by James Careless

When it comes to the global VSAT market, the United States and Europe dominate. In fact, according to Comsys’ 1999 VSAT Report, the United States accounted for 62 percent of all VSAT orders in 1998, while Europe took 15 percent.

The remaining 23 percent belonged to Latin America, Africa, the Middle East and Asia. In industry parlance, these are the "emerging markets" as far as VSATs are concerned. (Although classified as part of Europe, the former Soviet-controlled eastern half is also considered to be "emerging" as well.) These are regions offering great opportunity for VSAT operators, and from a business standpoint, sometimes great risk as well. Of course, about the only point these areas have in common is a share of this 23 percent. Otherwise, it’s nearly impossible to make broad generalizations.

For instance, the rapidly growing, sophisticated business culture of Latin America just isn’t comparable to the struggling, cash-starved African economy. Likewise, the heavy hand of government that has kept Eastern Europe decades behind the West, technologically, has had a different impact in Asia. In countries such as the People’s Republic of China, for instance, it’s the state that is pushing technological advances ahead-albeit under tight control-in an effort to boost both its economic and political power.

Still, there are applications that some, if not all, of these regions share.

The High End: "IP" Is The Word

Whether in Latin America or Africa, the hunger for Internet Protocol (IP) networks is as fervid as it is in the United States.

In fact, the most popular VSAT applications are "IP-related services," says Vinod Shukla, senior vice president and general manager of Hughes Network Systems’ (HNS) international satellite network division. That’s backed up by Comsys’ 1999 VSAT Report, which says "IP is now the totally dominant protocol in VSAT networks, with all operators reporting that demand from new customers is almost exclusively IP-based."

In Latin America, this is translating into major VSAT installations, Shukla says. For instance, "we are looking at a large network for General Motors in Brazil."

Alan Freece, CEO of Gilat Florida (which does significant business in Latin America), agrees. "IP is quickly becoming a world standard for online communications, and that holds true for Latin America as well," he says. "Given the world reach of this standard, it’s not surprising that progressive companies, even in emerging markets, are seeking to use Gilat’s Skystar Advantage VSAT network for multimedia training and corporate communications, in addition to Web-browsing and Intranet applications."

Eastern Europe is also interested in IP, says Dan Ellenbogen. He’s managing director of Spaceline Communications Services Gmbh, a VSAT service provider based in Dusseldorf, Germany.

The reason: the terrestrial networks in this area just can’t keep up with demand, Ellenbogen says. "The normal terrestrial link that businesses could have is between 64 and 128 kbps," he says. That’s more than good enough for consumers, but not for ISPs and large companies who want multi-megabit capacity.

That’s why they’re turning to Spaceline, he says. Right now the company is linking about 20 Eastern European sites to the Internet via VSAT. "The largest network happens to be in my homeland of Romania, where we have eight locations sharing a single 2 Mbps downstream, and each has its own individual 64 kbps return path."

Asia is also interested in accessing the Internet by VSAT, Ellenbogen adds. In fact, "we have a lot of Internet demand from India, Pakistan and China."

The emerging markets display a startling desire for IP access of all kinds, he says. "They say the demand for Internet bandwidth doubles every four to five months? Well, that’s the case in this area."

The Basics: Rural Telephony

At the other end of the scale, it’s the desire for basic, reliable telecommunications that is driving many VSAT sales in the emerging markets.

Gilat’s Tal Meirzon knows this. As the company’s director for satellite telephony, he’s in the front line of these sales, whether they be in Kazakhstan, South Africa or Indonesia.

In Kazakhstan, Gilat’s job is to deliver the kind of basic telephone service rural populations expect, but can’t get, from their terrestrial carrier. That’s why KazakTelecom is deploying several hundred Gilat Faraway terminals throughout the country.

"Some of the VSAT sites are gateways that connect rural switches to KazakTelecom," explains Meirzon. "Others are connected directly to smaller rural switches. In this way, calls can be routed via satellite from rural switch to rural switch, or directly to the public network." When completed, the system will deliver voice, fax and data to more than 250 Kazakhstan cities and villages.

