Press Releases
Press Articles
Cable networks should be customer- centric
Shyam G. Menon - Hindu Business Line - 1st April 2002

"The multiplication of content delivery modes would result in higher investment in the cable television sector for technology upgradation."
- Mr Ashok Mansukhani

MUMBAI, March 31

HINDUJA TMT (HTMT), formerly Hinduja Finance Corporation Ltd, reflects business interests spanning Information Technology, Cable Television, Internet, Movie Channel, Telecom and film financing. Though sectoral talks a few years ago drew much mileage from convergence, today, the highs have settled down to realistic levels. Replacing the convergence euphoria are concerns stemming from pay channels and new content delivery modes.

Mr Ashok Mansukhani, Executive Vice-President, HTMT, spoke to Business Line on a wide range of issues. Excerpts:

1. With direct-to-home (DTH) and digital terrestrial telecast (DTT), what business potential do you see in traditional cable television networks?

The size of the cable television segment is estimated to be Rs 4,005 crore in 2001, representing a jump of 68 per cent over the year 2000. This growth is largely due to a 23 per cent increase in cable homes and an average rise of 36 per cent in monthly subscription rates.

Over the last two years, cable and satellite homes have grown at 29 per cent. Going forward, the industry is expected to grow to Rs 10,400 crore by 2006. This would be primarily driven by growth in subscription revenues (97 per cent of the total pie).

Cable homes are expected to grow at 9 per cent CAGR (compounded annual growth rate) to reach 54 million by 2006.

DTH and DTT need high capital expenditure. In India, the cable infrastructure is already in place and is currently the major mode of content distribution. It will be an uphill task for competitors to make a mark in the first three years.

2. Is Internet over cable, which was the hot subject when the IT sector was booming, still exciting, now that the IT wave has cooled considerably? What has been your experience on this front?

Unlike dial-up Internet, cable Internet roll-out is a time- consuming process. It requires upgradation of the existing cable system, building up of a reverse path, laying fibre optic etc. In 12-18 months since the start of commercial operations, In2Cable, HTMT's cable Internet subsidiary, has rolled out its services in eight cities and is today the country's largest cable ISP with over 25,000 users.

Although the slowdown in the IT sector has affected demand for Internet in the short-term, the existing low penetration of Internet in India, falling bandwidth costs, improved bandwidth quality, falling prices of cable modems and networking costs and rising demand for e-business from corporates etc, offer good potential in the middle- and long-term.

3. As content delivery modes multiply, what impact will that have on both investments earlier earmarked for cable networks and how networks will grow in the future?

The multiplication of content delivery modes would result in higher investment in the cable television sector for technology upgradation. Investment in the cable network will not be affected, as it will remain the main content carrier and delivery mode in the country.

It will, however, have to compete with other modes by improving the range and quality of service offered by being more customer-centric and offering value-added services.

4. Given the complaint of low declaration of cable connections and the alleged association of segments of the industry with the wrong side of the law, is it easy to procure institutionalised funding or strategic investors for cable networks? Is lack of structural and business transparency an issue of concern with the industry?

The frequent increases in subscription fees by pay television channels have severely impacted the cable industry.

While local cable operators (LCOs) resort to considerable under-declaration of their subscriber base to both pay channels and multi-system operators (MSOs), the MSOs are currently in an unenviable position of having to pay the broadcaster for rising declarations but are unable to collect more from the LCOs whose declaration base to MSOs is still only 20 per cent of the real base. This has affected MSOs' operations.

Their ability to get institutional funding and strategic investors will depend on higher corporatisation and transparency, especially on subscriber base.
The Government recently set up a task force to examine whether pay channels should be mandatorily available through a set top box (STB).

It is yet to take a final view on whether introduction of conditional access will require major amendment of the Cable Act. The introduction of 'pay-as-you-watch' scheme will reverse the current heavy outflow to broadcasters and leave some cash with operators to maintain and upgrade networks.

This step plus the high potential offered by cable Internet, including interactive TV and broadband services, would make MSOs' business attractive.

The ongoing consolidation in the cable network industry, which is a result of high capital expenditure needed to roll out value added services, lower collection and rising content cost - coupled with the introduction of conditional access through STB - would resolve present concerns.

4. Even as broadcasters seem happy to bypass cable networks, what impact do you see conditional access systems (CAS) having on the ratings of television programmes and thereby the media planning of advertisers?

CAS would ultimately result in a new rating parametre and could cause reduced reliance on TAM ratings. In the long-term, better quality content providers/channels will see higher ratings and thereby higher advertising rates.

5. In the recent past, conflicts between pay channels and cable networks were fought at the expense of the viewer, some channels either not carried or dumped in bad frequencies. Has this not eroded the credibility of cable networks as service providers, especially against the spectre of future competition from DTH and DTT?

It is a wrong notion that conflicts between pay channels and cable networks is being fought at the expense of viewers. Under-declaration by LCOs and unreasonably high declaration demands by pay channel broadcasters, have put MSOs in a tight spot. Channels have two revenue streams - advertising income and monthly pay channel revenues.

They are taking advantage of higher ratings (due to higher connectivity provided by MSOs) by increasing the cost of their bouquets. This contrasts the scenario in developed countries where channels recover cost either through subscription revenue or through high advertisement revenue, but not both.

6. At roughly Rs 248 (as at close on March 26 at tge Bombay Stock Exchange), the Hinduja Finance (HTMT) stock is neither in the league of high priced-media stocks nor is it in the range of IT scrips. In retrospect, is TMT a good combination easily understood by the market, or do you think separate listing of HTMT's media and IT income streams would help reflect the instrinsic worth better?

Accenture has endorsed HTMT's existing structure for higher shareholder value and exploitation of various opportunities arising from convergence. The structure is also designed to restrict downside and provide a high upside for shareholders. HTMT subsidiaries are leaders in their lines of business and are expected to take care of their fund requirements by attracting strategic/financial investors or an IPO at the appropriate time.

7. As per your results of December 31, 2001, you had Rs 256.05 crore of capital employed in the media-telecom sector which fetched a nine-month PBIT (profit before interest and tax) of Rs 9.32 crore, while Rs 59.35 crore employed in IT fetched a PBIT of Rs 26.79 crore. Is not one sector dragging down returns from the other?

Out of HTMT's total capital employed of Rs 315.40 crore, capital employed in IT business is Rs 59.35 crore and in media-telecom, Rs 256.05 crore. In terms of break-up for the latter, investment in subsidiaries is Rs 165.21 crore and financial assistance to subsidiaries is Rs 90.85 crore.

Of the total amount of Rs 165.21 crore invested for HTMT's equity stake in subsidiaries/associates, Rs 123.32 crore is invested for its 66 per cent equity stake in IndusInd Telecom Network Ltd (ITNL), which in turn holds 30 per cent in Fascel, Gujarat's biggest cellular company. Based on the recent benchmark set by Bharati Tele-ventures' IPO, HTMT's effective stake in Fascel (20 per cent) can be valued between Rs 350-450 crore.

Similarly, the intrinsic worth of the underlying media/ Internet subsidiaries is much higher than the amount invested by HTMT in them. For example, IndusInd Media & Communications Ltd (IMC), HTMT's subsidiary, was valued at $1.5 billion at the time of Intel's investment in the company (June 2000).

Hence,the return on capital employed in HTMT's media-telecom business should be considered in the light of the above.