Three ground realities provided context for this year’s India Digital Pay-TV Operators Summit (IDOS), held last week in Goa and organized by Indian Television Dot Com and Media Partners Asia (MPA).

• A lack of revenue and profit flow from the first two phases of India’s digitalization program, which has converted more than 30 million households to digital pay-TV.
• An escalation in courtroom disputes among industry stakeholders, especially broadcasters and cable multi-system operators (MSOs). The latest, between Star and Hathway, ended a day before IDOS.
• A decision made earlier this month by the government to delay the critical next stages of digitalization (Phases 3 and 4, which cover 75 million homes) by a year.

Encouragingly, most stakeholders speaking at IDOS endorsed the need to work closer together to raise Arpu from the ground up, creating a bigger pie that can be shared by local cable operators (LCOs), MSOs and broadcasters.

MSOs agreed that it was important to optimize execution with the launch of prepaid models (similar to those used by DTH operators), as well as operating systems that can give improved autonomy to LCOs.

At the same time, key broadcasters felt that offering cable operators a framework for uniform pricing is essential, in order to benchmark content costs.

This framework, combined with various incentives, could be anchored to key criteria, including volumes of digital subs, levels of addressability, and overall quality of service.

Combined, these moves could help the industry drive Arpus by tiering channels more attractively for consumers, similar to services provided by DTH operators who also stand to benefit as cable Arpus increase.

LET THE MARKET RULE

To make that happen, the industry needs to pick up some of the slack creeping into the system.

“It’s been a big disappointment that Phase 3 and 4 has been delayed – losing that momentum is not good,” said VD Wadhwa, CEO of major MSO Siti Cable.

“But we have to push ahead with voluntary digitalization ahead of the next deadline, and really unite to improve the economics of the business."

MSOs should give LCOs access to subscriber management systems so they can feel a certain ownership towards their customers, Wadhwa suggested. Siti Cable has deployed this strategy with success through its OYC (Own Your Customer) program.

Wadhwa also agreed with the findings from recent MPA research that showed how MSOs could work with LCOs to offer prepaid services, similar to those offered by DTH and telecom operators. This will help improve packaging and revenue generation.

Siti Cable plans to roll out prepaid services next March in Delhi, where it has 900 LCO partners.

Deepak Jacob, president & general counsel of Star India, India's biggest broadcaster, called for greater industry co-operation.

“Let’s not get the regulator involved in areas where we can resolve issues; let’s get out of the courtroom and into the living room to drive the business and the consumer equation," he said.

"We need to put together a commercial document which is uniform across the country, and we’ll be working on that with the MSOs," Jacob added.

"We also need to focus more on consumers in the months ahead.  We’ll be pushing to accelerate our joint marketing efforts with operators."

Some progress is being made, noted Anuj Gandhi, CEO of channel distributor IndiaCast, part of the Network18 Group. 

"The current reality is that stakeholders have at least started talking to each other," he said. “Now, the MSOs need to get the LCOs across the table and understand their issues, as the last mile needs to be seen as a partner in the cycle."

Gandhi added: "The key is to raise Arpus on the ground at the last mile level, so that the LCO can hold on to a better share of fees. A better trust factor must be built."

Wadhwa agreed, stating that resolving interconnect agreements between LCOs and MSOs is vital.

Encouragingly, Arvind Prabhoo, president of the Maharashtra Cable Operators Foundation (MCOF), which represents 1,800 last mile operators (LMOs) serving two million customers, announced that MCOF had struck interconnect deals with all the major national MSOs.

"The last mile owner has realized that alignment and realignment will happen after digitalization and that it’s a good thing," Prabhoo said.

"We know that a lot of LMOs, who have a good standing in the community, will get funds for Phase 3 and 4.”

ARPU GROWTH & THE ROLE OF BROADBAND

Better partnerships with LMOs/LCOs, together with standardized agreements with broadcasters, will help MSOs drive a more profitable digital deployment.

“There is no doubt that the last mile operator needs to get returns on the services he provides but this will require collective work,” said Jagdish Kumar, MD & CEO of MSO Hathway Cable & Datacom.

