In-depth: TRAI's NTO impact on distribution business

Direct-to-home (DTH) players such as Tata Sky, Dish TV, Airtel Digital, Sun Direct and Reliance Digital TV recorded a growth of 2.8% in their subscriber base in the first quarter of 2019 compared to only 1% growth in the previous two quarters, says report by the Telecom Regulatory Authority of India (TRAI).

The operators also witnessed growth in terms of revenue and average revenue per user (ARPU).

Bharti Airtel’s DTH arm Airtel Digital TV added 3.91 lakh net subscribers during January-March 2019 whereas Dish TV saw 47,000 net subscriber additions during the same quarter.

Tata Sky’s FY19 revenue reportedly increased 8.11%, on the back of new subscribers. Other DPOs such as GTPL Hathway’s subscription revenue grew by 47% on a y-o-y basis in Q1FY20; Siti Cable registered a growth of 36% y-o-y in its subscription revenue.

Rajesh Sethi

Rajesh Sethi, CEO, Siti Networks Limited, said, “Siti has successfully started to incorporate the new tariff order (NTO) to the very roots of our business and this is validated by the stellar results displayed in the first quarter of current fiscal. Our subscription revenue grew over 36% y-o-y with total revenue (excl. activation) increasing by more than 19% y-o-y. With the increase in collection and operational efficiencies, we saw our operating EBIDTA grow 1.5x y-o-y to Rs 841 mn and the EBIDTA margins rose 1.3x y-o-y to 21.4%. Our product strategy to provide the optimal entertainment choices to our subscribers is bearing fruit as the ARPU has grown 2x y-o-y and we are sure that this growth momentum will only grow stronger.”

Aniruddhasinhji Jadeja

Speaking on the performance, Aniruddhasinhji Jadeja, MD, GTPL Hathway, said, “Q1FY20 was the first full quarter with the NTO, which has led to significant growth in subscription revenue. Subscription revenue grew by 47% on a y-o-y basis. Overall, our first-quarter performance was in line with our expectation and we see our next three quarters equally exciting. With NTO being stabilised, our focus on taking FTTH to more and more homes, re-launching industry’s first dual service product ‘GTPL GIGAHD’ to convert current customers along with adding new customers and concurrently launching hybrid set-top box will help us to converge linear TV viewing with OTT usage. We will further increase the pace of growth momentum towards CATV and Broadband business in FY 2019-20.”

According to an industry expert, almost all DTH providers and DPOs have seen a positive surge in both subscribers and revenue metrics. Under the new regime, viewers have the option of paying only for channels they want to watch and can drop others from their list. The consumers have to select their choices of channels and packs by visiting the website of TRAI, DPOs or MSOs. DTH operators were well-versed with the process as they were already offering some of their packs to the consumer. While for LCOs and MSOs, implementation of subscriber management systems and customer support functions was a tedious process. As a result, consumers opted for the convenience offered by the DTH operators.

The expert states that the growth in the ARPUs for DTH operators came due to lack of cooperation from local cable operators.  “DTH offers the flexibility of instantly selecting a pack, separately for every room, and change it as often as required. The delay from MSOs’ end in implementing NTO due to a lack of cooperation from local cable operators is what made consumers switch to DTH.”

High bouquet numbers along with varied pricing confusing the consumer

However, it must be noted that the implementation of TRAI NTO’s is still in process and not yet done. Recently, TRAI has done a review of the tariff regime following complaints from viewers about higher bills and picking the channels they want to watch becoming more difficult. The regulators issued a consultation paper through which they called out DPOs and broadcasters for seeking to milk consumers by pricing popular a-la-carte channels higher outside bouquets. They also questioned the availability of a high number of bouquets, which is creating confusion among consumers.

“Broadcasters and DPOs are offering a large number of bouquets, which is confusing the subscribers and as such consumers are not able to exercise their informed choice,” said SK Gupta, Secretary, TRAI.

Through the consultation paper, TRAI asked whether there should be caps on discounts within bouquets offered to consumers and whether the ceiling price of channels in bouquets should be at Rs 19. The regulators are planning to re-examine the number of bouquets available, the discount on bouquets and the ceiling price on the channels in the bouquets.

Girish Menon

According to Girish Menon, Partner and Head, Media and Entertainment, KPMG India, “The growth in subscription revenue was mainly on the back of bouquets offered by the broadcasters and DPOs. Niche channels belonging to the larger broadcasters are doing better than the standalone channels. TRAI’s consultation paper has opened the discussion on capping the number of bouquets and ceiling price on the channels in the bouquets. The impact of it will be known only if it gets implemented. However, if the rule does get implemented, then the niche channels will witness a greater impact.”

The industry expert stated that if the ceiling price on the channels in the bouquets gets implemented, then there will be a considerable drop in the consumer’s bills. Asked if it will affect the DPOs’ subscription revenue, the expert said that the subscription won't be affected but there will a dip in ARPUs. “Currently, the broadcasters and DPOs are offering discounts as high as 50% and to stray away from the hassles of choosing channels, consumers are opting for these discounted bouquets. Most of these bouquets contain some popular channels but also unwanted channels, increasing the cable bill. If the order gets implemented then there will be a drop in consumers’ bills as well as DPOs and broadcasters revenue,” the expert said.

Going forward, according to the KPMG Report 2019, the subscription revenue of television industry is predicted to grow by CAGR 10.4 between FY19 and FY24, owing to the NTO, especially in Phase III and Phase IV markets.

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