Monday, January 19, 2015

Reliance Jio to Power Your TV with OFC / Wireless Technologies

Reliance Jio Media, a subsidiary of Reliance Jio Infocomm has applied for Pan India multi-system operator (MSO) license that will enable the company to broadcast TV channels to local cable TV operators as well as households. We view RJio's entry in to TV distribution business as incrementally negative for Hathway and Dish TV as it increases competition. RJio’s entry may also limit the ability of MSOs to increase ARPU meaningfully in the near to medium term. RJio owns Network 18 which gives it access to some content such as news.

We believe RJio is likely to use all three mediums – Fiber, Cable TV, and wireless – to offer high speed broadband and pay TV services to households. Also, the company may look to acquire small MSOs and LCOs to increase its foothold in the cable TV distribution business especially in the phase 3 and phase 4 areas where 90-100m households are likely to be digitized over the next 3years. In the phase 1 and phase 2
cities, the company may put emphasis on fiber to home network as affordability is high in the cities of Phase 1 and Phase 2.


Friday, January 16, 2015

Hathway Packaging Star Channels like DTH

Post the move by market leader Star TV to offer channels a-la-carte and at wholesale rates, Hathway has responded by coming out with five packages in its key digital markets (we note that it is only via packaging that cable operators can improve ARPUs and pass on the increase in content costs to subscribers, and it is only via packaging Multi System Operators (MSOs) that it can use the multiple incentives offered by Star TV). The company is following up with aggressive marketing (ads across mediums likely to spread over a couple of months).

There is strong case for cable TV operators to hike tariffs, particularly after the move by Star TV to offer content at wholesale rates. Key reasons which support tariff hike include,
Churn - local cable TV operators could see churn in case they fail to match content at par with Direct-to-Home (DTH) operators.

Increase in content costs - The move by Star TV has resulted in increased costs for cable TV players. We have seen in other sectors, such as telecom, that an increase in input costs has resulted in increase in voice tariffs. We understand only Hathway has started the packaging initiative as of now. That said, if Hathway sees a robust sign-up by existing subscribers, others are likely to follow suit (in addition, we expect other big broadcasters to replicate the move by Star TV once big MSOs implement packaging).

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.