While the ministry struggles with the first phase, the daunting task of the second phase looms ahead. Thirty eight cities across 15 states will have to be digitised by March 31, 2013. Boxes in excess of 13 million will be required, which means that each multi system operator (MSO) will have to cough up anywhere between Rs 300-500 crore. Out of these, Maharashtra has at least nine cities that are set to digitise, while Uttar Pradesh has as many as seven cities. Hathway Cable and Datacom leads the pack amongst MSOs because it is present in over 65% of the cities covered in the second phase, said analysts. It is closely followed by Den Networks (which has a distribution joint venture with Star Network called Star DEN which is now part of MediaPro) present in 19 cities and Siti Cable Network (a part of the Zee Group) in 18-plus cities, they add. In Mumbai and Delhi, most areas are digitised95% as per stakeholders but key pockets continue to relay analog signals.
Man Jit Singh, chief executive of television broadcast company Multi Screen Media (MSM) and president of Indian Broadcasting Foundation (IBF), the apex body for broadcasters in India, said that digitisation had been a tremendous success, and the ministry of information and broadcasting should be lauded for its efforts. Nowhere else in the world has such a large effort been completed with relatively few problems. Any analog signals that exist in Delhi, Mumbai or Kolkata are illegal and a criminal act. The IBF and its members are committed to switch off all such signals and have set up teams in each city to conduct raids in conjunction with the authorities and shut down any illegal activities. Over all, we are very pleased with the extent of digitisation and only emphasise the need to remain vigilant against illegal signals that would cause a slide back in the digitisation efforts, Singh said. He added that his concern was to ensure that illegal signals are not tolerated in any phase of the rollout and that the authorities work closely with IBF members in terminating such signals.
Assuming the digitisation drive continues smoothly, it could help in the expansion of the cable television market. A study by Media Partners Asia (MPA) released this year said that digitisation could leapfrog the R20,000 crore cable television market to a R50,000 crore market in a few years time. Anil Malhotra, chief operating officer of Siti Cable Network said that the digitisation drive was successful and it has deployed over 1.3 million STBs in the three markets of Delhi, Mumbai and Kolkata. The customer response was positive and momentum of STB seeding picked up in the last two weeks due to the awareness campaign launched by all stakeholders, he said. Quoting ministry numbers, Malhotra said that on November 5, 2012, 22.4 lakh STBs have been installed in Mumbai, 25.15 lakh in Delhi, whereas in Kolkata 17.74 lakh STBs have been installed. On Chennai, the matter is subjudice and still in the courts. Altogether, 29 lakh subscribers have direct-to-home (DTH) connections in the four metro cities.
MSO Hathway also said that it, along with its partners, has deployed 1.7 million boxes in the three cities in the first phase.
Pricing and tariffs
While one would assume that all interconnection (commercial) arrangements are in place between MSOs and broadcasters nearly a month after the digitisation cut-off date, industry watchers say that these agreements have been concluded hastily and on a short term basis. Yogesh Radhakrishnan, managing director and chief executive of Prime Connect, the television channel distribution company that distributes Times Group channels, said that a lot of the interconnection deals were verbally agreed on and are based on good faith. For a lot of the MSOs and broadcasters, the interconnection agreements are on short term basis and the dots and the tees (clauses) will be revisited later. At that time, when these interconnection agreements needed to be in place, Diwali was fast approaching and the digitisation cut-off date was around the corner. It was essential that everyone got on board and understood that the finer clauses will be ironed out after Diwali. Radhakrishnan added that this was imperative in order to make digitisation a reality. Getting stuck on the nitty-gritty would have delayed the process, he said. I think its a great beginning. Everyone seems committed.
Gurjeev Singh, chief operating officer, Media Pro Enterprise, a 50:50 distribution alliance between Star India and Zee Entertainment Enterprises, said that he cannot speak for the rest, but all their agreements are long-term contracts. If you recall, we took the maximum time with our commercial arrangements. Simply because we wanted to conclude them successfully and leave nothing for later. I am happy to say that all our agree-ments are in place. The first phase of digi-tisation has gone extremely well and the ministry in particular must be congrat-ulated for its role. We are very optimistic about the second phase, he said.
Carriage fees also continues to be an unresolved issue and a major concern for most broadcasters. While some had hoped for a reduction of carriage fees in a digital regime, others had hoped to do away with it altogether. A few months back, news broadcasters had objected to the payment of any carriage fees whatsoever. Later, they revised their stand and were agreeable to enter into agreements with MSOs for an initial period of one year, for the payment of carriage fees (inclusive of marketing fees, tiering fees, packaging fees or fees or charges under any other nomenclature) in the digitised areas, at a rate of 0.50 paisa to R1 per set top box subscriber. An earlier notification by the Telecom Regulatory Authority of India (Trai) specifically prohibited placement fees, said a news broadcaster on the condition of anonymity. Naturally, there was confusion over carriage fees, he added.
Rajesh Kaul, president of distribution alliance MSM Discovery, also known as One Alliance, said that broadcasters must be commended. Digitisation wouldnt have happened without this kind of commitment from broadcasters. A lot of them have put digitisation much above personal gains.
Sunil Lulla, chief executive of Times Global Broadcasting, points out that a big upside of digitisation is the creation of expanded capacity for channels. But that must lead to reduced carriage costs and choice for channels. So far thats the big disappointment. Over the next few weeks, we should see stricter action in the event signals are leaked and we should see a better sharing of revenues in a transparent regime. I do believe there are great learnings from this process which will enable easier migration in the next stage. We are also looking forward to Chennai participating shortly in the four city digitisation implementation. he said.
