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.