Broadcast services sector will benefit from increased FDI

Written by Chandrajit Banerjee | Chandrajit Banerjee | Updated: Sep 19 2012, 09:21am hrs
The new norms, coupled with the digitisation drive, have rendered the fast-growing media & entertainment sector in India ripe for foreign participation

The governments decision to raise the foreign direct investment (FDI) ceiling to 74% from 49% in broadcast carriage services will impart a tremendous boost to Indias cable TV sector. However, more steps are needed to attract the required investment in the sector.

The broadcast services sector comprises direct-to-home (DTH), multi-system operators (MSOs) and cable TV digitisation. With the intention and a clear plan to completely digitise broadcast distribution by 2014, India is the most sought-after market in the world. TV households in India are around 148 million, accounting for over 700 million viewers, and the ongoing digitisation is going to completely change the face of the Indian broadcast industry. The objective is to bring transparency and accountability into the system, which will ultimately reflect in the expansion of the media and entertainment sector and add to the overall economy. In fact, combined with a nascent broadband market, we may expect to create a new service segment beyond entertainment.

An estimated R25,000 crore worth of investments is required by cable operators to digitise 100 million cable homes in the next three years. Indias cable TV infrastructure and ecosystem is set for complete digitisation by the end of December 2014 and four Indian metros (Delhi, Mumbai, Chennai, Kolkata) by October 31, 2012.

Enhancing the limits for FDI is a major step to begin with, helping the opening up of the sector and speeding up the pace of digitisation in the four metros. Building the digital infrastructure and deployment of new technologies too is needed, which necessitates greater participation from overseas operators.

While the fine print on rules set by the Foreign Investment Promotion Board is awaited, the government has brought back confidence among the cable distribution community. Investors would closely watch the first phase execution of cable digitisation and lend support for the remaining phases across the country. We can expect more activity by the next financial year for MSOs to source funds for infrastructure spends.

The immediate beneficiaries will be those MSOs that have obtained licence from the information and broadcasting ministry for digital addressable system (DAS). So far, over 50 MSOs have obtained DAS licences. Already, major MSOs have invested substantially for the first phase cable TV digitisation. The current move to raise the FDI bar will help them with concrete digitisation expansion plans in the coming months.

Independent cable operators will also benefit from the harmonisation in FDI limits as they can form cooperatives in cities and districts to provide DAS services. Cable TV will continue to dominate formats of delivering content to a large majority of people.

The DTH segment of broadcast service will also benefit from this move as it has been going through tough times, specifically with regard to heavy taxation. It has added over 40 million DTH homes and provides an alternative platform for consumer choice.

Major foreign players are looking to venture into Indias broadcast service space. They will move cautiously and two to three players are expected to debut services in India. Consolidation will also happen in this space and mobile players will step in for digital licences.

The opening of 74% FDI in mobile TV is a welcome step, but more action in this space will take place when spectrum issues are cleared and 4G deployed.

While CII has been advocating increase in FDI limits in the cable distribution sector from 49% to 74%, there is room for more policy measures from the government. A key measure required is to grant information infrastructure status to the cable TV sector. This would bring the sector on par with other infrastructure sectors in the way taxes are levied and bank credit dispersed. At the same time, a high entertainment tax levied in DTH segment (which is likely to get extended to cable distribution in the new digitisation process) will be the biggest challenge for new investors.

We strongly recommend the following measures to be undertaken by the government to benefit from the decision to increase FDI limits. Most of them have been accepted by Trai.

One, all service providers who set up a digital addressable distribution system during the sunset date as notified by the government should be treated similar to telecom service providers and be eligible for an income tax holiday from January 4, 2011, to March 31, 2019.

Two, the basic customs duty on digital headend and set-top-boxes should be reduced to zero for three years to give a boost to digital conversion.

Three, the double charge of service tax and entertainment tax should be subsumed in GST in due course.

If media and entertainment is to become the growth driver of the emerging creativity-led industries, all assistance should be provided to it so that India can come out a winner in the global marketplace.

The author is director general, CII