Digitization : Deadline to be extended on city-to-city basis !!

[Chief]

Chennai television viewers, it seems, may have to wait longer for a digital viewing experience. Stakeholders like government-run Arasu Cable TV Corporation and Sun TV Network's Sumangali Cable Vision are still not prepared to meet the July 1 deadline to digitize cable network.

The information and broadcasting ministry has hinted that it may extend the deadline on a city-to-city basis "if there is a need".

The regulator, Trai, has asked cable operators in all the four metros - Delhi, Mumbai, Kolkata and Chennai - to go digital by July 1, 2012, and the rest of India by end of 2014.

To go digital, operators will have to procure set-top boxes, change the existing cable into fibre optic cable, and set up high-tech amplifier.

However, Kolkata and Chennai are lagging behind. In Chennai, only 12.5% of the subscribers have STBs now.

Thamizhaga Cable TV Operators General Welfare Association, which caters to 90% of the state's cable subscribers, said it would need at least 4 months to digitize cable in Chennai. Arasu has asked the Centre for six months extension to launch digital services.

"It is highly impossible to launch digital network in Chennai before July," the operators' association president, P Sakilan, said. He said even if STBs are given free of cost to customers, it will take four months to import them, test-run them, and deliver it to 40 lakh customers in Chennai.

The biggest challenge for operators, Sakilan said, is to convince people to shell out Rs 1,000 to Rs 1,500 for STBs. "Of the total 40 lakh consumers in Chennai, about 25 lakh are middle and lower class family," he said, adding that the lower-middle class would not be able to afford STBs.

Arasu has asked cable TV operators in Chennai to estimate the number of STBs needed in their areas. It has only recently floated tenders to procure set-top boxes. "The state will get one lakh STBs from the identified bidder within eight weeks of the award of contract. The rest will be procured from the firm in a phased manner," said a government official, adding that the government operator has no plan to give STBs free.

Cable operators in Delhi and Mumbai have moved court seeking an extension of the deadline. An Edelweiss report said that Chennai and Kolkata are likely to miss the deadline and that the respective governments have sought for a deadline extension.

However, any delay in the digitization of cable network will affect the direct-to-home (DTH) players, who are expecting an exodus from cable TV subscribers. In anticipation, DTH players like Airtel have stocked STBs. "Demand so far is not matching our preparations... If July 1 deadline holds, the demand for STBs will shoot up as people really don't have an option when TV stops showing channels," said Shashi Arora, CEO-DTH and media, Bharti Airtel.

The demand for STBs will be around 70 to 75 lakh in the metros. "We have already got the supplies. We have also hired temporary workers to help with the installation process and we have invested a lot in retail and distribution, by increasing outlets, to ensure visibility," said Arora.

According to a report by Motilal Oswal, a securities brokerage firm, DTH has a subscriber base of 4 crore or one-third of the total cable and satellite base of 12 crore.

With digitization, viewers will benefit in terms of choice and quality. They will be able to choose and pay for channels they want.

On the industry side, increased transparency will result in accurate reporting of subscriber base and revenue. This will curb misreporting of statistics by operators and will lead to better profitability for broadcasters.

 

[Chief]

Deadline for Cable TV digitization may get extended

Even as households across the nation, especially ones in the four metros - Delhi, Mumbai, Kolkata and Chennai brace themselves for the impending cable TV transition (read digitization) come July 1, this year, reports about cable operators moving to the court seeking an extension to the aforementioned deadline have been cropping up. A report by The Times of India now confirms that in Chennai, stakeholders, like the government-run Arasu Cable TV Corporation and Sun TV Network's Sumangali Cable Vision are not fully ready to meet the pre-set July 1 deadline. In fact, if this report is anything to go by, then the I&B Ministry, too has hinted that chances are that they may extend the deadline, on a city-to-city basis, if need be.​

To make the switch, viewers would require to get themselves a set-top box installed, and if the figures are to be believed then Chennai and Kolkata are currently far from what will require them to reach the stipulated deadline. Reportedly, in Chennai, only 12.5 percent of the subscribers have set-top boxes. Quoting P Sakilan, the operators' association president, the report adds, "It is highly impossible to launch digital network in Chennai before July." Sakilan further stated that even if they were to provide the set-top boxes for free to the viewers, it would take four months to import them, test-run them, and deliver it to 40 lakh viewers in Chennai.

