This story first appeared in DNA Money editoon on Monday April 18, 2011.
The Ministry of Information & Broadcasting has come out with a revised time schedule for a four-phase digitalisation process of cable TV across the country. The move follows Telecom Regulatory Authority of India's (Trai's) rejigged recommendation in February this year for a December 2013 deadline to implement digitalisation with addressability in cable TV systems. The revised schedule from the ministry has chosen December 2014 as the final sunset date for analog cable systems across the country.
Industry experts, though, aren't excited. "We don't view the revised time-frame as a big change — as the government maintains its initial timelines for the first two phases and has only revised its timelines for the last two phases by three months. While the intent remains positive, we think the recommendations alone may not be enough to fuel digital growth," Surendra Goyal and Aditya Mathur, analysts at Citi Investment Research & Analysis, wrote in a report.
Getting Cabinet approval is seen as the deciding factor, especially with respect to implementation.
Analysts tracking the development said the contract will have to be reviewed to ascertain if it is attempting to significantly change The Cable Television Networks (Regulation) Act, 1995. "If it's not, then there won't be any difficulty in getting parliamentary approval. However, if there are significant changes being suggested in the Act and the matter goes to Parliament, it will be a serious problem because the opposition isn't really supporting any initiatives from the government/ ministry at this point in time," an analyst with a domestic broking firm said, requesting anonymity.
Finally, assuming the proposal goes through, industry experts feel the next big challenge will be its execution/ implementation. Timely execution is key and the possibility of delays can't be overlooked, especially in smaller towns, feel the Citi Investment Research analysts. "There could be some execution hurdles even at the state government level. Further, digitalisation will require high capital investment for upgrading equipment, devices and accessories, which may be a challenge. In terms of overall investment that may get pumped in, our discussions with industry participants' estimate investments at $9-13 billion," Surendra Goyal and Aditya Mathur wrote in their report.
Digitalisation in Phase I, analysts feel, will be quicker as metros are very lucrative markets. Besides, MSOs operating in these cities have deep pockets and hence wouldn't mind investing for digitalisation. What also works in favour of metros is the fact that quite a few pockets in Mumbai and other Phase I cities have already undergone digitalisation.
The digitalisation process will require significant investments by the players, who will have to either raise capital internally or look for external resources. "I think once the metros have been digitised, the market players will then look to raise money for ensuing phases. In fact, if Phase I sees a good success ratio, I think there is going to be a mad rush for raising funds and private financial institutions/ investment firms are likely to play a crucial role by providing growth capital for DTH players and MSOs. This because the investment community is also looking to place their bet on businesses that will drive consumption in the market and digitised media is very high potential segment," said the analyst from the domestic broking firm.
Benefiting the most from this mandatory digitalisation move by the I&B ministry will be direct-to-home players such as DishTV, Tata Sky, Airtel Digital TV, Reliance Big TV, Sun Direct and Videocon DTH, besides cable and satellite companies like Wire & Wireless, Den Networks and Hathway.
Welcoming the I&B ministry's move, Ajai Puri, director and CEO, Airtel Digital TV (Bharti Airtel) said the initiative will only bring in transparency in the entire process and all stakeholders, broadcasters, customers and the government will benefit from this. However, Puri suggested a few more steps which, if implemented, will make it a lot more feasible and practical to bring in digitalisation.
"Custom duty on import of digital boxes should be withdrawn to fuel rapid growth of digitalisation in the country. In fact, with the new mandatory sunset date in place, the box requirement will go up significantly from 13-15 million boxes at present to 25-30 million boxes annually. The second issue is the 10% license fee on DTH services while there is none on digital cable and the HITS format. This makes it completely non-viable besides proving to be a non-level playing field for DTH players. Third issue is the entertainment tax being levied by the various state governments. For example, UP has 25% entertainment tax in addition to annual registration charges in the region of `5,000 to `25,000 to be paid by all DTH retailers operating in the state. Lastly, to make this addressable system to work efficiently, there should be a complete review of the tariff order by Trai. We have been demanding that the tariff for digital platforms should be 10% of the analog platform because the latter is not completely transparent in its operations and declares just 10% of its entire subscriber base. The broadcaster's tariff has been arrived at keeping this scenario in mind," said Puri.
Currently, there are 500 channels, of which 400 are active and the carrying capacity of the majority of cable operators is between 100 and 150 channels. If one takes the total tariff of channels being broadcast, the figure comes to around `1,742 per subscriber per month.
"That's the sum broadcasters will charge the operator, who in turn levies his own cost, taking the overall price in the region of `2,500 to `3,000 per subscriber per month. It is public knowledge that customers pay under `250 per month for their cable subscription. Thus, because there is 90% under declaration, the broadcasters arrived at such high tariff, which gives them anything between `150 and `170 per subscriber per month from the cable operator," said Puri.
All this, feel market players, needs to be corrected in the light of the fact that the entire distribution system is being digitised and is addressable, thereby bringing down the broadcaster's tariff to more acceptable/ reasonable price points. Getting the aforesaid issues right will lead to a significant growth (in the media digitalisation) and the entire country will get digitalised well within the sunset time schedule prescribed by the ministry.
As far as getting investments is concerned, the four suggested changes will help build a strong business model (for DTH, digital and analog systems), thereby instilling confidence in the existing market players who, experts feel, will be more than willing to pump in all the money required to grab market share and boost revenues.
