A methodology for obtaining required rate of return in domestic satellite communication systems
- Paper ID
IAF-87-628
- author
- company
Development and Educational Communication Unit (DECU), Indian Space Research Organization (ISRO)
- country
India
- year
1987
- abstract
Introduction Telecommunications has not yet been considered solely a public service but as a business venture, even where the capital is owned by the government. The PTT authorities in most countries make investment decisions on the basis of revenues exceeding expenditure by a certain percentage. Specifically, the revenues should be such that the capital expenditure is fully recovered during the lifetime of the equipment and the cost of capital is recovered at a rate above the prevailing interest rate. This parameter, known as the rate of return, includes depreciation and profits. In telecommunication projects, the rate of return is required to be high, of the order of 20-2 5%. In domestic satellite communications systems, it is even higher because of the shorter lifetime of the satellites of 7 years as compared to 15 years for terrestrial equipment. This paper outlines a methodology for tariff fixation and thereby for obtaining the required rate of return in satellite communication systems. While the specific example is that of the India's INSAT system, the approach is basically applicable to any satellite system. In telecommunications projects, the rate of return consists of two components. The first in the depreciation of capital investment over the lifetime of the equipment. Since most currently used communications satellites have a nominal lifetime of seven years, the depreciation is normally taken as around 15%.