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Sunday, June 16, 2013

Phase 2 digitisation spoils seen in 3-4 months

This story first appeared in DNA Money edition on Monday, June 10, 2013.

Benefits of the Phase 2 cable television digitisation are seen accruing to the books of leading broadcasters, multi-system operators (MSO) and direct-to-home (DTH) service providers as early as next quarter.

“We see a higher likelihood of cable TV average revenue per user (Arpu) increase in the next 3-4 months as MSOs introduce direct billing systems and begin charging on a gross basis (versus net basis currently). This may lead to higher DTH tariffs as well, which are usually pegged to the cable TV Arpus,” Sachin Salgaonkar, Paras Mehta, Swosti Chatterjee and Piyush Mubayi, equity analysts at Goldman Sachs India, said in a note dated June 5.

According to the Ministry of Information and Broadcasting (I&B),  over 85% of digitisation has been achieved in the 38 cities post the Phase 2 digital addressable system (DAS) deadline of March 31. While 15 cities have achieved nearly 100%, 24 cities in all have achieved more than 75% and 34 cities have achieved more than 50% digitisation.

With Phase 2 digitisation nearing completion, the market has seen a higher degree of consumer awareness, which is likely to ensure a smooth transition to digital systems in Phase 3 and Phase 4 rollouts. However, DTH companies are set to see greater traction than digital cable in the balance phases as majority of the Phase 3 and 4 locations do not have sufficient digital cable infrastructure to ensure smooth service delivery.

The Goldman Sachs analysts have thus reiterated ‘buy’ on Dish TV, saying the DTH leader is expected to benefit from Arpu increases in the medium term.

The I&B ministry said in a statement in April that against the targeted 1.6 crore set-top boxes (STBs) in Phase 2 digitisation, 1.36 crore STBs have been installed by the MSOs and DTH operators. As of April, the total number of installed cable TV STBs stood at 91.5 lakh compared with 44.5 lakh for DTH operators.

Industry experts are of the view that while DTH/MSOs continue seeding of STBs, the MSOs are almost in the last leg of finalising commercial contracts with broadcasters and local cable operators. Also, the broadcasters are likely to benefit over the longer term as current DAS contracts are for shorter terms (12-18 months), leaving room to renegotiate on a per subscriber basis as and when seeding achieves completion and more subscribers are added.

The Goldman Sachs report quoted Zee top management (from March quarter earnings call) as saying, “subscription revenue during the quarter has been the highest ever and the digitisation rollout will only improve in the medium term...”

The bulk of the 25.6% growth in subscription revenues, Zee management had said, was from domestic subscription revenues. The broadcaster expects a larger part of the growth to unravel in the Phase 3 and Phase 4 of digitisation.

“We note that broadcasters like Zee saw revenue increase earlier than MSOs as they renewed contracts under DAS, whereas MSOs started seeing revenue uplift led by seeding of boxes and activation revenues from Phase 1 and 2 of digitisation. With MSOs launching DAS packages, we expect Arpus to increase their billing system under DAS leading to revenue uplift for DTH operators,” the Goldman Sachs analysts said.

Sanjay Goyal, chief financial officer, Siti Cable Networks, said in a March-quarter earnings call that major digital cable players were in concerted play to expand their reach on the ground. “DAS cities and towns are getting stabilised gradually and we are already seeing majority of the collections for the first 3-4 months starting to flow into the system. While pricing has been increased, we expect it getting reflected either in the month of June or July. Also, tier-based pricing (ranging from Rs 100 + taxes to Rs 267 + taxes) has been finalised, which will get implemented in the next few months,” he said.

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