The Ministry of Information & Broadcasting has come out with a revised time schedule for a four-phase digitalisation process of cable TV across the country. The move follows Telecom Regulatory Authority of India's (Trai's) rejigged recommendation in February this year for a December 2013 deadline to implement digitalisation with addressability in cable TV systems. The revised schedule from the ministry has chosen December 2014 as the final sunset date for analog cable systems across the country.
Industry experts, though, aren't excited. "We don't view the revised time-frame as a big change — as the government maintains its initial timelines for the first two phases and has only revised its timelines for the last two phases by three months. While the intent remains positive, we think the recommendations alone may not be enough to fuel digital growth," Surendra Goyal and Aditya Mathur, analysts at Citi Investment Research & Analysis, wrote in a report.
Getting Cabinet approval is seen as the deciding factor, especially with respect to implementation.
Analysts tracking the development said the contract will have to be reviewed to ascertain if it is attempting to significantly change The Cable Television Networks (Regulation) Act, 1995. "If it's not, then there won't be any difficulty in getting parliamentary approval. However, if there are significant changes being suggested in the Act and the matter goes to Parliament, it will be a serious problem because the opposition isn't really supporting any initiatives from the government/ ministry at this point in time," an analyst with a domestic broking firm said, requesting anonymity.
Finally, assuming the proposal goes through, industry experts feel the next big challenge will be its execution/ implementation. Timely execution is key and the possibility of delays can't be overlooked, especially in smaller towns, feel the Citi Investment Research analysts. "There could be some execution hurdles even at the state government level. Further, digitalisation will require high capital investment for upgrading equipment, devices and accessories, which may be a challenge. In terms of overall investment that may get pumped in, our discussions with industry participants' estimate investments at $9-13 billion," Surendra Goyal and Aditya Mathur wrote in their report.
Digitalisation in Phase I, analysts feel, will be quicker as metros are very lucrative markets. Besides, MSOs operating in these cities have deep pockets and hence wouldn't mind investing for digitalisation. What also works in favour of metros is the fact that quite a few pockets in Mumbai and other Phase I cities have already undergone digitalisation.
The digitalisation process will require significant investments by the players, who will have to either raise capital internally or look for external resources. "I think once the metros have been digitised, the market players will then look to raise money for ensuing phases. In fact, if Phase I sees a good success ratio, I think there is going to be a mad rush for raising funds and private financial institutions/ investment firms are likely to play a crucial role by providing growth capital for DTH players and MSOs. This because the investment community is also looking to place their bet on businesses that will drive consumption in the market and digitised media is very high potential segment," said the analyst from the domestic broking firm.
Benefiting the most from this mandatory digitalisation move by the I&B ministry will be direct-to-home players such as DishTV, Tata Sky, Airtel Digital TV, Reliance Big TV, Sun Direct and Videocon DTH, besides cable and satellite companies like Wire & Wireless, Den Networks and Hathway.
Welcoming the I&B ministry's move, Ajai Puri, director and CEO, Airtel Digital TV (Bharti Airtel) said the initiative will only bring in transparency in the entire process and all stakeholders, broadcasters, customers and the government will benefit from this. However, Puri suggested a few more steps which, if implemented, will make it a lot more feasible and practical to bring in digitalisation.
"Custom duty on import of digital boxes should be withdrawn to fuel rapid growth of digitalisation in the country. In fact, with the new mandatory sunset date in place, the box requirement will go up significantly from 13-15 million boxes at present to 25-30 million boxes annually. The second issue is the 10% license fee on DTH services while there is none on digital cable and the HITS format. This makes it completely non-viable besides proving to be a non-level playing field for DTH players. Third issue is the entertainment tax being levied by the various state governments. For example, UP has 25% entertainment tax in addition to annual registration charges in the region of `5,000 to `25,000 to be paid by all DTH retailers operating in the state. Lastly, to make this addressable system to work efficiently, there should be a complete review of the tariff order by Trai. We have been demanding that the tariff for digital platforms should be 10% of the analog platform because the latter is not completely transparent in its operations and declares just 10% of its entire subscriber base. The broadcaster's tariff has been arrived at keeping this scenario in mind," said Puri.
Currently, there are 500 channels, of which 400 are active and the carrying capacity of the majority of cable operators is between 100 and 150 channels. If one takes the total tariff of channels being broadcast, the figure comes to around `1,742 per subscriber per month.
"That's the sum broadcasters will charge the operator, who in turn levies his own cost, taking the overall price in the region of `2,500 to `3,000 per subscriber per month. It is public knowledge that customers pay under `250 per month for their cable subscription. Thus, because there is 90% under declaration, the broadcasters arrived at such high tariff, which gives them anything between `150 and `170 per subscriber per month from the cable operator," said Puri.
All this, feel market players, needs to be corrected in the light of the fact that the entire distribution system is being digitised and is addressable, thereby bringing down the broadcaster's tariff to more acceptable/ reasonable price points. Getting the aforesaid issues right will lead to a significant growth (in the media digitalisation) and the entire country will get digitalised well within the sunset time schedule prescribed by the ministry.
As far as getting investments is concerned, the four suggested changes will help build a strong business model (for DTH, digital and analog systems), thereby instilling confidence in the existing market players who, experts feel, will be more than willing to pump in all the money required to grab market share and boost revenues.
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