VSAT sector presses for reforms to stay afloat

Thus far, the regulatory framework has been stifling the growth of VSAT operators. Recent reforms have been in line with long pending industry demands. However, stiff competition means that the 11 players vying for a larger share of the Indian VSAT pie would require a more liberalised framework to survive, and make money, says Rahul Neel Mani

Since the commissioning of the first VSAT back in 1994, the total installed base of VSATs in India has reached 25,000 with a 30 percent growth rate year-on-year. Not much, considering that the Chinese dragon next door clocks a cent percent growth. And it is not just our neighbour. The total global installed base of interactive VSAT terminals stands at 800,000 and this does not include one-way VSATs. Why do we make up less than two percent of global VSAT installations?

Babu at the door

India has 11 licensed VSAT service providers and along with them there are nearly 34 captive networks, used by companies for their own non-commercial work. According to industry estimates nearly 8,000 VSATs are functioning in the captive network capacity and the remaining 17,000 are installed and managed by satellite companies to provide retail and dedicated services to customers ranging from large enterprises to individual users. These captive networks have to acquire a separate license for operations and have to de-link from the service providers’ networks once they wish to operate independently.

The license fees for service providers is 10 percent of the gross revenue earned, whereas captive network users have to pay Rs 16,000 per terminal per year, which, in all likelihood, will be reduced to Rs 8,000 as per TRAI’s recommendation in December last year. This is still pending with Department of Telecommunications (DoT) for clearance. The license fee for the service providers at Rs 50,000 per terminal per annum charged earlier was the highest in the world. In 2001, when DoT decided to shift from a license fee to a revenue sharing regime, the fee was brought down to 10 percent of gross revenue, which translates to Rs 10,000–13,000. Also connected to it is the WPC (wireless planning council) fee for using spectrum. Earlier it was Rs 5,000 per terminal per annum, which from January 1, 2003, has been reduced to 3-4 percent of gross revenue depending upon configuration. But this fee still remains at Rs 5,000 for captive network operators. "One has to understand that captive networks are not allowed to migrate to the revenue sharing regime is because of the fact that they don’t earn any revenue from the VSATs deployed," says B G Bhalla, secretary general, VSAT Services Association of India, a part of the global initiative called Global VSAT Forum.

Band(ied) about—C, extended C and the KU band

If we go back a little in history, the industry was allowed to use transponder space only from INSAT’s extended C band, which was unique to India. Nowhere in the world has there been a restriction on using transponder space from any satellite. That was a sure handicap but service providers took the license because they saw the potential in the market. The providers could have been allowed to use C and KU bands too, but that did not fit into plans of the Department of Space since its satellites had extended C available for non-critical use. It said that the C band wasn’t allowed to be commercially used because the terrestrial microwave network was on C band and there could be certain amount of interference in the frequency spectrum, says Bhalla. The New Telecom Policy was announced in 1999, which talked about the usage of KU band. The industry was allowed to use this band only in 2001, two years after the declaration. It took seven years from 1994 to use the KU band, whereas Western countries were using KU band for a long time. Since then industry growth has been consistent. The numbers in the captive networks remained stagnant but the numbers in the service providers’ networks has kept growing.

Though the EIRP (transponder power) of INSAT KU band was improved significantly, yet it remained less powerful than those available on international satellites. The KU band on INSAT was not commercially viable except for Doordarshan, AIR and other government departments. The VSAT industry was thus very reluctant to hire KU band from INSAT. The government then decided to reduce the cost of KU band by 20-30 percent so that service providers could buy capacity. That was the time when government also allowed usage of capacity from foreign satellites for the first time. "But the Department of Space is the only body that negotiates with foreign satellite companies for transponder space and the contract remains valid for just three years," informs Bhalla. At that time, the cost of a transponder was very high but since then lending rates have been revised, and despite costs coming down, the industry is compelled to pay the same old high cost, which is ridiculous. Inspite of that, it is commercially more viable as compared to using the INSAT KU band. While ISPs and broadcasters can negotiate directly for transponders with foreign satellite companies, the VSAT industry is not allowed to do so. The VSAT industry has suggested the implementation of an ‘Open Sky Policy’–if the ISPs and broadcasters are allowed to negotiate independently, why can’t VSAT service providers? The national satellite policy mandates that VSAT service providers will only be allowed to use INSAT space so that funds expended on launching satellites could be recovered.

Tomorrow if the INSAT satellites have the same power as foreign satellites, the foreign route to the VSAT industry will cease to exist. "The Industry hopes that it doesn’t happen, but as on date this is the policy mandate. There are many commercial considerations with the private operators, which need to be taken into account," opines Bhalla.

Speed and size

Another problem facing the industry is speed. In 1994, VSATs were allowed to transmit at 64 Kbps. Things changed but it took seven years for the government to allow the industry to go beyond a 64 Kbps data transfer rate. The government allowed 512 Kbps in 2001. Let’s not forget that a majority of VSATs and peripheral equipment are imported. Hardware sold internationally is made according to the technology available there and not according to India’s specific needs. This regulation prevented the usage of terminals to their optimum level. This was another big barrier. Now the government has also allowed the usage of smaller-sized antenna. Earlier, the earth station antenna was 32 metres, and then it was reduced to 18 metres, and is now 6-7 metres. Similarly, VSATs, which were 4.5 metres earlier are now under one metre. But the VSAT industry is not allowed to use that size and again, there is no logic behind it. In December last year, TRAI gave yet another recommendation that the bandwidth capacity should be increased from the current 512 Kbps to 2 Mbps. This again, has not been cleared by DoT till date. TRAI has also recommended allowing smaller sized antenna but DoT has not given its go-ahead to this proposal. The industry has been demanding that policy and regulations should be dynamic as they have been made in case of ISPs and software exports. "We are still living in baburaj," says Bhalla.