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Will they miss their deadline?​

Sakilan, however also added that the biggest challenge for operators lay in convincing the masses to pay amounts like Rs. 1,000 to Rs. 1,500 for the set-top boxes, moreso because of the total 40 lakh viewers in Chennai, roughly 25 lakh belonged to the middle and lower class families, who would find it beyond their means. Cable operators across Mumbai and Delhi, reportedly have moved to court seeking an extension to the deadline, and according to the report - "An Edelweiss report said that Chennai and Kolkata are likely to miss the deadline and that the respective governments have sought for a deadline extension."

Reportedly, government-run Arasu Cable TV Corporation has asked cable TV operators in Chennai to provide them with an estimate of the number of set-top boxes that would be needed in their respective areas. The report further quoted a government official as saying, "The state will get one lakh STBs from the identified bidder within eight weeks of the award of contract. The rest will be procured from the firm in a phased manner." The official, reportedly also added that the government operator "has no plan to give STBs free."

Kolkata, too has not fared any better with 90 percent of cable TVs remaining to get digitized, according to a report by The Hindu Business Line. The report further quoted Mr. Swapan Chowdhury, Secretary of Kolkata-based Cable and Broadband Operators' Welfare Association as saying, "Only 5 lakh out of an estimated 40 lakh cable TV users in the city have so far opted for digitised signal (through set-top box)."

Here he adds the insufficient supply of set-top boxes has been coming in the way, despite advance payments by cable operators and multi-system operators. The report, stating Chowdhury's sentiments, added that, "According to him, though it is mandated to complete digitisation according to the TRAI deadline, MSOs are fretful as large chunk of the households are still unaware of a mandatory digitisation."

Once the uniform roll-out starts taking place, users will not be able to view any of their TV programmes, unless, they've switched to digital signals. Speaking at a forum on ‘Cable Digitization – a positive change for the consumer,’ Mr. K Jayaraman, MD & CEO of Hathway Cable and Datacom Ltd assured viewers across the table of not only the need for Digitization of their good ol’ cable TV, but also how the whole situation is a winning one for all, especially the end user. Jayaraman, in an official statement was quoted as saying, "The overall objective of digitization is to expose viewers to an experience that is imaginative. Digital cable services will invariably give them the opportunity to resolve some of the issues they have faced with legacy analog cable systems. It will also provide a bonanza for consumers in terms of picture quality, access to a wide range of channels and freedom of choice. Customers would certainly benefit given that they would now be able to choose from nearly 500 channels. The only additional investment that they would need to make is buying a set-top-box, the cost of which is already subsidized.”

In a report sometime back, it was affirmed by the Telecom Regulatory Authority of India that the June 30th deadline to bring in the first phase of digitization across homes in Delhi, Kolkata, Mumbai and Chennai was very much on track. and also ended up revealing that they have ordered for a whopping 10 million set-top boxes to carry out the transition. "We are already in the first phase of digitization which will be beneficial for all stakeholders and we are taking all necessary measures to create awareness with audiences to cooperate with us in meeting the set deadline," added Jayaraman.

Cable TV digitization in essence puts an end to the rather lengthy run of analog cable in our country, and will set in place a TV viewing experience defined entirely by digital cable. This massive transformation came at the end of what has been an amendment to Section 4A of the Cable Regulation Act, 1995. The amended act now paves the way for the compulsory implementation of mandatory addressable digitization (MAD). The new ruling essentially implies that all cable operators will have to, before their aforementioned deadlines switch the signals that they transmit, to digital, instead of the earlier analog. Those users subscribing to cable operators who do not comply with the new rules (i.e. switching over to digital signals) will not be able to view any of their TV programmes, post the scheduled deadline.