Meanwhile, in South Africa, Gilat is deploying 3,000 Dialaway VSATs for Telkom SA. They’ll each provide one to three channels of voice and data in the country’s remote Northern Province and Mpumalanga regions.

"This is a smaller product aimed at small business customers like grocery stores, schools and other small businesses," Meirzon says. "It’s all powered by solar cells, because terrestrial power is either not available or too expensive to bring in."

For Telkom SA, whose landline deployment rate is behind schedule, the Dialaway VSATs help it meet its license obligations at a reasonable cost. So far 2,300 have been installed in just under five months. As Tal Meirzon says, by way of understatement, "this is a very quick deployment."

In Indonesia, 200 Dialaway VSATs have been deployed in a payphone-style application called "Wartel." In each Wartel, users can access not only two payphones, but also a fax machine. Next up is e-mail service: When this comes online, the Wartel’s name will be changed to "Warnet."

HNS is also heavily committed to rural telephony VSAT sales. For example, in Africa, the company is building shared hub systems for the Nigerian PTT, Nitel and Ghana’s PTT, Ghana Telecom. Further east, it has already installed more than 4,000 rural telephony earth stations in Thailand.

Meanwhile, HNS has sold its TES Quantum rural telephony product in the Sultanate of Oman. In this Middle Eastern country, the thin-route Quantum is being used to connect oil exploration teams directly into the country’s switched public telephone system. That’s no small feat, considering that Oman encompasses nearly 120,000 square miles of oil-rich land. The same technology has also been sold to the mountainous state of Bhutan, located between India and Tibet, to provide basic voice and data services.

Hughes is also supporting Intelsat’s DAMA (demand assigned multiple access) VSAT service, Shukla says. It’s a low-cost, worldwide VSAT service designed to provide national and international telephone carriage for smaller, poorer countries. For this service, "Intelsat only charges about 5 cents a minute per end," he says. "So if there’s a call going from Cook Island to the United States, that can be handled over the Intelsat network economically without going through a third-party carrier."

Of course, once rural telephony has lost its novelty, local businesspeople start to want more from their VSAT connections. A prime example is Eastern Europe.

When this market opened up after the fall of the Iron Curtain, "the first application was SCPC (single channel per carrier), which was used by customers to share data and voice," Ellenbogen says. "In other words, a headquarters in Western Europe needed a link to a new company in Eastern Europe; maybe 64 kbps for data, voice and fax.

"Now we’re seeing a demand growing within those countries for TDMA (time division multiple access) star-shaped networks," he says. "Since we have two hubs in Dusseldorf-one looking at the Kopernicus satellite, the other at Eutelsats 2 and 4-we can service these networks throughout Europe."

Latin America is also demanding more traditional VSAT applications. "One excellent example is the VSAT data network Gilat Florida has provided to Banco Bradesco S.A., South America’s largest bank," Freece says. "Over the past two years, Bradesco’s VSAT network has grown to become one of the largest in South America, with 1,500 sites. Applications include teller services, e-mail, file transfers and automatic teller machines (ATMs).

"The retailing industry is not far behind in its widespread adoption of VSAT data networking," he adds. "The popular Elektra department store chain operates one of Mexico’s largest VSAT networks, at 1,200 sites. In addition to interactive data applications such as credit authorizations, Elektra utilizes its VSAT network for downloading software and price file updates to stores for accurate and consistent pricing, and in-store audio."

The Challenges: Limits On VSAT Growth

Obviously there is a lot happening with VSATs in the emerging markets. But there would likely be more if certain forces weren’t in play.

The first one is money. Often there isn’t enough of it, particularly for rural telephony, which doesn’t generate a lot of cash. In fact, the fundamental problem with rural telephony is that "without government subsidies, how do you really make money?" Shukla asks.

