Monday, May 25, 2015

TRAI Operating Framework for MSOs / LCOs

TRAI released new operating guidelines for MSOs and LCOs. The framework is particularly aimed at increasing transparency among subscribers, LCOs and MSOs. As per the new guidelines LCOs are required to get details of all their subscribers on a customer application form (CAF) which should be submitted to their MSO. LCOs should also provide to its MSO complete details of payment made by each subscriber within the agreed time frame. LCOs cannot transmit TV signals without proper interconnect
agreements with the MSOs.

Revenue sharing formula mutually agreed between LCOs and MSOs should be mentioned in the interconnect agreement along with explicit provisions for settlement of disputes. The guidelines also lay
emphasis on payment collection mechanism, complaint handling system, awareness of various schemes and offerings, STB installation and procurement, registration of MSOs and LCOs with government bodies.

The new guidelines are positive for consumers and MSOs - With better customer service rules, the gap of customer satisfaction levels between cable and satellite subscribers can potentially narrow. This could
make price increases far more achievable

Higher disclosure requirements for LCOs to MSOs regarding subscribers and payments will lead to less collection leakage and hence better net back for MSOs.

Sunday, May 17, 2015

DTH seeing early sign of tariff pressures

Of late both DTH (DTH players have been taking prices upwards over last 2 years) and Cable TV (efforts
towards packaging) have been focussing ARPU improvement. However in a recent move DTH player Tata Sky launched a INR8 daily recharge voucher allowing subscribers to pay only for the days they watch TV (possibly negative from a sector perspective). While the move may be an attempt by Tata to position itself for DAS Phase3 and 4 markets as it is c60m subscriber opportunity, however characterized by relatively
low ARPUs. Moreover Dish TV runs a parallel brand in these markets and sells skinny bundles of regional channels.

Furthermore Tata Sky has followed the INR 8 daily pack with INR 99 pack for South Indian market. Given this, there is a risk that the DTH space may see some price competition in coming days. Any such move would be negative for the overall pay TV space including Cable TV as last mile owners would likely prefer to be discounted to DTH.

While we view the increase in competitive intensity as negative, it may be early to model pricing decline. That said we highlight that move by competition to subsidize set top boxes in Phase 3 will be significantly negative. Separately recent court ruling setting aside the TRAI mandated inflation linked tariff hike is positive for DTH players (may offset near term pricing pressures).

It is only recently MSOs have started getting their act right on packaging, however lower pricing by DTH players could potentially dilute those efforts. Nevertheless cable TV players particularly Hathway can offset such pricing pressures by ramping up broadband and we see broadband tariffs increasing in the near
to medium term. Nonetheless progress on packaging has been slower than estimated and we now build/adjust for license charges on broadband revenues.

Wednesday, March 04, 2015

Pricing power evident - Dish TV India

Dish TV has announced the implementation of differential pricing for subscribers in four key metro cities – Delhi, Mumbai, Pune and Kolkata. The company has raised the tariffs across all packs for new as well as existing subscribers by Rs10 in all the four key metros. Dish TV plans to replicate the move in DAS Phase II cities, subsequent to the roll-out in the four metro cities

The company has demonstrated pricing power recently by effecting tariff rates hike by 6% (average) in August 2014 and a further 4-8% in February 2015 beginning, across most packs. Introduction of segmented pricing across subscribers in tier 1 and tier 2 cities is yet another way for company to drive ARPU growth. As a reminder, Dish TV delivered an ARPU of Rs177 in 3QFY15 (vs. Rs166 last year) and looks to further drive ARPU through 1) Increasing HD penetration 2) Introduction of intermediary packs, to drive faster upgrade from the base pack 3) Broadcasters push on RIO deals to improve content monetisation from MSOs which in turn will drive industry ARPUs

Dish TV offers the best way to play the digitization theme in India, in our view. The company is at a critical inflection point in terms of turning net profit positive over the next couple of quarters. Also, Zing, the segmented offering for regional markets, is gaining strong traction and setting up the base for the company ahead of Phase 3 & 4 digitisation.

Tuesday, January 27, 2015

Reliance Jio Entry into TV will Disrupt Cable & Dish Market in India

Reliance Jio Infocomm has also applied for a cable MSO license. We believe RJIO has the following connectivity offerings relevant to the space in which HATHWAY operates

RJIO could also launch IPTV services using its cable MSO license once its pipe is present in homes. Last, were RJIO to offer IPTV services, it would compete with HATH’s cable TV offerings. While we acknowledge the risk and build it in our bear case through lower cable subs for HATH, we believe the extent of the challenge will be clearer when the below details are available.

Since seeding is already largely done in Phase I and II markets, RJIO might decide to focus on Phases III and IV, in which case it will not be significantly in HATH’s way. If RJIO launches in IPTV in Phases I and II, it will have to subsidize the boxes completely, in our view, given that subscribers have already paid for the box of either an MSO or a DTH company, and so there is a barrier to exit.

IPTV has not been a big presence even in developed markets and accounts for a very small presence in India. Hence, the acceptability will depend to a large extent on the quality of any offering from RJIO and on the possible bundling offers RJIO announces


Monday, January 26, 2015

Cost push for MSO’s is DTH’s gain

Star and Zee are hard-negotiating content deals with MSOs. Star has shifted to the RIO model, which has increased the cost significantly for the MSOs. Dish TV on the other hand has content cost fixed for at least the next 20 months (management guiding for 5-6% annual inflation). Star and Zee content-cost deal expires in Sep 2016, India Cast in Mar 2017 and Sony in Mar 2018. Cost pass-through for cable gives DTH players headroom to raise prices. Dish plans to implement differential pricing for different regions. While this may not be a water-tight plan, it still allays our concern that ARPU increases will only be region specific and hence may benefit urban DTH player more

Despite 416k net subscriber addition, Dish is still gaining 28% incremental market share. It seems that the DTH subscriber additions have been strong during the quarter and are probably gaining market share.

Separately, Dish TV  has sealed content-cost deals with all of the leading broadcasters for 2-3.5 years. The agreements with Zee and Star Plus are due for renewal in Sep 2016, India Cast in Mar 2017 and Sony in Mar 2018. Fifty percent of the agreement for content cost with the broadcasters is fixed, while the remaining is on CPS. Management has guided for higher single-digit growth in content cost over the agreement period.

Zing is positioned for local language consumption and has achieved impressive success since its launch across all regions. Zing now accounts for 17-18% of the company’s incremental subscriber additions and 18-35% of incremental market share in the states where it was launched.