Consider a country with huge market
potential, international companies coming in droves, tie-up with local companies,
realization of tough market, scaling down of projections, shakeouts and restructuring,
slump and.... Sounds like another post-liberalization marketing case study? If yes, you
are bang on target-this time it is the VSAT segment.
A small backgrounder. When the VSAT market
was opened up for private players, the perception of a huge and lucrative market paved the
entry for the world's major VSAT players like Hughes, Scientific Atlanta and others into
the Indian market. Huge and lucrative, a volume and value market, an unbeatable
combination for any player. The perceptions were not without valid reasons. India, an
infrastructural nightmare, has very poor terrestrial communication to boast of. According
to Manoj Chugh of Scientific Atlanta, "The geographical spread, low tele-density and
strong demand for a reliable communication network and innovative applications all led us
to the conclusion that India has great potential for these products." Moreover,
unlike the US, the biggest VSAT market in the world, where VSATs play a complementary role
to the excellent terrestrial communication facilities, in India they were expected to play
the mainline role and hence constituted a huge market.
Have these perceptions turned into reality?
Well, not really, if the current gloom in the industry is to be considered. Though the
market had been logging an excellent average growth of 50-60% between 1995 to 1997, the
current year has been bad for the sector. The industry had grown for the past few years
despite government rules and regulations bottlenecking the industry. Comments SP Jerath,
President and CEO, HFCL Satellite Communications, "We have been operating with our
hands tied right from day one." It is ironic that on the one hand the government felt
the need to improve its communication facilities and introduced the VSAT system, but on
the other it has opened the sector with trepidation and caution as VSATs would directly
eat into the DoT revenues. The best bet-rules, rules and more rules.
Talking about rules and regulations, here
are a few examples. India has the distinction of being the only country in the world with
VSAT transmission on extended C-band frequency. This implies that equipment has to be
redesigned for the Indian market, thereby increasing cost. Another one is the site
clearance requirement for each 3.8-inch DAMA (demand assigned multiple access) dish
installation from around 40 agencies, which takes anywhere between 2-4 months. While the
1.8-inch TDMA (time division multiple access) falls under the automatic approval category.
Moreover, unlike the western market where license fees are nominal and operations based on
revenue-sharing, Indian service providers dish out a heavy amount of Rs 1 crore as a
quarter transponder lease charge and the end-user has to pay around Rs 55,000 for each
VSAT. Also, service providers are allowed PSTN (public switched telephone network)
connectivity only within a city and not inter-city. Moreover, VSAT service providers are
hampered by regulatory clauses to access ISP, paging and cellular markets.
In spite of these handicaps the industry was cruising at a double-digit growth
rate. So, what has happened in the past few months that the industry is suddenly facing
Is the current economic recession the
culprit? Partly, yes. Sanjeev Nikore, VP (Marketing), HCL Comnet, says, "VSATs are an
infrastructural investment and because of the economic slowdown, corporates are postponing
However, more importantly (the industry is
near unanimous about the issue), another problem which is currently posing the biggest
threat to the survival of the industry is the satellite space segment shortage. The
government's failure to forecast the exponential increase in usage coupled with the
failure of ISRO's INSAT 2D satellite has led to the transponder and bandwidth problem.
Adding to the problem has been DoT's inability to provide extra extended C-band
transponders to the service providers. Most of the service providers have exhausted their
bandwidth and are not giving commitments to new clients-in fact many times they are being
forced to refuse orders.
The latest issue giving service providers
sleepless nights is the recent TRAI proposal to cut down the cost of leased lines from Rs
12-14 lakh to Rs 1-2 lakh per annum. This has created a flutter in the VSAT market as
corporates are delaying investment in VSAT systems till a final decision is made. Though
in the long run, it is expected that the success of the VSAT industry will not be based on
`replacement of the leased line' syndrome. Adds Chugh, "Last year 80% of the VSATs
worldwide were deployed in Europe and USA, which have cost-effective high-quality
terrestrial networks. VSATs offer key benefits which cannot be met by terrestrial
infrastructure." However, Partho Banerjee, VP (Marketing), Hughes Escorts, cautions,
"If the proposal is accepted in toto, we would see a fall in revenue for SCPC and
PAMA, particularly in metros. Also, to some extent the TDMA segment will be
Who is to be blamed? Market dynamics, a
bane for many other sectors, is, surprisingly, not the culprit for the current state of
VSAT market. The industry is crying hoarse about an apathetic government and delayed
decisions as the cause for their situation. For instance, the industry claims that extra
transponders on other frequencies are available but the government continues to
dilly-dally on the issue.
First and foremost, the issue of satellite
space needs to be sorted out. Though the ISRO launch scheduled in May 1999 will address
this issue, bold measures need to be taken to avoid the pitfalls of depending on a single
agency. Allowing of third-party uplinking facility needs to be seriously considered. A
step forward in this direction is the recent proposal to allow 100% ownership in satellite
companies. If the proposal is accepted, one would see companies investing in satellites,
especially for the Indian market. Another ramification-goodbye to DoT's licensing
monopoly. Also, the TRAI proposal on leased lines needs to be relooked at, if the industry
is to be given a level-playing field. Other anomalies like transmission speeds of over
64Kbps, shelving the closed user group restriction-wherein a user can only communicate
within its domain and not with other users-rethinking on the license and transponder fees
and others need to be looked into.
Many things to be done but the important
question is: Is the government doing anything? Nothing so far. Apart from making
statements that the problems of the industry will be looked into, no firm steps have been
taken to address the issues. Till the time of going to press, we had not received any
clarification from the DoT on the above-mentioned issues.