Anupama Arora, Vice President, ICRA Limited
The Indian government initiated the roadmap of cable digitization around 5 years back; the overall progress has been satisfactory despite the delays and augurs well for the entire media distribution value chain.
The Indian television industry with more than 170 million television households ranks as the second largest market globally after China. The distributors, comprising Local Cable Operators (LCOs) and Multi-System Operators (MSOs), Direct-to-Home (DTH) service providers, IPTV service providers, and Terrestrial TV service provider (Doordarshan), play an important role operating as the key intermediaries between the content providers (broadcasters) and end consumers (subscribers). While under a digitally addressable cable TV system (DAS), MSOs decrypt signals supplied by broadcasters via satellite and pass them onto LCOs, who act as local retailers offering last-mile connectivity through set-top boxes (STBs), in the DTH space, encrypted signals supplied by broadcasters are directly decrypted by the end users. Over the years, limited bandwidth availability and lack of subscriber addressability had resulted in the concentration of bargaining power with the LCOs providing last-mile connectivity to the subscribers. Digitization is expected to bring about a structural balance in the value chain with better subscriber addressability, higher bandwidth availability, and focus on consumer preferences.
With implementation of cable digitization, mandated by the ministry of information and broadcasting (MIB), the Indian television distribution industry is witnessing a migration from analog to digital cable systems over four phases. Of this, Phase-I (metros except Chennai) and Phase-II (38 cities with population over 1 mn, except certain markets in Andhra Pradesh) were completed in October, 2012 and January, 2014 respectively. While the mandated deadline for Phase-III (all other urban areas across India with a municipality) was December, 2015, Phase-IV (rest of India) is expected to be completed by December, 2016.
The migration to digital cable was completed in Phase-I and Phase-II markets (except Chennai) by January 1, 2014 in metros and 38 Indian cities with population exceeding 1 million (current estimates of 34 million STBs in these markets). While analog signals were discontinued in Mumbai, Delhi, and Kolkata during Phase-I, migration to digital cable remained voluntary in Chennai as Arasu Cable TV Corporation Limited, the largest cable operator in Chennai awaits the DAS (digital addressable system) license. Also, certain markets like Hyderabad and Coimbatore from Phase-II failed to report complete digitization on account of local issues by the end of the deadline.
With the MIB standing by the proposed deadline of December 31, 2015 for Phase-III markets, STB rollout witnessed healthy uptick during FY2016 (~40 million STBs have been rolled out in Phase-III markets by various distribution platforms until April 2016 as against an earlier target universe of ~34 million households). However, the challenges faced by distribution channels during this phase emerged from the stay orders granted by various High Courts on issues such as discontinuation of analog signals during December 2015 to January 2016 and re-classification of certain areas to Phase-IV, given the low household concentration in such areas.
With an estimated population of over 60 million households in Phase-IV markets, industry players do not anticipate any extension in Phase-IV deadline with some contiguous areas having already been digitized. However, the implementation is expected to be along the experience of Phase-III, with analog signals being discontinued in a phased manner. However, of the analog population in Phase-III and Phase-IV markets, residual analog subscriber base amongst the top three MSOs - DEN Networks, Hathway Cable, and Siti Networks - stood at ~9.5 million subscribers only (as on March 31, 2016), indicating healthy growth opportunities for DTH operators and regional MSOs. In this direction, DTH operators have introduced lower-priced vanilla STBs and channel packages to tap the opportunity in Phase-IV markets. DD FreeDish - a free-to-air (FTA) DTH service owned and operated by Doordarshan with key focus on small towns and rural India - is also expected to emerge as a key player in Phase-IV, given the price-sensitive nature of subscribers. Meanwhile, the trend of consolidation amongst MSOs is expected to continue, with larger MSOs taking the lead on in-organic acquisitions.