vs DTH India Infoline
Wednesday, January 03, 2001 By Nachiket
About two months ago the government approved Direct to Home
investments (DTH) into the country. DTH basically refers to
the transmission over satellite of programming directly into
small receiving antennas located at viewers' homes. The transmission
is usually done in Ku-band to receiving dishes that can be
as small as 45 cm. The DTH system of broadcasting scores over
its cable counter part in the following areas:
subscriber accountability since the system eliminates
the cable service provider in the distribution chain. Thus
there would be no under-reporting of subscribers as is prevalent
in the current cable system.
quality service can be made available through the DTH
system. The quality of transmission in the case of DTH system
is much better than that of the conventional cable system.
would be more accessible in remote areas where the cable's
excessive length may make the system expensive or technically
is good news for smaller channels because the digital
technology allows a provider to compress between eight and
10 channels on a single transponder. So most big broadcasters
are likely to be left with plenty of unutilized transponder
companies evince interest.
days of announcing the DTH policy broadcasting companies including
the state owned DD announced plans to set up the DTH network.
DD is exploring the possibility of forming a joint venture
with telecom major MTNL for television broadcasting using
KU band DTH platform. The idea is to provide Internet and
other convergence services as well. Zee has already announced
a tie up with C Sivasakaran's Sterling Infotech. While Zee
would bring in its expertise as a broadcaster Sterling would
provide the subscriber management system to its DTH customers.
Star and Sony also have earmarked investments to the tune
of US$500mn in the DTH venture. Star infact had commercially
marketed the DTH service way back in 1996-97. However the
proposal was eventually shot down by the I&B ministry
on the ground that the DTH service to consumer homes could
set off an un-controllable cultural invasion. Star had invested
a couple of million dollars in the project, which eventually
had to be written off.
DTH has done well in Europe
has been at the forefront of the DTH revolution. With 6.9
million subscribers DTH accounts for 80% of the total satellite
television subscriber base. There are two DTH service providers
in Europe-BskyB and Canal Plus. BSkyB is the market leader
with a subscriber base of nearly 5mn. In North America DTH
was launched in 1994. Direct TV was the first entrant followed
by Echostar, which launched a service called Dish Network
in March 1996. There are nearly 13mn DTH subscribers in this
region and the service operators provide valued added services
like pay per view, video on demand and Internet on television.
In the Asia Pacific region Sky-perfect is the leader with
1.6mn subscribers followed by Foxtel and Austar with a subscriber
base of 0.2mn each.
archaic rules and regulations will act as a dampner.
the law allows DTH to be set up in the country it is difficult
to foresee major investments being made due to archaic regulations
formulated by the government. The latter has come out with
the following recommendations:
and/or channels distributed through DTH should only be uplinked
from India so that they confirm to the programming and advertising
companies cannot hold more than 20% in the venture.
investment in the form of NRI/OCB/FII cannot exceed more
than 49%. DTH control should rest with resident Indians.
would have to shell out Rs100mn up-front and share 10% of
their yearly revenues with the government. Coupled with
the entry fee the investor would need to furnish bank guarantee
of Rs400mn for a 10-year license period.
- A subscriber
management system and an open architecture set top box will
need to be in place.
unanimously termed the DTH policy as un-realistic and too
expensive. Chief among them is the 20% equity restriction
for broadcasting/cable companies in the DTH project and the
huge costs involved in the form of entry fee and sharing of
revenues between the broadcaster and the government. It is
not hard to see why the broadcasters are visibly perturbed.
Firstly the service provider would have to create an infrastructure
which would need investments of over Rs10bn before any the
operations can begin. Secondly a 100-channel operator will
have to hire around 14-16 KU band transponders pay heavy royalty
to the original channel owners set up subscriber management
system and incur considerable expenditure on sundry overheads.
Coupled with the interest and depreciation cost on the capital
outlay of Rs12bn the total recurring cost would be in the
region of Rs6-7bn per annum.
model of a DTH service provider (Rsmn)
to a few people in the media sector and they were of the opinion
that DTH would penetrate around 3mn homes within a span of
3 years. The underlying premise is the higher cost of DTH
vis a vis cable. Currently cable operators provide subscribers
with 70 odd channels for Rs150/month/subscriber. Compared
to this the cost of DTH for the consumer would be in the region
of Rs500-600/month after incurring a capital expenditure of
between Rs10000-15000 towards set top box and the dish antennae.
In Western countries the DTH operator subsidizes part of the
equipment cost. Whichever way you look at it the service will
be expensive both to the consumer as well the operator.
other hand the total revenues assuming a subscriber base of
3mn in 2003 would be in the region of 18bn. Will these revenues
be enough? Probably yes if there are only two DTH operators.
However given that broadcasting companies cannot hold more
than 20% in a single platform it is difficult to envisage
two platforms. We expect 5-6 platforms to emerge over the
next three years. That would mean a rate war thereby reducing
the potential revenues below the said figure of Rs18bn.
TV is still a hot property
DTH is one option available to viewer and a premium one at
that cable is already present in 35 million homes of the country.
World over cable has become a hot property because a number
of services can be provided through the single cable pipe.
Services like high speed Internet, video on demand and Internet
telephony are already being made available by the cable operators
in the US and Europe to their customers. No wonder some of
these players, even today after the Nasdaq debacle are trading
at billion dollar valuations despite showing earnings losses.
