envisage only about 10-15% growth in these areas. However, new markets in semi-urban, rural and remote areas can propel and sustain a healthy growth in the coming years. For example:

Wg Cdr BG Bhalla (Retd), secretary general, VSAT Services Association of India (VSAI)

Distance education: This sector has been growing steadily over the last two years and has great potential. More so because of the EduSat program of the Department of Space which envisages providing distance education to schools and colleges with a projected VSAT base of 35,000 in the next three years.
Inventory control of consumables: Oil companies like BPCL and IoC are using VSATs to update their inventory for bulk storage and highway outlets. HLL is using VSATs in a big way to update inventories in the remote consumer markets.
eCommerce: A successful example is the use of around 6,000 VSATs by ITC Chaupal.
eGovernance: The central government, and many state governments have embarked upon the use of VSATs for eGovernance.
eFinance: Use of more VSATs for ATMs and other banking activities.
Tele-medicine: High potential market but the high cost of service is a barrier at present.
Internet-broadband penetration: A recent policy change has cleared the way for commercial service providers to deploy VSATs for proliferation of Internet and broadband services in rural and remote areas.

Unfriendly Government Policies
Compared to the growth rate of other telecom services like cellular and basic telephony, the VSAT annual growth rate of around 35% is nothing. The satellite technology is time-tested, and a viable and speedy solution for shrinking the digital divide. This does not take into account the population in 5,161 cities and towns, which are part of the expansion plans of major telcos in the next three years, using technologies other than VSATs. While wireless and terrestrial infrastructure in areas outside the 5,161 towns will take many years to come up, VSATs can play a vital role in the initial years. The biggest constrain is the cost factor, much of which is attributable to artificial costs incurred due to government policies. Here are a few examples.

List of VSAT Service Providers

To date, government has issued 15 commercial licenses, of which five have been surrendered or cancelled. The current service providers are:

Bharti Broadband
Comsat-Max
Essel-Shyam Communications
Gujarat Narmada Valley Fertilizers
HCL-Comnet Systems & Services
Hughes Escorts Communications
ITI
NELCO (TATA-NET Division)
TVC India
Software Technology Park of India (STPI)

Note: Comsat Max has been bought over by Bharti, and TVC India by Essel Shyam.

Basis of calculation of license fee: There is a dispute over the definition of adjusted gross revenue (AGR) which is taken as the basis of calculating the license fee for all telecom service providers. The result-the end user is the worst affected.

NOCC fee: An exorbitant amount of Rs 20 lakh per transponder is payable for the NOCC activities, for monitoring only the transponder traffic. Result-this cost is borne by the end user.
WPC Fee: According to the current policy, the highest data rate of a VSAT in the network determines the rate applicable to the entire network. Thus, a user working at a lower data rate ends up paying at a higher rate. TRAI has suggested a reduction in the WPC free from 4% to 1%. Result-VSAT services will become more affordable for the rural users.

VSAT services are on the point of saturation in urban markets. New markets in semi-urban, rural and remote areas can propel and sustain a healthy growth in the coming years

In its recommendations on the growth of telecom services in rural India (October 03, 2005), TRAI has discussed in great detail the subject of narrowing down the urban-rural digital-divide. It recognizes the VSAT technology as the most viable.

The incentives offered for the VSATs installed in rural areas, that is, outside the 5,161 towns/cities, include (Para 7.9):

WPC fee @1% of AGR
Concession in license fee for VSATs in rural areas
Satellite transponder space at a nominal rate as has been done for EDUSAT
Alternatively, offer discount linked with roll-out of VSATs in these areas, which may be financed from the USO Fund

Down Memory Lane

From 5,000 installations in 1998 to 64,000 in end-2005, VSATs have come a long way

Under the National Telecom Policy 1994 (NTP 1994), the government allowed VSAT services in the private sector. Two types of networks were permitted: Captive networks set up by individual enterprises for own use, and commercial networks to provide VSAT services to general public and enterprises at large. In those days, this technology, even though most reliable with a 99.9% uptime, was an expensive connectivity option. Typically, a VSAT terminal was priced at Rs 0.5-to 1 mn. In spite of this, connectivity-hungry users-ill serviced by the incumbent telco-opted for VSATs. The annual tariff of leased lines at that point in time was around Rs 1.2 mn.

Growth rate in the first 3 to 4 years was upwards of 50%. It dropped to 10-15% between 1998 and 2001, not because of lack of market but due to the non-availability of Extended C-band transponder space on INSAT satellites. This frequency band was unique to India.

The NTP 1999 envisaged the use of universally popular KU-band on INSAT, as well as, on foreign satellites for VSAT services in India. While formulating the policy in October 2000, the government, however, opened up the use of KU-band only on INSAT satellites. The growth rate picked up in 2001 and stayed at 35 to 40% in the service sector in the last four years.

The overall installed base--service plus captive-which was around 5,000 in 1998 at the time of transponder crunch, stands at 64,000 by the end of 2005. Of this 47,000 are in the commercial sector and the balance in the captive sector.

It is ironical that the VSAT service providers who contribute 5% of AGR towards the USO Fund, are not entitled to any support from this fund. It is also paradoxical that the government refuses to recognize that a VSAT installed in a notified rural area for the use of a corporate customer is actually helping in narrowing the digital-divide (and also indirectly helping in creating rural employment). After all, why will such a customer opt for a VSAT service if it had access to other means of reliable telecom service?

The handicap-other than TRAI and ISRO, not many in the government recognize the inherent advantage of using the satellite technology for rural connectivity. More so, for meeting the national objectives and targets set for the next four years.

Future can be Bright
At present, VSAT services are tied to INSAT satellites. Allow the operators to use any satellite, and see how the services become affordable in a competitive environment.

TRAI has repeatedly said that VSAT technology is a viable solution not only for rural connectivity but also for penetration of Internet and broadband in these areas. The government will not be able to meet its broadband targets for 2010 unless it takes bold and radical steps such as the use of satellite technology which is most suitable for short-term results.

The biggest constraint to growth in rural areas is high artificial cost incurred due to
government policies

The greatest obstacles to rural development-large distances and inadequate infrastructure--can be overcome by access to virtual institutions that provide banking, education, health care, neonatal information, agriculture advice, and so forth. VSATs can play a major role in this.

The VSAT services in urban areas are taking a beating from alternate technologies. Its future market lies in the rural areas where VSATs can be deployed effectively for Internet and broadband services such as eEducation, eGovernance, eCommerce, eFinance, telecom, tele-medicine and entertainment.

VSAT services have to become more affordable in rural areas. It can be used to meet the national objectives for rural upliftment. Any half-hearted approach will stagnate the industry. Strong government support is necessary for its healthy growth.

While the Internet is and should remain global in nature, its beauty lies in keeping the traffic local. Let us join hands in developing the Indian Internet with this perspective.

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