DTH Subscribers Gain Momentum

The DTH companies are expecting windfall additions in subscribers from Phase 3 and Phase 4. Even if the
deadline is extended by a few months, the DTH companies remain confident of seeding boxes on voluntary basis. We estimate that the pace of subscriber addition can accelerate from 10m p.a. to 12m if Phase 3 digitisation is successful. Our checks confirm that gross incremental market share of the top 3 players—Dish TV, Videocon d2h and Tata Sky—is in excess of 75%.

DTH players were happy with the Star RIO (Reference Interconnect Offer) deal. They believe that this has forced cable companies to introduce tiering of content and is a precursor to an increase in consumer ARPU.

We do not think the daily recharge option changes the industry dynamics in a meaningful way. Our checks suggest that there has been no market share shift post the launch of the scheme by one of the DTH players and we might not see competitors launching a ‘me-too’ product.

The industry is in wait-and-see mode over the potential entry of Reliance Jio as a cable MSO. Potential
subsidy on set-top box by the company can be disruptive for the industry.

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.

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.