The cable television industry in India is poised for one of its most significant developments in the last decade – a transformation to the Digital Addressable System (DAS) for television distribution. Cable operators in a DAS regime would be legally bound to transmit only digital signals. Subscribed channels can be received at the customer’s premises only through a set-top-box equipped with a conditional access card, and a subscriber management system (SMS).
With the parliament clearing the bill to amend the Cable Television Networks (Regulation) Act in December 2011, the stage has now been set for transition to DAS, to be implemented across India in four phases. The sunset date of 30th June 2012 has been set for completion of phase-I and the government seem to be committed towards ensuring a smooth transition within the set timelines. However, with an installed base of only 6 million1 set-top-boxes (STBs), is the cable industry ready to usher the first wave of digitization?
With rising demand and the lead time for the delivery of STBs being 3-4 months, operators who did not place timely orders for STBs are likely to see delays as the deadline approaches near. As cable operators begin STB installation very close to the actual deadline, it is unlikely that all existing analog cable TV homes will be able to make a transition to digital cable within the specified time frame. Accordingly, we may witness a delay of approximately 6 to 12 months for complete digitization across metros (Phase I). Also, the implementation may vary across the metro cities. The Delhi market is considered the most challenging, given the highly fragmented nature of cable industry in the city, while the Mumbai market is largely consolidated, with fewer MSOs.
Some of the digital cable operators expect that 70-75 percent of the analog market has the potential to easily shift to digitization, provided that the cable industry is prepared for it.1 Further, they believe that if the cable industry does not gear itself for the transition, the DTH industry may gather around 40-45 percent of the market.1
We believe that timely installation of STBs is one of the many challenges that the cable operators will need to confront. The shift will require large capital expenditure (INR 15-20 billion in phase-I)1 on digital head-ends, back-end infrastructure, and STB installation. Regional and smaller Multiple System Operator’s (MSOs), which account for approximately 50 percent of the cable TV market, may find it difficult to raise the required capital for phase-I in time.1
Apart from the financial requirements, digitization also presents large organizational challenges for the MSOs. A consumer focused approach will be a critical success factor for MSOs to succeed post digitization. While MSOs will continue to provide technical and manpower assistance to Local Cable Operator’s (LCOs) for setting up head-ends and installation of STBs, they will also need to scale up their back-end infrastructure such as IT systems, call centres, billing operations and STB management (procurement and repair). While the back-end infrastructure and required network is largely in place for Phase-I, however much more work needs to be done to scale-up billing and customer service operations, which may further lead to large scale IT outsourcing contracts. This would call for significant manpower preparedness and deriving learning’s from consumer focused industries such as Telecom where most critical processes are outsourced.
While the industry is excited and positive about successful adoption of digitization, the transition is not expected to be entirely smooth and there are bound to be implementation challenges. The Indian consumer also appears to be ready for digital television, as demonstrated by the high penetration of DTH platform amongst C&S subscribers. However, the cable industry will need to accelerate its efforts and ensure that it does not lose out on the digitization opportunity to the DTH players. In the quest to build a sizeable subscriber base, going forward, we may witness consolidation amongst MSOs, LCOs being acquired by MSOs and capital rising by MSOs. The success will depend on how the players work collaboratively towards overcoming their operational challenges, ensuring technological and manpower preparedness and building sustainable processes which will define the dynamics of the industry.
1. KPMG-FICCI Frames Report 2012, Digital Dawn- The metamorphosis begins