Rapid wireless telecom growth in the early 2000s has transformed the way in which 900 million Indians communicate with each other. The cable TV space is now set to embark on a similar journey as the government’s move to digistise these networks will change the way in which 90 million Indian households watch TV. The Cable Television Networks (Regulation) Amendment Act, 2011 sets a target for progressively converting analog cable networks to digital ones across the country by 2014.

Aimed at making TV viewing more personal, interactive and social, digitisation will prove to be a game changer for the broadcast and cable industry. It will result in an enhanced experience and wider content choice for subscribers at affordable rates, while addressing revenue sharing anomalies among broadcasters, multiple system operators (MSOs) and local cable operators (LCOs).

Viewers will have the freedom to select the channels that they want to view, and in the process, will be able to better manage their monthly bills. The picture and reception quality is better in the digital medium vis-à-vis analog systems. Further, viewers can access about 500 channels, as against 100 in the analog systems. They just need to make a small additional investment in buying a set-top box (STB), which is available at a subsidised cost. Further, the transition from analog to digital will allow subscribers to access value- added services (VAS) including broadband through their TV sets.

As for broadcasters and MSOs, cable digitisation will streamline the under-reporting of subscription revenue by LCOs. It has been reported that the LCOs under-declare the subscriber numbers by as much as two-thirds, which has resulted in a major dent in broadcasters’ pockets. For instance, the subscription revenue of Rs 3.5 billion–Rs 4 billion per annum in metro cities falls way short of the carriage fees of Rs 8 billion that broadcasters pay each year to the government.

Further, digitisation is likely to result in a large number of pay channels, with significant improvisation in content. Consumers will now be able to watch niche channels, access VAS and interactive services, video-on-demand and high speed internet services, which will create new opportunities for content developers and drive subscriber ARPUs for MSOs. Also, consumers will be exposed to targeted advertisements which are relevant to and are in sync with their TV viewing patterns, a choice to record their preferred media and educational content, play games, etc. For viewers in mature urban markets like Tier I cities and metros, digital networks will offer time-shift TV, over-the-top services, personalised TV, a consistent n-screen experience, etc. Emerging services for in-home automation and security, and home, health and lifestyle applications will be also widely adopted.

Therefore, digitisation is expected to usher in convergence across the media, entertainment and telecom segments. However, going by the experience of the first two phases of digitisation in the country, the journey towards this convergence is not going to be smooth. The government would have to plug several gaps and address various issues and concerns raised by multiple stakeholders before the benefits of digitisation truly get reflected in the experience of Indian consumers and revenues of the broadcasting industry.

tele.net takes a look at the progress made in digitising cable networks, key concerns of stakeholders and the way forward for the industry…

Roll-out progress

So far, the government has completed two phases of digitisation of analog cable TV networks. The first phase, which was expected to be implemented by July 2012, was completed in October 2012. The government had to revise its estimates of the number of cable TV households owing to discrepancy in data. Phase I included digitisation of cable networks in the four metros – Delhi, Chennai, Kolkata and Mumbai. As on November 5, 2012, 2.24 million STBs were installed in Mumbai, 2.52 million in Delhi and 1.77 million in Kolkata. In addition, 2.9 million subscribers were reported to have direct-to-home (DTH) connections in the four metros.

The second phase was completed in March 2013, wherein about 18 million STBs were installed in 38 cities across 15 states; of these, 13 million STBs were installed in homes with cable TV, and the remaining in households with a DTH connection. This phase focused on removing monopolies in the cable TV market so that viewers have a wider choice of programmes.

The third and fourth phases of digitisation are under way and are expected to be completed in September and December 2014 respectively. Phase III would cover all urban areas (municipal corporations/ municipalities) that were not covered in Phases I and II, while the entire country will be covered under the fourth phase. Around 75 million STBs are expected to be installed under the third and fourth phases.

 LCO concerns

The current revenue sharing model between the MSOs and LCOs is not favourable for cable operators and may, over time, force LCOs to quit the business. In the current scenario, the ratio of revenue sharing between MSOs and LCOs is 55:45 for free-to-air channels and 65:35 for pay channels.

Cable operators are also protesting against a very high entertainment tax that they are forced to collect from subscribers who are not willing to pay heavy monthly subscription fees for pay channel packages as well as an additional tax. Further, with the government’s plans to allow MSOs to collect entertainment tax directly from consumers could reduce the importance of LCOs in the cable TV value chain.

There is no sync between MSOs and LCOs. LCOs have been providing last mile access for years and have to deal with customers on a daily basis. Thus, they are demanding that they must be involved by the MSO for designing channel packages for subscribers. Further, most last-mile cable relays are owned by small, localised entrepreneurs who cannot afford the equipment required for the digital switchover. This has forced small LCOs to sell off their business to large LCOs.

 Industry expectations

The industry expects the government to promote the deployment of indigenously manufactured STBs for digitisation. Currently, the cable TV market is dominated by foreign vendors such as Cisco Systems, Huawei Technologies, Pace and Sichuan Changhong Electric, and the import duty on such products is high. The government lost about $10 billion due to STB imports from China during the first two phases of digitisation.

The digitisation targeted to be completed by end-2014 will result in greater demand for STBs. The market for STBs and its components would witness a compound annual growth rate of 26 per cent between 2012 and 2016. This would provide new avenues for domestic vendors who can take advantage of economies of scale and offer products at better margins than their foreign counterparts. Several industry stakeholders, in fact, have asked the government to make full/partial sourcing of STBs from indigenous manufacturers mandatory for the upcoming phases of digitisation.

Further, some industry groups are also requesting the government to let digitisation be a voluntary process rather than mandatory. During the first two phases of roll-out, several complaints have been registered where poor-quality STBs were installed on consumer premises in a bid to meet the deadline. These imported STBs are reportedly obsolete and do not comply with the prescribed standards in many cases. While it may not be possible to leave the choice of digitisation solely to a customer, it is only fair for the government to re-look at the timelines for adherence.

Also, it is important to create awareness about the benefits of digitisation amongst various stakeholders – consumers, LCOs and MSOs. The driver for adopting digitisation for consumers in the first two phases was the risk of a blackout in case of non-adherence, and not the benefits of installing an STB. The government now plans to spread awareness about the associated benefits of the STB in the next two phases.

 The way forward

The challenges notwithstanding, digitisation would change the TV viewing experience in the country. It will put India in the league of developed countries which have realised the benefits of digitisation for economic growth. It will also bring in transparency in the broadcasting sector, which will promote investments and growth. The industry is likely to witness consolidation as LCOs tie up with MSOs to upgrade their infrastructure. Moreover, the government expects digitisation to play an important role in meeting the broadband targets in the coming years