The Herculean phase 2
Hathway maintained that it was already rolling out STBs in cities such as Bangalore, Hyderabad, Pune, Thane, Ahmedabad, Surat, Rajkot, Baroda, Aurangabad, etc., in order to meet the rollout schedule of the second phase.
Siti Cable said that it has already started the seeding of STBs in cities such as Hyderabad, Bangalore, Chandigarh, Ludhiana, Kanpur, Indore, etc., where it offers its services. The company said that it will also try and enter more cities included in the second phase chart. The investment required in this cities will be huge. We are in the final stage of planning for phase two cities. We continue to acquire independent operators who have not scaled up their digital infrastructure as it offers an opportunity for Siti Cable to enhance its market share further, said Siti Cables Malhotra.
An analyst maintained that the second phase (covering 38 cities) will be more complex and the true test for digitisation in the country. These are tier two/three towns and we are yet to see how consumers react to digital cable, said an analyst from a brokerage firm who did not want to be named. Smaller MSOs will be strapped for funds.
Ashok Mansukhani, president of MSO Alliance, an apex body for MSOs in India, said that the March 31 deadline will be tough to achieve, at least in certain cities. He does not anticipate funding to be an issue at least for the national level cable companies. The national MSOs have already submitted their deployment plans to the ministry. An industry estimate is difficult at this stage but the national MSOs are well-funded and fully ready to meet the challenge of the 38-city rollout. As the tempo for phases two and three pick up,chances of small MSOs merging will increase as consolidation is a natural process especially with 74% foreign direct investment, he stressed.
Digicable plans to put in at least 3 million STBs in the next stage and touts its investment to be in the region of R450 crore. We are well-funded, said Jagjit Singh Kohli, managing director of Digicable Network India. But a lot of the mother MSOs may seek external funding. In the second phase, you may see a lot of them launching IPOs (initial public offering). Some may raise money through equity and others through debt. A lot of smaller MSOs will merge with bigger companies. The March 31 deadline for the second phase does not bother Kohli. I think that a journey starts with a single step. The first step was the toughest. Now that we have achieved 90% digitisation in Mumbai and Delhi, I think we are well on our way, he said.
Roop Sharma, president of Cable Operators Federation of India (COFI), however, has reservations on how the second phase can be implemented when the first phase was still in the works. There havent been any KYC (know your consumer) forms filled up. There is no subscriber management system introduced. Without this, no itemised billing can be produced. It may take more than two to three months for collection and entry of 100 lakh forms in the four metros and another three to four months to let the new system get stabilised. DEN, Hathway and Siti Cable dominate the market in the four metros. They are forcing their own channels in the low-cost packages, depriving consumers their choice unless they pay more for other channels in a-la-carte mode or costlier packages. Only two of them have given the a-la-carte choice. She added that it was a grim scene for independent cable operators. Direct-to-home operators have taken away 5 lakh cable television connections in the metros from cable television operators and jeopardised their business. Independent operators were forced to join large vertical monopoly players as they were not given adequate time to install headends and import STBs and arrange finances. Consumers who dont have purchasing capacity, who may make 40% of the market in metros were forced to buy STBs or lose cable TV viewing without even knowing what they would pay for the service every month. Thousands of them have no STBs at present and are missing cable TV service, she said. Sharma added that at present, STBs are being imported mostly from China and are of basic quality with minimum features, costing the minimum and have old MPEG-2 technology. These cannot provide HD channels, internet or other value added services, she alleged.
DTH company Dish TV said that it was excited by the mammoth opportunity presented by the second phase of cable digitisation. Salil Kapoor, chief operating officer,Dish TV, said that the company had seen a 25% increase in subscriptions in New Delhi alone. In other areas, Dish TV was seeing at least a 10-15% growth in subscriptions. He declined to share absolute numbers.
State owned networks
The I&B ministry now states that it is examining the cable networks operated by state governments. As the governments digitisation drive enters its second phase, MSOs say that the I&B ministry has asked Trai to come up with measures to check prevalence of monopolies in the cable TV sector. A prominent MSO which declined to be identified said that it was at their behest that the government was now following the trail of government owned networks. Both MSOs and DTH companies have maintained that monopolistic practices by state owned networks make the business unviable. While we pump in the investment, the fruits are really enjoyed by these networks. This is not an even playing ground. We are happy that the government has taken our stand seriously, it said. News reports have alleged that Arasu Cable TV Corp Ltd, a government owned cable distribution network, may not get the DAS (Digital Addressable System) licence in Chennai for the same reasons. However, managing director of Arasu TV Corporation, D Vivekananda, said that it already held the cable licence for the rest of Tamil Nadu, and he saw no reason why it should not be allotted a DAS licence. When asked if there is a timeline to it, he said that it was up to the licensing authority. When it came to state owned networks not getting DAS licences, he understood that it was only a recommendation so far and there was no progress beyond that. The matter of implementation of DAS itself in Chennai was sub-judice and the matter had to be decided on by the courts.
Mansukhani is more concerned with other fronts such as tax and fiscal benefits. While the digitisation process itself is going well and the reforms will bring in investment, there is red tape on other fronts that MSOs and cable companies have to deal with. The August 2010 digital recommendations of Trai had come up with a series of industry tax and fiscal benefits which have got stuck in a bureaucratic maze and need expediting to stabilise the balance three phases. A simple reclassification of cable television industry as a small scale industry would help make bank finance cheaper. Tax rationalisation, especially for entertainment tax in Maharashtra, is a big issue, he pointed out.