Wiring For Growth

Any cable TV network that adheres to quality standards has to be able to potentially cater to (by physically passing and providing for a connectivity point for) all homes in the franchise area irrespective of the subscriber percentage in the operational area.

Accounting for only the urban skew of 12 million (out of the total of 15 million) Indian cable TV homes at an average penetration rate of 30 per cent, the number of homes to be covered in network passing is estimated at 40 million. A very conservative thumb-rule for CATV networks, with Indian labour rates and some cutting of corners, is Rs 2,500 per home passed (the international yardstick is $100).

 

Thus, an all-India (urban) investment of a minimum of Rs 100 billion is required with only one cable TV network operator per circ-le. With two operators in competition, each passing all the homes in the franchise area, the investment will be in excess of Rs 200 billion. Where will this investment come from? This question is compounded due to costs being close to international levels and revenue being much lower. Yields have been lo-wer since cable TV subscriptions have been set amidst a historical reality of IPR/copyright violation and the low proclivity to pay for programming carried on cable TV.

The above investment can be reduced if, from the very outset of the roll-out of telephony networks, cable TV networks are simultaneously built by or together with the telecom franchisees. The private sector telecom operators had been encouraged by the telecom tender to build multi-media networks, subject to other relevant approvals.

Since the telecom bids, the only start-up requirement for operating cable TV networks has been post office registration under the Cable TV Act of 1995. This proviso encouraged the telecom companies (telcos) to put in high bids with a multi-media perspective. The proposal to auction local delivery service licences in telecom circles infringes on the inherent concession, integral to the telecom licences, to build and operate multi-media networks for cable TV and related services, derived under the backdrop of the then prevailing set of rules of the Cable Legislation of 1995.

The design philosophy specified in the telecom tenders is substantively based on similar integrated telephony and cable networks of the UK, a model that is universally recognised as the best techno-commercial model in the world. USA has followed with similar legislation, permitting telecom and cable TV companies to broadband into each others domain.

It is significant that the proposed Bill alludes to a conformance with telecom circles and mentions that licensed cable networks will be empowered with the rights of telegraph operators under the Indian Telegraph Act of 1885. Any contrary step of the government that trespasses on the earlier outlined business potential or seeks to extract a larger pound of flesh from the telcos is likely to result in litigation and/or delay in the implementation of the basic telecom licences.

Due to quantum jumps in fibre optic and digital technology in recent years, India has the potential to leap-frog ahead with one of the most advanced int-egrated broadband ne-tworks in the world. A pragmatic approach by the government in this regard would also help in calling for re-bids for those telecom circles that do not have telecom franchisees yet.

The other set of persons deriving a sense of legitimacy from the Cable Act of 1995 are the current cable TV operators. Issues like violation of fundamental rights to carry on business or profession under Article 19 of the Indian Constitution have already been raised by some cable networks associations. Given the multiplicity of the operators, it is possible that the government may get embroiled in litigation if the Bill were to tread on their businesses.

This situation has come about because the government has treated the cable industry as a small scale business without a deeper appreciation of the infrastructure element and the future potential stemming from the thrust of technology. Smaller operators have played a major role in the initial development of the industry but have not made significant investments for upgradation because of lack of unity, resources, customer service orientation and technical competence.

Given the ground reality of the existing operators and the telcos, there really isnt any cable TV business potential left for the government to auction on a clean slate. If the government were to take an inflexible stand with either or both (these) parties it stands to miss the opportunity window of sophisticated cable networks coming up alongside telecom networks (which cannot be efficiently retro-fitted and need to be synchronised from day one) and/or properly taming the existing bunch of cable operators.

Efficacy of investme-nt in the development of national infrastructure is possible by parallel building of telephony-cum-cable TV networks. Similarly, the investment already put in by the existing operators should not be wasted (and) they should be given a time window to conform to contemporary technical standards and ensure better compliance with the laws of the land.

The net investment of cable TV operators in the business is close to Rs 20 billion, with an annual turnover of approximately Rs 15 billion.

We need to choose between the travails of current primitive networks or fostering growth of state-of-the-art cable TV systems. The Broadcast Bill may have an opposite effect with smaller networks continuing and larger networks truncating into smaller ones. In context, the proposed ceiling of cable TV operations catering to 5,000 households as the maximum size of networks that will be allowed transitional continuity from the old Act to the new Bill is neither practical to monitor and administer nor based on any logical reasoning. Many ingenious ways of skirting the limit, similar to bypassing the Land Ceiling Act, would evolve if such a ceiling were to be enacted.

The Bill should have a catalyst effect that encourages existing operators to come together under one common corporate platform in an approach similar to that adopted by Taiwan which is now evolving from a scenario analogous to the Indian situation. The basic rationale of the Taiwanese approach is that on the date of legislation all operators in a given territory can be deemed to be licensed. Thereafter, within a specified time-period (say, December 31, 1999) all operators could be allowed to build and/or upgrade their network with the understanding that only the first network to conform to the required technical standards and other conditions and passing at least 50 per cent of the homes in the designated area would continue to operate and all others would forfeit their licences.

The practical effect of such a legislation in Taiwan has been that the entire unorganised industry has, almost overnight, bonded tog-ether under the weight and compulsions of market forces into larger corporate bodies.

The Broadcast Authority would also need to be empowered to force merger of any residual operators into the resultant corporate units. The merger of units needs to be phased according to municipal and district boundaries, starting with the metro cities and progressively moving down to cities with smaller populations.

The Bill should explicitly debar secondary operators redistributing trunk only feeder line signals from a future cut-off date to be specified, in the line with the telecom franchises that recognise only the primary licence-holder and prohibit subletting or dilution of the responsibility of the licensees. There are no major resultant employment issues since many new avenues will open up with basic telecom operators and related cable TV networks which will draw in significant manpower from existing Cable TV networks. Moreover, the construction of telephony and cable networks is likely to swell into a gigantic industry over the next five years.

In cases where state government/local body permissions have been given, preferential continuity under the telco option or the operator cohesion model should be allowed. Any wasted or inefficient investment or auctions would result in downstream cost increases or an indirect consumer burden. Due to capital intensive/long gestation business cycles, a longer franchise terms of 15 years (co-terminus with the telecom licence) and holding company structures as in the telecom sector should be considered.

(Excerpts from a paper delivered at a symposium on the Broadcast Bill organised by the National Telematics Forum, New Delhi, this month)

(The author is Director, operations, United International Holdings Inc, a leading provider of multi channel television services and related businesses in 25 countries outside of the US)