Communication Jam

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.

The culprit



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

gloomy times?

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

investments."

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

effected."

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.