Who will win the battle in DAS Phase III markets?

I&B Jt Secy Supriya Sahu had said last year that of the 140 million estimated STBs required for DAS Phases III  and IV markets, 30 million was the guesstimated DTH requirement, and the rest would be needed by the cable distribution fraternity. DTH, with its high rate of inactive subscribers – as high at 45% on an average — is clearly out of the race for the lion’s share. So, whoever wins the battle to sign up and empower the highest number of Last Mile Operators (LMOs) — clearly between the MSOs and a good HITS Platform — will take it away.

Even as the government of India is purposefully going ahead with its ambitious and laudable 100 (now 99?)  Smart Cities plan to enable a far more progressive and responsible lifestyle and empower the economy through more pragmatic and socially and environmentally responsible consumption of scarce resources – all enabled through the best Information and Communication Technology — there is another, extremely important aspect of digitalization across the country that has been rolling out in phases, in the critically important sector of Media & Entertainment.

And precisely how important the Media & Entertainment Sector is to India’s growth plans was visible when Prime Minister Narendra Modi met with top world Media leaders including Rupert Murdoch and many other global media captains, but that’s a story that’s been deservedly well covered all over.

But enough of the digression. Let’s get come back to that other, extremely impotant aspect of digitalization in Media & Entertainment that’s being rolled out in  a phased manner India-wide.

This is the rollout of the Digitally Addressable Systems (DAS), which focuses on all the television households nationwide that receive their daily supply of hundreds of television channels in non-addressable, analog format.

The Government has made it mandatory for every Last Mile Operator  (LMO) to provide any TV channel – whether FTA, Pay  or Local – only in an encrypted form through a Digital Addressable System (DAS) in the entire country.

The most important focus of the government’s rollout of DAS is the end consumer, the viewers in each television-viewing household. The government wants to empower them with choice, the ability to pay only for those TV channels they watch regularly, and to increase their viewing delight by providing all channels only through a world class digital format of encrypted delivery through set top boxes and not just the plain old analog RF cable, thereby bringing each TV household on an addressable digital radar.

The digital platform will also make it possible for every digital TV household to receive the best of Over The Top (OTT) and Value Added Services (VAS). The entire digital package will drive growth across these high-growth tier-3 and 4 markets which, with their huge audiences, represent the biggest opportunity of growth for most sectors of industry.

Together with the 100 smart cities project, the rollout of DAS in India will truly close the loop and propel India on course for geometric growth and development.

OK, now let’s get to the ground, literally, where DAS must roll out as mandated by the government.

DAS rolled out across Phase I markets — Mumbai, Delhi, Kolkata and  Chennai – by the 31st of December, 2012. Around 9 to 10 million TV households went digital here. For various reasons, the rollout was not optimal across Chennai, but that’s another story, which would  demand a separate deep dive, outside the scope of this bird’s-eye-view.

DAS rollout across Phase 2 markets was completed end-December 2013. These markets included 38 cities with a population of above 1 million, and here, around 23 million analog TV households went digital.

Now, it is time for two other sets of locations across India, demarcated into Phases 3 and 4 of rollout markets for DAS in India. The Phase 3 areas include all other urban areas outside Phase 1 and 2 markets which have a municipality or a municipal corporation. The analog TV homes here must go digital by 31st December, 2015. And Phase 4 is the rest of India which the government has mandated must go digital on or before 31st December 2016.

So right now, we are talking Phase 3 and 4 markets, where the distribution fraternity on ground — ie the cable operators and smaller MSOs — and their end-subscribers are generally much poorer than their Phase 1 and 2 markets counterparts.

Let’s look at what the cable fraternity must do to take their analog TV households digital. It’s a long, intricate, tech-, investment- and skilled-talent-heavy list of requirements. In all fairness, the government wants that  M&E goes digital on a par with the best world standards.

What the government is telling the LMO/LCO and anyone else in the cable distribution fraternity in the Phase III markets is the following:

  • By the end of December this year (2015), the LMO has to stop all analogue signals to your end-customers’ TV homes.
  • All end-customer-TV homes of Phase III LMOs must receive their signals only through set top boxes (STB).(but obviously, there is much more to it than just placing an STB between the physical cable wire and the end-customer’s TV set.)
  • LMO customers must be given both, packages and a-la-carte channels
  • The end customer of the LMO must provide KYC data, which the LMO must enter into the Subscriber Management System.
  • The CAS must talk to the SMS for activation of packages; the customer should receive the options of both, pre-paid and pots-paid services
  • The customer should be enabled to pay only for those channels and services s/he opts for, against proper bills which the LMO must provide for all payment received.
  • And most important, the LMO must adhere to and follow all the quality and service norms set by the government for the rollout of DAS.