Analysts have in fact assigned strong buys to stocks of publicly
traded cable companies.
the story is no different. Valuations are high despite the
fact that these companies are not providing the same kind
of services that are offered by their international counter
parts. Foreign investors have reposed faith in Indian cable
companies as could be gauged from Star's stake in Hathway
for US$75mn and Intel's 3% stake in the cable arm of Hinduja's
of Indian Cable Companies
Market Cap (US$bn)
of International Cable companies
Direct to Home
has the highest market share
has the highest market share with nearly 5.4mn subscribers
under its belt. The company owns 73 head ends in 43 cities.
The satellite television signals are re-distributed to about
10,000 Access Cable Operators (ACO's) which feed the broadcast
to the households through cable linked to the Siticable control
room. IndusInd Media belonging to the Hinduja group comes
a close second with nearly 4.5mn subscribers. Rajan Raheja
controlled Hathaway Cable Network, RPG Netcom and Sun's Sumangali
are other major cable service operators in the country. These
large Multi Service Cable Operators (MSO's) control 15mn of
the 35mn cable television house holds. So the cable system
in India is well entrenched and now needs to be upgraded for
making it viable to provide a whole host of value added services.
there is rampant under-reporting of subscriber base by ACO's
the US India does not have well regulated cable laws. In the
US for example the government has given licenses for a maximum
of two or three cable companies per state. This is akin to
the cellular licensing policy where the government has given
licenses to two or three cellular operators per circle. The
cable companies have a subscriber management system in the
form of a set top box to monitor subscription revenues. Hence
there is no question of under-reporting of subscriber numbers.
the cable laws are not in place. Even though the MSO controls
nearly 60% of the total cable households the effective control
is much lower because of rampant under reporting by the ACO.
ACO's act as franchisee or collecting agents for the MSO's.
In all there are around 25,000 ACO's through which the larger
MSO's distribute their signals. According to the revenue model
these ACO's have to pay something like Rs20-25 per household
to the MSO. However in reality MSO's receive only 20% of the
payments from cable operators. In such a structure the ACO
retains 85% of the total subscription that is collected, whilst
the MSO gets only 5% and the channel broadcaster retains the
rest. Had there not been any under reporting the revenues
would have accrued in the ratio of 10:20:80 to the ACO, MSO
and broadcaster respectively. At the same time there is no
respite on the cost front. It is because of this under reporting
that MSO's like Siticable have not performed to their true
cable addressibility should solve the problem
way therefore for the MSO's to improve their revenues and
profitability is to solve the under-reporting issue. That
would mean either buying out the ACO's or forging an alliance
with them for sharing revenues. According to some of the industry
officials MSO's would have to shell out Rs75bn for buying
out the 25,000 odd ACO's that have complete control over 15mn
households. This is definitely no small amount and it will
make the balance sheets of MSO's very heavy indeed. Forging
an alliance is therefore a cheaper alternative.
laws also need to be amended to align themselves with those
prevailing in Western countries. The Cable Network Association
of India has put forth its demand to the Information and Broadcasting
minister that cable TV should be available to a subscriber
on a conditional access system so that the consumer has to
pay only for the channels that he wants. While the operator
would not have to pay for the pay channels that the consumer
does not want the consumer too would not have to pay more
than he should. A conditional access system would entail investments
by either the MSO or the consumer in the set top box (just
like the set top box in the DTH system) which will improve
subscriber addressibility. Once the set top box is installed
you would not have a situation where the consumer gets 60-70
channels for Rs150/month at an absurd cost of Rs2/channel.
As in any other business as the volumes increase so would
the prices drop. In this case the broadcasters would pass
the benefit of additional volumes to the consumer. For example
ESPN, which charges Rs7/month/subscriber gets revenues from
around 7mn homes when actually it reaches 30mn homes. If the
channel were to reach 100% of the households it would be in
a position to lower its subscription rates. This is a win
win situation for the consumer, the MSO, the channel broadcaster
and also the government.
the ACO's budge?
have to say the industry officials. Firstly the smaller cable
companies are financially not strong enough to upgrade the
cable network for providing cable, Internet and other value
added services through the cable pipe. The cable network in
the present form cannot provide these services. The entire
last mile needs to be overhauled to the more sophisticated
Hybrid Fiber Co-axial (HFC) network. Siticable for example
plans to spend Rs30bn over the next three years for providing
Internet and value added services on a modular basis over
26 cities in the country. IndusInd is planning a similar foray
in nine cities for an investment outlay of Rs8bn. It is pertinent
to note that the capital expenditure for MSO would be much
higher than ACO because it also includes connecting all the
head ends through a ring structure by means of an optical
fiber cable network. Nevertheless the capital expenditure
requirements for ACO's would be beyond their budget. Secondly
once Internet video on demand and Internet telephony becomes
available through the broad band cable pipe the smaller cable
operators could gain immensely by sharing these revenues with
the MSO. The potential revenues for the cable companies could
be in the region of between Rs100-150bn and this will grow
once higher number of services is accommodated through the
pipe. Hence the smaller cable operators will have to become
part of the system and share revenues with the MSO or else
is it cable or DTH that will finally rule the roost?
face of it the cable system is well entrenched in India and
is poised for a leap into another plane. We believe that the
DTH system could have made a significant breakthrough only
if it had developed before the cable system. For example in
the Europe, DTH developed before cable and therefore controls
nearly 80% of the total satellite television subscriber base.
However the situation is exactly the opposite in the US because
here the cable system developed before DTH. There is no gainsaying
that DTH will take some business away from the cable operators.
But as we discussed earlier DTH would be premium product catering
to the up-market viewers, as it would be prohibitively expensive
for both the operators and the consumers. At the same time
cable operators with their upgraded network can themselves
provide quality services at a much lower cost through the
pipe. The DTH system in its present format is therefore not
likely to give the cable operators sleepless nights.