The Indian authorities are planning what is likely to be a multi $ billion subsidy of its Cable TV industry, overnight bringing mass internet, and digital cable TV to around 78 million homes across India. The move is likely, in just a few short years, to make India second only to China in the number of internet lines and digital cable TV customers and to attract a swathe of outside investment to the sector.
The Indian cable TV industry is rumbling out of control, after two decades of unfettered entrepreneurial growth, it is a mish-mash of different service levels, weak programming, non-uniform pricing made up of as many as 60,000 separate companies, with an average of just over 1,000 customers each. In that condition it has still managed to garner more installations than the US, albeit at exceptionally low prices.
Now the Telecomms Regulatory Authority of India (TRAI) has agreed a formula for re-inventing and re-invigorating the industry, and has laid down moves which will spark massive digital upgrades, and service quality improvements. If it doesn’t go ahead with this, cable will be swamped by multiple new DTH offerings which have become popular in India.
If the TRAI draft recommendations are approved, and it is likely that they will be, then Indian TV and broadband will become the new global goldmine, and every major technology supplier will have to open up an office there or better still build out local manufacturing or arrange it through local partners.
In India so far people have just laid cable without government permission, have no service level obligations, don’t test signal quality, pay no license fee and don’t even have the equipment to satellite download more than a handful of stations. They often have no support phone number for poor service.
That will all now change, with two levels of licensing being brought in, one for local cable TV operators and another for the larger operators that TRIA calls MSOs (Multi Service Operators) which have invested in head ends and become program aggregators and distributors for local suppliers.
But the new regulations, if passed, are not a signal for overseas operators to move in, as the upgrades to digital will have to be paid for out of Indian government money and USOF subsidies, with spending that could equate to $billions over the next five years.
USOF or the Universal Service Obligation Fund came about in 2002 and takes 5% of telecoms revenues across the country plus additional voted spending from the government. The difference is that so far this was not available to cable TV operators, only Telecom operators. The USOF has been used to help wire up India with fiber optics and build out cellular infrastructure and can only be issued when TRAI issues service obligations.
New licensees will be obligated to build out an entirely digital infrastructure within 3 years, including Cable Modem Termination Systems with which they can all offer high speed internet lines, using DOCSIS (data over cable) equipment. Existing operators which buy a license will have 5 years to go digital, so the USOF funding will begin being called upon almost immediately and go on until five years out.
Other investment may come from innovative vendor finance, and potentially thought co-investment by overseas operators, although the contracting companies have to remain Indian owned and run to be eligible for USOF. However that will probably not cover all of the costs needed for a digital upgrade, so investors will be prowling around from other industries and other countries, to build a profitable stake in Indian cable.
We would expect that the more profitable MSOs which have head ends and which are supplying many of the existing cable operators, will begin buying up hundreds of smaller franchises, and helping with the costs of digitization and the new bureaucracy of licensing, so that gradually the shape of the market will mirror that of the US, where many local operations began in the early days and have been consolidating ever since.
TRAI will no longer allow cable operators to dig up the street without a license, and will be laying down technical specifications for the strength of signal and encoding mechanisms, even for existing analog systems. This is likely to place a financial burden on existing operators and force consolidation on its own, and will be one of the main reasons for obstacles to be thrown up in front of these new regulations.
India has 225 million households, with only 128 million having any kind of TV. Out of these around 60% have cable, some 78 million, while just 3.2 million have subscribed to DTH services, which have all been launched in the last five years or so there, including one named after the US operation Dish, but which is not financially related to it. Today there are just 30,000 registered Cable TV operators in the country, broadcasting 339 cable
TV channels in both national and regional languages. Unconfirmed reports suggest there are another 30,000 unregistered operators. Most existing cable networks are analog and have 40 to 80 TV channels.
The broadband penetration in India is exceptionally low with just 4.1 million subscribers at present, and this move will be a major boost. In China, the only comparably sized country, there are 150 million cable homes and 71 million broadband lines, rising at 4 million new lines a year, that’s a new market the size of Indian broadband every year. We would expect India to suddenly fly up the broadband charts so that in five years it is in the top five countries for the total number of broadband connected homes.
But a lot of equipment will have to be installed for that to happen, with equipment suppliers from the US, China, Korea and Japan likely to converge on India, to do battle for the biggest market share. However the pricing of both services and equipment in India is so low that it is likely that only those operations that manufacture locally will be able to get prices down far enough.
Many cable networks in India use just 300 MHz on their cable and use a full 8MHz slice of spectrum for each analog TV channel, so the upgrade will first be to take cable plant and shift it all to the modern 860 MHz equipment used in most countries now. Even this will only give 106 TV channels in analog so the next step will be the digitization of these networks to enable two way communication and hundreds of channels simultaneously. Given that using QAM modulation each of these channels can be converted to carry 56 MBps and that MPEG 2 compression can put around 14 or so channel in this amount of data, once a network is upgraded it will be able to support a vast amount more video and data, as well as more customers.
TRAI is also interested in sponsoring the emergence of what it calls Headend in the Sky (HITS) which are like those offered in the US, where a single head end downlinks all video, and re-compresses it in to a uniform quality, and packages it in packets and uplinks it via satellite to local ingest points in isolated networks. In this way it hopes to see cable TV expanded over the entire country and reach many of those 97 million homes that do not yet have any kind of TV.
It is a massive undertaking for TRAI, and it will need new legislation, a new licensing framework which will re-allocate licenses on a geographical basis. Local operators will have exclusive territories, while the MSOs will be able to operate across multiple territories non-exclusively. Licenses will be for five years with renewal options and a complaints procedure for objecting to renewals, with a controlling body, which will have a 45 day response deadline imposed for resolving a license.
All analog TV on cable will have to be stopped within 5 years in order for operators to be granted their renewal, which will mean complete replacement of all customer premises equipment, so some 78 million set top and DVRs will need to be shipped in India over the next five years. That should make a number of set top builders eyes light up.