A tough digital road for cable

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(12 October 2011 11:06 pm)

MUMBAI: Cable TV companies will face rout if they do not capitalise and act swiftly and decisively to counter DTH’s invasion across the country.

The time has arrived for the big multi-system operators (MSOs) to stop adding analogue weight and focus on building a strong base for digitisation and broadband services.

"Cable companies do not have the luxury of time. They are under-invested and have not done their job. If DTH does not kill them, Internet will as watching television on the move picks up. They will have to act swiftly. If I am a cable company, I would be concerned. The investments may be too little and come too late," warned IDFC Securities MD and research head Nikhil Vora.

Hathway Cable & Datacom managing director and chief executive officer K Jayaraman said the big MSOs had taken the consolidation route for the last few years and now the thrust should be on digitisation.

"The top-tier MSOs have enough market share and do not need consolidation. There will be more stress if they add more analogue homes. When the government is expected to mandate digitisation soon, it does not make sense to acquire last mile operators by paying a premium at this stage," Jayaraman said, while speaking at the India Digital Pay-TV Summit.

Exponentia Capital principal Neeraj Bhatia agreed that the top MSOs have built enough economic size with a reach of over eight million homes. “Horizontal consolidation does not make sense at this stage as they all have size. Vertical consolidation is the need of the hour as the acquisition of operators will lead to revenue augmentation. For MSOs to attract capital from investors, they will have to demonstrate that they can achieve profitability faster," he said.

Vora raised the issue of the sector failing to take risks. "Unlike DTH, the cable companies have not made investments ahead of time. Everybody knows it is a long-haul business. Digitisation, undoubtedly, throws open a huge opportunity. But if fatigue sets in among cable companies, DTH will grow," Vora said.

Jayaraman believes that the big MSOs will not face funding problem in the first phase of digitisation. "There is cash residing in these companies. They will also be able to raise some debt. Along with vendor financing, there shouldn't be a problem in funding the first phase. Some of the MSOs can also raise capital through rights issue. There are enough avenues to raise capital," he said.

Being wired companies, cable TV networks have an inherent technology advantage over direct-to-home service providers. "The problem, however, lies in the poor track record of the cable companies. There is also the issue of structuring of the industry with the local operators having control of the last mile," averred Bhatia.

The cable TV sector will see a new wave of consolidation under a digitisation regime. "The industry will consolidate further and MSOs will be aggressive in this space. Cable companies have used their capital intelligently. While DTH has grown to 30 million, only nine million out of this has come from urban areas. Analogue cable has also added 20 million during this period," said Den president SN Sharma.

A phase-wise rollout of digitisation will provide the distribution companies a huge growth opportunity. “The ones who have done well in Phase I will have the country to themselves,” concluded Bhatia.
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