Vish Iyer, Director, Video Architecture, Cisco Asia Pacific
The Indian parliament has recently cleared the bill to amend the Cable Television Networks (Regulation) Act for ushering in digitization, according to which digitization will be implemented in four phases across the country and completed by December 2014. The government's mandate to dhigitize cable networks will bring a significant transformation to the TV industry and positively impact broadband penetration.
The cable industry in India has grown to an estimated 94 million in 2011. The total number of TV households in India is estimated to be around 147 million. It is hoped that with digitization, there will be more transparency in the business model, resulting in increased revenue for broadcasters and cable service providers besides enhanced services for consumers.
Benefits of Digitization
Digitization presents benefits for all the stakeholders involved. Cable service providers and broadcasters would benefit through increase in subscription revenues; the consumer from a better viewing experience (70 to 300+ channels), attractive tiering and a la carte option, newer and better services (HD, broadband ) while TV viewing will become more personal, interactive and social.
The digital addressable systems (DAS) will make it possible for service providers to tap additional business opportunities in the form of value-added and interactive services. The advent of digitization will allow broadcasters, satellite operators, and cable operators to provide services such as video on demand, telephone services, high speed internet services and interactive television services.
The government would benefit via increase in service tax collections. It will be able to recover tax leakage of US $1B pa and improve tax receipts, re-farm 700 MHz terrestrial TV frequency for mobile services (ease spectrum crunch & potential > $15 Bn auction revenue) and enable cable operators to use digital infrastructure to increase broadband penetration.
Multi-Service Operators (MSO's) would gain an estimated 6X increase in subscription revenue. Digital cable TV will also allow operators to boost pricing power and grow ARPUs. Bundled broadband will boost revenues and profits and serve as competitive differentiation to DTH.
With cable digitization local cable operators (LCOs) will be equipped to compete against DTH players. This would help them increase scalability to cross-sell other services. Upon successful implementation of the digital mandate, gradual consolidation of LCOs will become inevitable and shift the industry profits and value to centralized distribution platforms and broadcasters.
The corporatization of distribution will bring new scale to the TV business with improved systems to raise transparency and will result in significant value creation for investors across various markets. Winners will emerge amongst operators with the intent to digitize and the skill to execute, thereby gaining more scale to move up the industry value chain. However, cable operators will need to make investments to create a new ecosystem including customer payment options, VAS revenue-sharing models and call centers, all of which are currently available in DTH.
Challenges and the way forward
Cable digitization in India is an enormous task and a complicated endeavor. According to the Telecom Regulatory Authority of India (TRAI), there are over 200 broadcasters and about 600 television channels currently. Among service providers there is a large roster of over 6000 cable multi-system operators (MSOs), with 60,000 LCOs, alongside 7 satellite television operators and many IPTV providers (apart from the terrestrial services of DD, of course.)
The sheer scale and roll-out of this initiative needs large-scale planning and coordination among all stakeholders, training and orientation to more than 200,000 cable operators in the country, besides communicating to consumers what going digital means for them in terms of choice, access and quality.
Digitization will result in radical change in consumers’ expectations. Consumers would get access to nearly 500 channels as against 30-40 odd channels-prior to digitization. For the consumer, digitization would also mean a mandatory one-time expense on CPE (although subsidized).
Current consumer spends on CATV / Pay TV in India is lower than international average of 5% of Per capita GDP, implying that the operational costs for the operator would increase significantly. In order to bring down costs, operators will have to share back-end infrastructure so that they can overcome bandwidth scarcity and reduce further losses as they continue to subsidize acquisition of new customers.
For the government, digitization would mean limited tax rebates to offer financial incentive for digitization and broadband. Digitization will also encourage foreign investors by increasing cap on FDI and Pay TV from 49% to 74% and demands the need for a regulatory environment for cable operators to comply with digitization requirements.
Digitization of around 100 million homes will require a capital investment of about $10 billion to have the requisite infrastructure, in place. So the government as well as private players must help the operators with flexible payment policies and affordable yet uncompromised quality setup boxes.
The industry will witness many mergers and consolidation, as the LCOs will tie up with triple play service providers or MSOs, to upgrade their infrastructure. Cable MSO's will need to transition from Carriage Fee (B2B) to Subscription (B2C) business model and create equitable Revenue Share Agreements with LCO's who will be challenged because addressability will risk their current business model(they will need to change or perish) while analog -shutoff can leave them isolated.
TRAI, in a recently released consultation paper has listed out various issues that pertain to tariffs, interconnection and quality of service for the telecom industry. Similarly, the cable industry has expressed its concerns on revenue sharing and the availability of set-top boxes, as regards provision of services to consumers. Issues are also being raised as regards facilitating financial concessions and tax sops for meeting the 2014 deadline. Also the larger issue of the role of broadcasting remains unaddressed. This is important because broadcasting utilizes a public resource-the airwaves.
Linked to these questions are important other issues that digitization will throw up and include those pertaining to cross-media ownership, public service broadcasting and consumer redressal. The convergence opportunity will further amplify such dormant issues–for instance, the ambiguity in ownership rules has provided a gateway for telecom companies into the broadcasting sector. The resulting conflict of interest and issues related to content standards, platforms or even competition laws will be tricky to resolve.
Until now, the ministries of information and broadcasting, and TRAI have been taking care of issues in this sector. Not addressing crucial issues confronting this sector and the absence of an independent authority to oversee it could take digitization off track. Therefore there is an urgent need for the government to work with the ecosystem and create a solution to address these challenges.
The cable MSO digital penetration today stands at five million. To meet the deadline of 2014, cable service providers have to sell about 90 million set top boxes to their consumers. While complete digitization may or may not happen within the given timeframe, even ensuring a 60% digitization, will enable India move a step forward to be on par with the developed economies in the sector.