Zee plans to invest Rs 2,300 crore in the second phase. Till such time the company gets a financial partner in the project, the HFC rollout will be restricted to the laying of ducts in four cities within the financial resources available to Zee Telefilms' wholly-owned subsidiary, Siticable Network.

"The two phases will involve an investment of Rs 2,600 crore. We will get into the second phase only after diluting equity in Siticable and getting financial partners for the project. But the move is on to look simultaneously for equity participation," Zee Network president, corporate finances and strategy Rajesh Jain told The Financial Express.

Zee had earlier announced its ambitious plan to invest Rs 3,700 crore in wiring up 26 cities across India, with optic fibre cables for its broadband project.

Lack of funds and a crowded market with competition from several big broadband players like the Reliance group and Bharati and Singapore Telecom combine have forced Zee to take a cautious approach. Zee Network's (the Zee group of companies including Zee Telefilms) net profit fell sharply by 26 per cent to Rs 47.4 crore for the third quarter ended December, 2000. The fall in net profits was due to Zee's investment in new initiatives, which involve a longer gestation period.

While internal accruals will account for 50 per cent of the Rs 300 crore investment, the balance will be met through debt, said Mr Jain. The first phase will involve on improving the quality of last mile connectivity and better upgradation of the coaxial for a two-way path in eight to nine cities. The cable systems will be upgraded from 550 to 750 Mhz. The HFC rollout will be confined to Bangalore, Delhi, Hyderabad and Jabalpur.

The second phase of investment will be towards expansion for a full broadband play. "We should be able to do it in 15-18 months. We will be offering cable, Internet, electronic programming guide, a movie channel, a local city channel and value-added services," said Mr Jain. In the last phase, the project will be taken beyond the eight to nine cities.

Zee plans to buy out local operators who control the last mile in a bid to increase the direct penetration of its cable network. While the HFC project will be on, the company will continue to focus on revenue generation from non HFC cities, said Mr Jain.