"We need to grow the ARPUs from the current Rs180-200 (US$3) to Rs300 or higher," he added. 

"The MSOs have assumed significant levels of debt for digitalizing Phase I and Phase II. Now, as we approach our investors, we will need to have a clear roadmap for the future, which must be driven by higher Arpu.”

One critical catalyst for Arpu growth is repackaging around driver and niche channels, as well as value-added services (VAS).

"We need to work on making the basic pack light, so that consumers see value in the higher packs,” said Anuj Gandhi, who also stressed the need for MSOs to enter into multi-year deals with broadcasters, similar to those in place with DTH operators.

“This will help him figure out his content cost and also instill more confidence, which can then spread to LCOs," he said.

At the same time, Arpus in Phase 3 and 4 might not be significantly lower than Phases 1 and 2, Deepak Jacob suggested.

"The households in Phase 3 spend close to Rs300-350 a month on telecom and VAS, while Phase 4 spends Rs250," he noted. "So there’s an addressable market with spending power, waiting for us to push relevant content and packages.”

The DTH industry has done well on this front, said Anil Khera, CEO of DTH operator, Videocon d2h.

"While we started out at Rs150 a month in 2008, we have gone up to Rs220-230 in Phase 3 and Phase 4 markets, and are up-selling in Phase 1 and Phase 2," he added.

"In Phase 3 and 4, cable Arpus are much lower, plus you have Free Dish which is very disruptive. The cable fraternity is going to have a tougher time pushing up Arpus there."

The other crucial piece of the cable jigsaw is boadband, a real driver of profitability.

According to MPA, there were less than one million cable broadband customers in June 2014.

However, cable operators have headroom to significantly increase penetration at decent Arpu levels before 4G-delivered broadband potentially moves from nascence to full-blown critical mass over the next three years, assuming technological issues are overcome.

“We are getting very aggressive on broadband,” said Hathway’s Jagdish Kumar. “We are investing in both network upgrades and next-generation technology, having rolled out Docsis 3.0 to a significant portion of our base in key markets."

Kumar added: "It’s really the future for us. Today, it delivers 20% of revenues, but this will grow exponentially in the future."

Siti Cable’s Wadhwa was also bullish, indicating that the cable company had just rolled out Docsis 3.0 in Delhi and is committing to offer high-speed internet in markets where it has at least 50,000 cable TV subs.

Network upgrades in these markets would cost Rs4 million each, Wadhwa noted.

THE CUSTOMER IS KING

As voluntary instead of mandatory digitalization starts taking shape in Phase 3 and Phase 4 areas, alternative modes of TV distribution will also compete for the turf occupied by cable and DTH operators.

Nonetheless, leading DTH operators see Phase 3 and Phase 4 as a big opportunity.

“We’ve launched the Zing brand to address the low-Arpu opportunity in Phase 3 and Phase 4,” said RC Venkateish, CEO of DTH operator Dish TV. “But that does not mean we don’t see Arpus scaling up as we customize our premium packs and grow HD.”

Meanwhile, CK Jain, deputy director general at public broadcaster Doordarshan (DD), said that DD is priming its Free Dish service for growth in Phase 3 and Phase 4.

Free Dish has an active base of 18 million subs and is looking to expand its channel count from 60 to 110 in the coming months, along with Mpeg-4 conversion, he noted.

“Encryption and Mpeg-4 should help us deal with the grey market better in the future, as we have not been fully able to authenticate all the boxes sold,” he said.

Tony D'Silva, CEO of Hinduja Media Ventures, owner and operator of one of two HITS (Headend-in-the-Sky) platforms, expects his company’s services to commercially deploy in 2015, striking agreements with LCOs and broadcasters for distribution in Phase 3 and 4.

“We want and will service a fair chunk of those 70-80 million homes,” he declared.

“Our backend systems and agreements are in place and most of the broadcasters are supportive, so we are now focusing on a compelling consumer proposition. The customer, not content, is king."