Tuesday, September 30, 2014

Delayed Digitization = Delay in subscriber addition and price increase

The Ministry of Information and Broadcasting has notified a new deadline for phase III/IV of digitization. The phase III deadline has been shifted from Sep-14 to Dec-15 and phase IV has been shifted from Dec-14 to Dec-16. With a new government at centre, the deadlines have been extended to provide more time for domestic manufacturing of settop boxes (STBs). The timeline has been extended in spite of resistance by the TRAI chairman.

This extension in timeline will delay subscriber additions and aggressive price increases by DTH companies from FY15/16F to FY17/18F. Accordingly, we have reduced our net subscriber addition assumptions from 2.4/2.4mn in FY15/16F to 1.5/2.0mn in FY15/16F. Although the I&B ministry has indicated that phase III/IV would require 110mn STB, we are currently building in 52mn analog subscribers to get digitized as ~30-40% of subscribers might not come on the digital platform at all.

Dish TV net subscriber addition has picked up from Mar-14. This has been on account of the launch of the Zing brand in West Bengal, Odissa and Tripura over Mar-Jun-14. As a result, Dish TV’s incremental market share in subscriber additions increased from ~20% in Q3FY14 to ~24.5% in Q1FY15. Zing targets regional
subscribers mainly in phase III/IV of digitization and will help Dish TV compete better with cable operators.

In Jul-14, the company launched Zing in Maharashtra. Similarly, in Sep-4, the company launched the Zing brand in the Telugu market (Andra Pradesh and Telangana) which has ~15% of overall cable homes in India. So, the company’s strategy of expanding Zing in other regional markets will likely continue to drive subscriber addition in the medium term, in our view.

Thursday, July 24, 2014

TRAI recommendations- Positive for DTH players

The Telecom Regulatory Authority of India (TRAI) today came out with recommendations on issues pertaining to DTH operators, broadcasters and multi-system operators (MSOs). These recommendations will need the Ministry of Information and Broadcasting’s (MIB) approval for implementation. The approval timelines need to be monitored.

Recommendation: Licence fee should be 8% of adjusted gross revenue (AGR). AGR is calculated by excluding service tax, entertainment tax, sales tax from gross revenue.
Impact: Though directionally positive for all DTH operators, they have been demanding 6% of AGR. However, the matter is currently in the Supreme Court. Hence, the apex court will have to take final decision. Also, the exact definition of AGR needs to be checked. If it also excludes activation revenue, bandwidth revenue and lease line revenue, it will be more positive for DTH players.

Recommendation: DTH licences will be issued for 20 years. Upon licensee’s request, the period may be renewed by 10 years at a time.
Impact: Positive, since the period is fairly long and imparts visibility.

Recommendation: One-time entry fee of INR100mn for new DTH licence seekers.
Impact: Positive for a new DTH licence seeker since the fee has been left unchanged.

Recommendation: A broadcaster/or anyone controlling a broadcaster can control only one distribution entity (one MSO or one DTH company).
Impact: We expect any such broadcaster to retain its distribution arm, which is larger in scale, where higher capital has been employed and growth prospects are better.

Saturday, July 19, 2014

Siti Cable - Rapid Digitization

Management plans to scale up its presence in existing and new markets and digitise its total subscriber base over the next two years. Management thinks there is plenty of headroom for digital subscription (44% of FY14 consolidated revenue) growth on (1) c.20% further ARPU growth in digitised cities and (2) conversion of its analog subscribers (c.6mn subscribers with ARPU of less than INR 10/month) to digital (average ARPU of INR 100).

The company recently launched broadband in Kolkata with c.100mbps broadband speed and plans to do a similar launch in NCR in August 2014. It is targeting 10% of the digital subscriber base to migrate to broadband connection with an average ARPU of INR 500 (as per the company the average ARPU for Siti’s
existing broadband subs in Kolkata is INR 400).

