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
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
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
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.