Phase II of digitisation may be delayed by 3-6 months: MPA study

Media Partners Asia releases recap of Phase I of digitisation and outlook for Phase II

BestMediaInfo Bureau | Delhi | February 27, 2013

Bolstered by the momentum of the DAS (digital addressable system) mandate, India's cable industry ended 2012 with an installed base of 14.6 million digital STBs, according to research firm Media Partners Asia. The hard work begins now as cable MSOs look to collect fees from LCOs and implement billing and tiering.

The majority of digital cable subscriber additions has come from the top five MSOs who have managed to seed a little over 8 million digital STBs in Phase I markets. On a pan-India basis, these MSOs have installed over 12.5 million digital cable STBs. Hathway leads the pack with about 24 per cent market share. However, its immediate competitor DEN is catching up as it has managed to capture a larger share of new subscriber additions post the analog switch-off in Phase I metros. For instance, in Q3 FY March 2012, among its peers listed here, DEN added 0.9 million digital subscribers while Hathway and Siti Cable added 0.73 million and 0.7 million digital subscribers, respectively.

Digital Deployment of Major Cable MSOs

Focus on collections: The formal process of billing for DAS areas started only in December last year. Since then, major MSOs have deployed ground staff with basic know your customer (KYC) forms, which will help collect data pertaining to customer profile and their preferred choice of channel packages. Currently, as STB seeding in the three metros is nearly complete, there is a broad consensus among the larger MSOs to peg and collect a net subscription ARPU of Rs 85/US$1.58 per month from the LCO, including discounts for multi-TV homes.

As MSOs obtain access to customer information, they should gain more control, providing a basis to increase their ARPU share to Rs 100 per STB starting April 2013. The overall billing operations for Phase I should stabilise by then. Therefore, the impact of higher subscription revenues through STB deployment will be reflected only in MSOs' Q1 FY March 2014 P&L statements. Currently, Hathway has placed all digital subscribers on its mid-tier pack (Rs 220 per month) although customers will have the option to downgrade or upgrade at a later point. DEN expects most of its subscribers in Phase I to opt for the premium pack, priced at Rs 270 per month.

Debt levels: While cable operators have aggressively rolled out STBs, the debt levels on their books have also mounted gradually. As of end-December 2012, both Hathway and DEN stood at a debt-to-equity ratio of 0.6x with debt on books of Rs 6.5 billion and Rs 5.2 billion, respectively. Both operators have already placed their orders for the STBs they plan to deploy under Phase II. This will result in an additional debt burden of Rs 1-1.5 billion each.

Hathway is also considering upgrading its broadband network, which will require an additional investment of Rs 1 billion. The company expects its gross debt levels to peak at Rs 11 billion. Siti Cable has a gross debt of Rs 7 billion (net debt at Rs 5.8 billion) and Digicable is at Rs 6.5 billion. Digicable is the only major MSO yet to place STB orders for Phase II, while both Siti and InCable have placed orders to the tune of 3 million STBs each.

Govt pushing Phase II: The government is keen to ensure there will be no further delays in the next phases of DAS. Weekly review meetings are being conducted by Ministry of Information & Broadcasting (MIB) officials. To ensure smooth rollout for Phase II, MIB recently conducted a one-day workshop with the nodal officers (senior government commissioners) of all 38 cities in Delhi, apprising them on the significance of digitalisation. This will be followed by state-level meetings and large-scale awareness drives across various media and languages.

However, there is very limited ground movement with regards to the deployment of STBs in Phase II cities. STB deployment in the cities of Gujarat, for instance, is only at 20-30 per cent and many cable operators have raised concerns about the supply of STBs. Furthermore, there is no alignment of interests between certain states and the central government. Recently MPs in Maharashtra have proposed to the central government to keep prices uniform for all subscribers and set a maximum retail price for cable services across the country, which is contrary to the central regulatory policy (following TRAI's policy to ensure no rate regulation under DAS).

The budget factor: Meanwhile, as the annual budget nears, industry bodies are lobbying for the government to introduce a number of key measures, including: (1) granting infrastructure status to the cable industry; (2) reducing customs duty on the import of major hardware equipment used for digitalisation; and (3) exempting DTH and cable TV from service tax, among a list of other grants. Unfortunately, MPA expects that the current status quo will be maintained and that the overall budget impact will be neutral for the industry.

Info@BestMediaInfo.com

Info@BestMediaInfo.com