Management expects MSOs to retain their market share in Phase 3 from DTH operators (they had earlier retained their market share in Phase 1-2 digitisation from DTH operators). This could likely lead to lower subscriber additions for other DTH operators like Dish (Underperform; PT: INR 47) in Phase 3.

In India, STBs are provided to customers at a subsidised price. Siti treats the upfront activation amount paid by customers as activation revenues in the quarter of STB deployment. The STB is capitalised and depreciated over eight years.

Sunday, June 22, 2014

ZING Brand Gains Traction in Orissa- Dish TV

Subscriber addition trends are encouraging in Odisha, but for the rest of India the trends are similar to last year, as per our survey. Notably, Odisha is one of the three states where Dish has launched the lower priced Zing brand. Additionally, some of the dealers we surveyed were of the opinion that Dish’s relatively weaker customer service (compared to other direct to home [DTH] players) has proved to be a hindrance in retaining/improving market share, especially in Tier 1 cities

Zing (low-cost regional offering) in Odisha and the north-east is likely to pull down the average ARPU. Dish indicated during its 4QFY14 conference call that the base pack for Zing users is typically 20% lower than its regular product.


Our survey revealed that package prices have risen 6-10% over the past 6-12 months. Dish’s mid-tier package monthly charge of INR 300 is very similar to that of cable operators in Tier 1 cities (c.INR 250-300) leaving little room for material ARPU upside. A higher proportion of subscribers on Zing and lower ARPU from marginal customers in Tier 3/Tier 4 cities could drag down overall ARPU growth for Dish, in our view.

Dish’s average gross ARPU is c.INR 225 vs INR 250-300 charged by cable operators. While Dish’s ARPUs are marginally lower vs. cable operators, we believe that the differential is not big enough to induce churn given the activation costs for a DTH connection. Besides, Dish’s mid-tier package monthly charge of INR 300 is very similar to that of cable operators in Tier 1 cities (c.INR 250-300). Therefore, we believe it would be difficult for Dish to push up its package prices materially from these levels.

The increasing proportion of lower paying marginal subscribers from Tier 3 and Tier 4 cities would drag down the average ARPU, in our opinion. A further addition in Tier 1 and Tier 2 is difficult as digitisation in these towns is mostly complete and incremental additions would be only via churn (from other operators). The perception that Dish’s customer service is poor, as was highlighted by a few distributors in our survey, would be a hindrance in gaining further churn subscribers, in our view

Monday, June 02, 2014

Cable TV has to go the prepaid way for ARPU Improvement

The -Indian Media sector started getting lot of interest from global and regional investors when the Indian regulator decided to pursue digitisation in four Phases across 2-3 years. So far, DAS has been implemented in phased manner across 40 cities/32 m households over the last two years. However, except for implementation of set top boxes, there has been hardly any benefit as MSO and LCOs have been struggling among themselves over revenue share and subscriber ownership issues. That said, as an interim solution, LCOs have agreed to pay a part of the ARPU to MSOs (referred as gross billing), but this approach has failed to expedite progress on subscriber segmentation and billing.

We highlight the two potential risks gross billing suffers from. Firstly, gross billing based revenue accounting is no way suggesting that cash collections will be at the same rate and MSOs suffering with bad debts over a period of time is not ruled out. The second risk that a gross billing-based approach suffers from is keeping the model on a flat fee structure for long and limiting upsides for all the stakeholders. The large part of the growth for Digital Cable is going to be a function of ARPU improvement. As such, ARPU has to be in link with the content being consumed, suggesting that there has to be a significant amount of focus on subscriber
segmentation and there have to be systems in place that can drive this. Today, there is not much pressure on the LCOs to hasten up subscriber segmentation and drive ARPU improvement.

To sum up, we are of the view that if Cable TV goes the prepaid way, all the above issues could be resolved and subscriber segmentation can be achieved in a more a scalable manner as there will be only a small amount of management bandwidth focussing on collections/bad debts