 

[Chief]

Expect delay in digitization​

The June 30 deadline for complete digitization of the cable services in four metros is just 20-22 days away. The digitization meet with I&B Minister Ambika Soni is scheduled today afternoon at 3 p.m. While broadcasters are pushing for operators to meet the June 30 deadline, MSOs are trying to convince the government to delay.​

Given the fact that multi-system operators (MSOs) and local cable operators (LSOs) are not ready to seed in the required set-top- boxes till now Vikash Mantri, media analyst at ICICI Securities expects a delay in digitization .​

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"Our channel check suggests that boxes seeding are close to 20% only till now and with just some days left it will be difficult to go through with it," he added.​

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Who gains who loses:​

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Delay is digitization would be marginal negative for broadcasters who are waiting to make gains from this process. It will be difficult for players like Hathway are already well positioned for digitization.​

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But, it would be positive for DTH players because they are in a good stand to carry on the process. Also, their subscriptions have started picking up as digitization is nearing, he explains.​

Meanwhile, Sun TV is his top pick in the broadcasting space. The target price is Rs 375. "On a fundamental basis, Sun TV continues to be strong. The valuations have significantly traded off recently and that makes it as a very well poised," he explained.​

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He expects Dish TV to see better subscriber addition with digitization. "The key trigger for Dish ​

TV will be the sustained average revenue per user (ARPU) rise that we can expect to see in the next two year time frame," he added.​

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Below is the edited transcript of Mantri’s interview with CNBC-TV18. Also watch the accompanying video.​

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Q: What do you expect to hear from the meet and if there is a postponement which is what one party is pushing for what kind of impact could it have on the stocks related to it?​

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A: We are expecting a delay in announcement because the industry participants, especially multi-system operators (MSOs) and local cable operators (LSOs) are not ready to seed in the boxes. Our channel check suggests that boxes seeding are close to 20% only till now and with just around 23-24 days left it will be difficult to go through with it. So a delay announcement is very likely given the MSOs and LCOs have been pushing for it in some cases.​

However, we expect the government to stick to its guns because any delay now announced will ensure that there is another possibility for further delay and that could derail the entire process of digitization. So, the government needs to maintain a stance and say that there will be no digitization. DTH players are ready to seed in the boxes and MSOs are not able to there should be opportunity for DTH to make good because subscriber has enough choice as of now.​

If we see that the announcement of delay comes through on digitization, it will be a marginal negative for broadcasters who are waiting to make gains from this digitization process. At the same time it will be difficult for the players who are already well positioned for digitization like Hathway because they are doing a good job in terms of seeding in boxes. It is positive for DTH because it is in a good stand to carry on the digitization process and their subscriber addition have started to ramp up as digitization is nearing.​

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Q: How would you approach something like a Dish TV then?​

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A: Dish TV will see better subscriber addition because of the digitization process and so will other DTH players. The key trigger for Dish TV stock will be the sustained average revenue per user (ARPU) rise that we can expect to see in the next two year time frame. DTH was competing with cable which was not paying enough of taxes in terms of service tax and entertainment tax.​

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Given that these players will also have to pay for this, the ARPU table will get substantially higher and that will be the entire value driver for the entire DTH pack. We see no reason why ARPUs should not go up 25-30% also in the next two-two and half years post digitization. Because it is unfair to have around 300-400 good channels at Rs 150 odd, so that trajectory might be achieved in the next few years.​

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Q: Sun TV has suddenly come back in interest with a bang, any call that you have on that stock in terms of a target price as well?​

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A: Sun TV is our top pick in the broadcasting space; we have a target price of around Rs 375 for Sun TV. The issues around Sun TV have been over hyped. On a fundamental basis, Sun TV continues to be strong. The valuations have significantly traded off recently and that makes it as a very well poised.​

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The issues regarding decrease in TRPs in the Tamil Nadu and Telugu market are temporary in nature largely because of huge power issues in Tamil Nadu and Andhra Pradesh, where there are power cuts as high as 3-5 hours in many of the regions. This decreases the amount for TV viewing.​

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We have already seen news clipping of how this power situation will improve in each of these markets. That should improve things majorly for Sun TV. In case, we are to see some resolution of the Arasu deal with Sun TV that would put in further fillip for Sun TV. We continue to remain positive on Sun TV and it is our top pick in the broadcasting space.​