The answer to this question seems to be, "you don’t." That’s why Shukla applauds the Colombian government, which has put out a tender for a 6,000-site rural telephony VSAT network. Aware of the minimal revenues generated by this application, "they have offered up to $75 million in subsidies to make the project viable."

In addition, the Asian economic meltdown is still affecting VSAT sales and usage. Although the Asian VSAT market hasn’t collapsed as feared, it also hasn’t grown.

Meanwhile, the legacy of the Soviet Union lives on in Eastern Europe, which is still trying to overcome decades of economic mismanagement.

On this point, "Russia is suffering more than anybody else right now," says Comsys Senior Consultant Simon Bull. "Leave aside the problems they’re having right now with their financial crisis. Beyond this, it is a huge country, with populations scattered all over the place. It has a terrible lack of investment in the government structure, and the government can’t collect its own taxes. So what chance do you have of laying out a national VSAT network and being able to manage it?"

The second factor hindering VSAT growth is competing carriage technologies. Mindful of VSATs’ potential, local PTTs aren’t sitting on their hands. Instead, they’re promising equally fast services by landline at cheaper rates. Obviously, this has-and is meant to have-a dampening affect on VSAT sales. However, as Bull points out, the failure of many PTTs to deliver on their promises is minimizing any damage.

For instance, when India’s Telecom Regulatory Authority slashed 64 kbps landline fees to 10 percent of VSAT costs, the satellite industry appeared to be in serious trouble. However, the Indian government usually can’t provide 64 kbps lines, Bull says, and when it can, the lines aren’t reliable enough for business to choose them over VSATs.

The third obstacle putting the brakes on VSAT growth is government interference. In the main, it comes in the form of regulations. Although many of these are now being eased or dropped to boost economic growth, those that remain can still hurt.

For instance, China’s attempts to control Internet access show government regulations can stunt VSAT sales. Because of this, the kind of fast, unfettered service offered by DirecPC is out of the question.

Of course, sometimes government regulation can be a boon. For instance, in Latin America, the launch of competitive long-distance telephone services has benefited Gilat, Freece says. That’s because new entrants have to get their services up and running quickly to keep their licenses. As Telkom SA has learned, the only fast way to do this is by VSAT.

How big a benefit is this? Well, "today, the telephony product line amounts for about 30 percent of Gilat’s sales," Meirzon says. "A year ago, it was only 14.5 percent."

However, a more sinister type of government interference exists, namely corruption. In an effort to line their own pockets, bureaucrats can throw all kinds of obstacles in the way of VSATs.

To some extent, corruption has always been a cost of doing business. However, in some regions-notably the former Soviet Union-it’s become bad enough that the expense often isn’t worth it.

In Russia, things are so desperate that "everybody’s out to make money from wherever they can make money," Bull says. "In most cases, if you’re a Western company, you’re a prime target."

A case in point: "It can cost upwards of $100,000 to type-approve a VSAT terminal in Russia," he says. Worse yet, if you resell the terminal to another client, "it has to be type-approved again."

One thing is certain: Every country has its own way of doing things. That’s why it makes such sense for VSAT companies to work jointly with local partners, Ellenbogen says, "in order to provide the same level of service throughout the network."

These local partners achieve this not just by providing technical support, but also by handling licensing, customs and other areas where Spaceline bumps up against governments, he notes. That’s why Ellenbogen swears by this approach. "It’s the only way to success, and why we’ve been successful."

The Future: Risky, But Promising

Russian corruption notwithstanding, it’s clear the emerging markets offer great sales potential for VSAT manufacturers and service providers. As long as they’re willing to adapt to local realities, they can share in the growth that’s happening here.

And make no mistake: The emerging markets are growing when it comes to VSATs. For instance, according to The VSAT Report, the Latin American market grew 27 percent between 1996 and 1998. In the same time period, Africa and the Middle East grew 40 percent, while the economically battered Asian VSAT market only lost a marginal amount of ground.

The bottom line: Keep an eye on the emerging markets for dynamic, if diverse, growth in the VSAT sector.

James Careless is a contributing writer to Via Satellite.

---