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.

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.