Capacity-usage mismatch

Why is the installed base of VSATs in India so low? Answers Bhalla, "We have 11 hub stations in India with the private sector operators from where VSATs are controlled and operated. Each hub station can cater to 8,000-10,000 VSATs, whereas the current average is nearly 1,500 VSAT terminals per hub station, which is gross underutilisation of capacity." If we go by the thumb rule, there should be over one lakh VSATs in India by now. The potential is large but the penetration is low because of government policies. One can understand the barrier of cost where a terminal was sold at Rs 15 lakh in 1994-95 but that cost has now come down to Rs 2-3 lakh. A DAMA (demand assigned multiple access) terminal, which was sold at Rs 20-30 lakh (when it was allowed in 1997), is now available at Rs 6-8 lakh. But if the government doesn’t allow higher data rate and equivalent technology upgrades, then the industry is destined to suffer losses.

The cost of leased lines has come crashing down in recent years. From a peak of Rs 14 lakh, it came down to as low as Rs 1.2 lakh. Users thought the VSAT industry would soon succumb to this new offer. Even the VSAT industry was apprehensive. As it is, out of 11 service providers only the top three are doing well and the rest are just surviving. There are some players, who are bleeding due to the fact that buyers tend to buy from just one vendor despite the fact that they have many other options available offering same kind of services."This is the only industry where all 11 operators are competing against each other on a nationwide basis. No other stream in the datacom industry has competition as intensive as the VSAT industry," tells Bhalla. Users, who had to buy VSATs, were spending Rs 8 lakh at that time whereas the leased line costed Rs 14 lakh. Leased lines are not guaranteeing optimum uptime too. But when leased line prices came crashing, corporates lined up to apply for them just to have cheaper means of connectivity. However, leased connections were not available in the timeframe promised. Even a country like US has just 75 percent coverage through optic fibre cable—no wonder Indian telecom companies couldn’t cope up. The leased line was just meant for metros and Class A cities.

"The throwing open of the KU band has helped VSAT service providers grow at around 50 percent, which is fantastic," says Bhalla.

Chanting the integration mantra to survive

The VSAT service providers, who started as core VSAT companies, are now offering converged services, including systems integration. "It makes sense for these companies to provide composite services because the market reality is that there is not much scope for just offering a VSAT service. So turnkey projects are more viable than just VSAT services," says Bhalla.

VSAT players were also forced to become ISPs. Again, government policies are to blamed. An ISP can provide Internet through VSATs to end users whereas a VSAT service provider cannot offer the same service because the VSAT license does not permit him to do so. So, instead of reaching an ISP for an understanding to provide VSAT-based Internet, the VSAT service providers themselves thought of acquiring licenses to become ISPs because the ISP license permits installation of VSATs and providing Internet services anywhere. To top it all, the license fee for an ISP is Rs 1 only. "Although the government can change the license policy yet it is not willing to. What the industry has been demanding is a composite license for all services called ‘Omni-License’ but the government officials are caught in the multiple license raj," says Bhalla.

We too can USO a bit

Again, the industry has the potential of putting up a reliable VSAT network for various voice and data needs but the government doesn’t allow them to do so. A basic service provider can use any telecom technology or media to provide telephony anywhere in India. They are also mandated to provide 10 percent of their total connections to rural areas under the universal service obligation (USO) act of DoT. Tata Teleservices, for example, proposes to install 1,000 VSATs to meet that obligation but VSAT service providers are not allowed to provide rural telephony. Isn’t it a bad policy decision?

"The industry has proposed the creation of a rural corporation and allow the 10-11 hubs to provide rural telephony. The industry can provide as much as one lakh connections every year to villages to complement the government cause but the government does not agree. Rather, they depend on BSNL, which does the minimum and the body is not answerable to anyone," says Bhalla. The government installed 80,000 MARR (multiple access rural radio) phones in the rural areas and this proved a bad choice. Still a lot of money goes in for connectivity in rural areas as per government policy but then what is the achievement? Just one phone in a village makes it to the telecom map of the country. Is it how we define connectivity?

VSAT operators had put forward a proposal to the government that they would install VSATs in rural areas and maintain them. The government was asked to manage bandwidth issues and collect revenues from the users. The proposal sent to DoT asked for 16 percent rental per VSAT every year for five years. The ministry responded to this call by saying that DoT is not in the business of leasing the equipment, they had enough money to buy them. Thus the government turned down the proposal.

We need some breaks

The industry body is proposing the same rate of growth as has been achieved for past couple of years as long as commercially viable transponder space is provided on demand irrespective of competition from leased lines, OFC etc. The reliability of VSATs makes them most suitable for any service. ATM networks are run thanks to VSATs. An entire range of tele-medicine and educational services are being initiated using VSATs. But unlike other services, this industry is dependent on the space department for many clearances. Unless it is reduced, the industry will keep bleeding. "A few years ago European countries were second last in terms of using VSATs. After five years they are second from the top. The reason—Global VSAT Forum has formed a consortium of 43 countries called CERT to have a common VSAT policy and regulatory framework because the footprint of a satellite is not restricted," says Bhalla.