Digital tariffs a dream, coo cable television networks

Cable and satellite (C&S) operators — and, yes, broadcasters, too — have lauded Monday’s tariff order and regulations of the Telecom Regulatory Authority of India (Trai) on digitisation of cable TV networks in the four metros.

The shift from analogue to digital mode, to be effective from July, is expected to bring some 500 TV channels each to 100 million homes in the metros by April 2013. Cable TV networks are now free to recover digitisation costs from broadcasters rather than consumers through ‘carriage fees’. Typically, carriage fees borne by broadcasters are estimated to be around `4,000 crore annually.
Terming the new tariff regime progressive and a feather-light approach to regulation, industry players said it will increase transparency and pave the way for more investments in the sector. Broad consensus is that the new guidelines appear acceptable and would quicken digitisation of cable networks.

R C Venkateish, CEO of Dish TV, said, “It’s a win-win situation. The regulator has done an admirable job in balancing the interests of all the stakeholders.”

Broadcast industry sources said the Trai guidelines are consumer-friendly and will help everyone in the long run. “Cable operators and broadcasters should firm up commercial arrangements now and work aggressively towards achieving complete digitisation,” said a top official of a leading broadcaster.
C&S experts said digitisation would lead to a gradual increase in hitherto under-priced cable TV.  Bijal Shah and Jaykumar Doshi, analysts at IIFL Institutional Equities, noted in a report that higher average revenue per user in the medium term should benefit both broadcasters and cable operators.

“This would also help direct-to-home (DTH) players raise package prices as the current low cable tariff is acting as a price cap. We expect broadcasters to be the early beneficiaries of digitisation followed by DTH and cable operators. We retain ‘buy’ on Zee and Dish TV,” wrote the IIFL duo.

According to ICICI Securities analysts Vikash Mantri, Satish Kothari and Akhil Kalluri, the Trai-stipulated 35% revenue sharing ratio for the local cable operator (LCO) is marginally higher than their expectation of 30%. “Besides, the ‘must carry’ provision (which could impact carriage fee) is marginally negative for multi-system operators (MSOs). However, the liberty to package bouquets and price channels will ensure an upper hand for MSOs in ensuring lower content costs.

“Also, while carriage fee has been legitimised, its application in a transparent, non-discriminatory and uniform manner, and creation of capacity of 500 channels, will ensure meaningful reduction in the same. We see the regulatory changes as a move to shift bargaining power in favour of broadcaster networks and large MSOs as market forces are allowed to hold their sway in most cases,” wrote the ICICI Securities researchers.

The new tariff regime empowers subscribers to choose channels on an a la carte basis, besides aiming to consolidate and regulate pricing of DTH and digital operators.

Independent, non-network channels are likely to benefit.
New content would be broadcast based on demand. That is to say, bouquet or bunched-up offerings will be discouraged.

“However, we believe distributors will continue to sell bouquets innovatively to protect their own interests,” said Rahul Kundnani, research analyst (institutional equities, media & retail) at SBI Cap Securities.