Subscribing to digital

Digitisation of cable TV should not be derailed. If it hurts operators, increased FDI is the way out.

The recent amendment to the Cable Television Networks (Regulation) Act of 1995 has paved the way for full digitisation of India’s cable television network by end-2014. The amendment, drowned in the din over the policy paralysis at the Centre, will significantly alter the cable television business. There are a few glitches that still need to be ironed out. But the government should stay the course and take digitisation to its logical conclusion. For the broadcaster, it means an improved business model. Digitisation will mean a cut in carriage fees because the pipe can now carry more feed. Broadcasters have consistently alleged that local cable operators understate the number of subscribers in order to inflate their profits. At the moment, 45 per cent of the subscription money goes to the broadcaster, 35 per cent to the multi-service operators and 20 per cent to the local cable operators. Digitisation will put a face to all subscribers, introducing much-needed clarity. If there is understatement at the moment, digitisation should lead to an improvement in the broadcaster’s share.

The consumer, meanwhile, will get feed of a better quality, and can watch the channels he wants — instead of having to watch whatever the cable operator offers. It is expected that average monthly payments will not rise significantly, because India is a hyper-competitive market: local cable television operators are fragmented and there are close to 650 channels available. In any case, there ought to be a degree of realism in the prices of television channels. Most people pay a monthly cable bill of Rs 150, which is less than what it would cost a family of four to watch a three-hour film in a theatre in a Tier-III town. The sector regulator, the Telecommunication Regulatory Authority of India (Trai), has put out a consultation paper on tariffs; a final view will be taken after opinions and counterpoints have been submitted by the end of January.

The real uncertainty is at the middle — the multi-service operators and the local cable television operators. The cost of digitising 70 million homes could be as high as Rs 15,000 crore. The multi-service operators will have to foot the bill. It is also likely that consumers’ digital set-top boxes will have to be subsidised, just as with direct-to-home (DTH) television. There is a cap of 20 per cent on foreign direct investment (FDI) in the sector. Foreign institutional investors can hold another 29 per cent, but that money goes into the secondary market and does not come to the company. To make good these investments, the multi-service operators will have to, therefore, depend largely on the local cable television operators. There is, thus, a conflict of interest between multi-service operators and the local cable television operators over subscription revenue. This is another matter that the Trai consultation paper aims to resolve. To ease the situation, the government can look at revising the 20 per cent cap on FDI. That will reduce the pressure on multi-service operators as well as the local cable television operators. The process of digitisation should not be allowed to be derailed.