Ergo, the LMO needs large investments in technology, and also has to find adequately skilled technical manpower to adhere to all the stipulated norms of quality and service. Given the Phase III markets, the latter is a particularly difficult task, and the investments too are not to be sneezed at, however long the LMO has been in business in the Phase III and IV markets.

Phase III and Phase IV DAS rollout markets are far poorer than Ph 1 and II markets.   In Phase III markets, the deadline for 50mn TV homes to go digital is 31 December 2015 – just slightly over 3 months away. So it will be a challenge and a race against time for the thousands of humble Last Mile Cable Operators who must convert their subscriber homes digital or, on default of the deadlines and  lose their licenses and their very livelihoods.

These markets are generally not lucrative enough to support the 1-crore-plus investment in a good digital headend that is required, so LMOs will be in a quandary on that count. If they cannot invest in such a digital headend of their own, the LMO  could do one of three things:

  • Set up his own digital headend, but that needs around Rs 95 lakhs for capex and operating costs for a year, to say nothing of a large, technically skilled and motivated workforce of the caliber and qualifications that are difficult to come by in such large numbers particularly in the Phase III and IV markets.
  • Go to an MSO(and lose the ownership of his subscriber base to the MSO by virtue of seeing the MSO-owned STBs, and that too only if an MSO is willing to invest to add newer but smaller pockets of subscribers to his fold). And in that case, the LMO, per the rules, will be able to retain only 35% of the total revenue from his collections.
  • Join a HITS platform:
    • One, Jain HITS, from NSTPL,has been around but word is that it has actually not been able to service its member operators, and there is a slew of complaints its member LCOs have filed for various service- and other grievances they have. So, in fact, once reportedly badly bitten, most of the LMO/LCO community had been skeptical of tying up with another HITS platform.
    • However, the LMO could join another HITS platform, NXT DIGITAL from the Hinduja Group, and become a digital headend owner who retains complete ownership of his network. The NXT DIGITAL HITS Platform went live through its Earth Station which Arun Jaitley, Honble Minister for Information & Broadcasting inaugurated on the 16th of September 2015. The cable operator premises equipment for a NXT DIGITAL HITS headend would cost anywhere between Rs 11 lakhs to Rs 15 lakhs plus taxes to deliver 300 to 500 channels. That is a mere fraction of the costs of setting up his own digital headed.

We know the spectre the LMO faces on deadline default: lose the entire business. Which would be a travesty because nobody can deny that it is the cable fraternity, the humble LMOs and LCOs, who have connected India for cable distribution by rolling out the copper without any institutional and financial support. By sheer dint of blood, sweat and toil; even, in many cases,  under-declarations  and waging a clipper war with cable intruders and DTH, perhaps.

Here’s a quick comparison of the strengths of various pipelines of content delivery like the MSO, DTH, a HITS Platform like NXT DIGITAL, and the Analog cable, and see what an LMO could consider before making a choice.



And now, let’s take a quick look at the major implications of an optimal rollout of DAS in the Phases III and IV markets:

  • for the consumer who will be empowered with choice and, thanks to more and better digital services, more aspirationally charged;
  • for the cable operators:they will become owners of addressable businesses instead of hitherto non-addressable and therefore not institutionally supported businesses (which they did build with the dint of their sweat and blood without receiving any institutional or financial support)
  • for the broadcasters: they will start to see a correction in their distribution revenues thanks to addressable paying subscribers (in fact, the broadcasters make around 80% of their total revenues from just Phase I and II markets  of DAS, where there are a total of around 32 mn TV homes)
  • for the govt: much bigger tax revenues.

In fact, on potential market size, the play is bigger – that number of 110 mn TV homes estimated in Ph III and IV is conservative, if you compare it with the statement of I&B Jt Secy Mrs Supriya Sahu, who said last year that a total of 140 million Set Top  Boxes will be needed in Phases III and IV digitalisation => http://bit.ly/1VcjJWZ) Oh, and of that number, her departmental estimate pegged an STB requirement of only 30 million, or only 21-odd percent for all DTH players combined.

But that isn’t the end of the tough times for DTH players. An average of 45% of all DTH boxes ever sold are inactive – meaning those subscribers have dropped the idea of continuing with the DTH subscription, and even if the box has remained a burden that the hapless DTH company had subsidized in the first place, the subscriber is living with the loss of not being able to get even a part refund on cancellation of the subscription.

That means that eventually, if this long standing and therefore not-a-flash-trend of DTH subscribers going inactive continues even in Phases III and IV of the DAS rollout markets, a good 20% of the 30-odd million boxes the MIB had guesstimated DTH would need, will actually end up with digital cable service providers – be they the existing MSOs or the new HITS owners.

What do you think? Share your views, information, perspectives through comments. Let’s keep the conversation going.

Your thoughts, please