As the deadline for mandatory digitisation in the four metros is closing in, Hathway Cable & Datacom’s managing director and chief executive officer, K Jayaraman, and chief financial officer, G Subramaniam, remain bullish on subscriber addition. Hathway is one of the largest multi-system operators (MSOs) in India with an active subscriber base of nine million. It is also India’s largest cable operator to offer broadband services. After the government-mandated digitisation, cable and direct-to-home (DTH) service providers have been working on different strategies to capture a pie of the emerging opportunity. Jayaraman and Subramaniam tell Sheetal Agarwal about Hathway’s progress, plans and the likely churn to take place in the digitisation process. Edited excerpts:
What is your take on the Telecom Regulatory Authority of India’s (Trai) regulations regarding carriage fee and revenue sharing, among others, announced on April 30?
Jayaraman: Trai has essentially regulated the carriage fee. We are free to fix the fee, but we have to offer a minimum of 500 channels. So, Trai has created a balance by creating more supply in the market. That is a good thing. The revenue sharing formula is absolutely OK and is in line with what the industry was expecting. Overall, our margin will go up even after reduced carriage fee, as subscription revenue will grow manifold. Thus, it is a win-win situation for all players in the value chain. The only area of some concern is that MSOs cannot increase the carriage fee for two years, due to inflationary pressures. But we have to comply with these norms. We will try and negotiate charges with broadcasters.
Give us an update on the progress of the first phase of digitisation?
Subramaniam: We have placed our orders and have already deployed the first lot of set-top boxes. We are on course to deploy 1.6-2 million boxes by June 30.
Do you think the first phase will be over by June 30?
How much are you spending in the first phase and in subsequent phases?
Jayaraman: We have nine million homes and, at the least, we expect to double the subscriber base. Eighty to 90 per cent of the carriage revenue will go to MSO. Broadly, after taking churn and loss in the carriage fee, we expect revenue to go up by 250 per cent. The capex will be Rs 1,000 crore. Of this, Rs 300 crore will be spent in Phase-I and the rest in Phase-II. Phase-I is to be financed from initial public offer proceeds. A mix of internal accruals, debt and vendor finance will be deployed in Phase-II. The funding plan for the second phase is yet to be finalised.
How much will be the carriage fee after digitisation? How will you make up for this loss?
Subramaniam: Yes, the fee will reduce. But the subscription revenue will go up from 10-15 per cent of the revenue mix currently. This increase is likely to be six-eight times and will make up for the loss of carriage fee.
How has the churn been in this phase? What is the unique selling proposition of MSOs versus DTH players?
Subramaniam: We believe digital cable is a far superior platform to DTH for many reasons. One, the number of channels is substantially more. Second, the cost of customer acquisition is much lower and it can be bundled with other services such as broadband. We believe the customer will see these benefits. It is then for the customer to make a choice. Many homes have more than one television set, which will be declared now. That is the segment where we could see some churn.
Jayaraman: DTH is found by many to be expensive compared to MSOs. However, after digitisation, we expect a 15 per cent churn from MSOs to DTH. But for us, we don’t see subscriber degrowth and may gain back from multiple TV sets. Smaller MSOs may lose 30/40/50 per cent of subscribers to DTH players. We also plan to introduce impulse video-on-demand. That project is under experimentation and we will order equipment after digitisation.
What are your plans in the broadband segment?
Subramaniam: We expect to continue to grow our broadband universe. What happens in digitisation is that a lot of capacity is freed up. Therefore, we will be able to offer better quality service, and hence, attract more subscribers.
Jayaraman: We have 400,000 subscribers in broadband and a Rs 150-crore top line. We expect broadband revenue to double in the next couple of years.