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DAS: The LCO economics in Solapur

Nagesh Swamy, who started his cable TV operations 23 years back, gets up early in the morning on 24 April to cast his vote. The 41-year-old does not take any serious interest in politics, but in Solapur who can ignore the high-profile contest between former Union home minister Sushilkumar Shinde and the BJP’s Sharad Bansode?

As his motorcycle passes by the main township, he sees a group of children playing cricket. He, perhaps, doesn’t know that Test cricketer Polly Umrigar was born in Solapur where his father ran a clothing company. Swamy’s thoughts are for his family and his business. In a city that is facing acute water shortage and economic development has been slow, election verdicts do not matter to the average man.

But there’s another development that may directly change his economic fortunes. For the smallest cable operator in Solapur city with a meagre 137 subscriber connections, the most radical change is digitisation. He hopes that the deployment of set-top boxes (STBs) will make his consumers move to higher packages and value-added services (VAS), leading to a higher income for him.

Swamy may have luck on his side. Servicing mainly government employees and petty businessmen, he has been able to get Rs 200 a month from his consumers for years. With local multi-system operator (MSO) Bhima Riddhi Digital Services (BRDS) pressuring cable operators to pay Rs 85 (plus service tax) per subscriber since this April, he has already raised the monthly cable bill to Rs 300.

Transparency of subscriber numbers owing to the implementation of digital addressable system (DAS) does not bother Swamy. Even in analogue cable days, he was fully declaring his subscriber base.  A man who has little faith in subsidies, he has even managed to sell STBs to his consumers at Rs 1100 per unit.

With new buildings coming up near the area that he services, Swamy is expecting to increase his subscriber homes to 200 by October. When he has more money, he plans to ramp up more subscribers.

But Swamy’s optimism is not shared by most of the 200 local cable operators (LCOs) that service Solapur city. Rajendra Mirajkar, who has 600 subscribers, complains that he would have nothing left if he had to pay BRDS at the new rate. “A vast part of my cable network is in the slum areas. I am not able to collect from everybody. How will I be able to get my subscribers to pay more? DEN Networks and GTPL are collecting less from their subscribers,” he laments.

Nagesh ChhabriaBRDS, owned by former IndusInd Media & Communications Ltd (IMCL) CEO Nagesh Chhabria, is the dominant MSO in Solapur, seeding 90,000 STBs in the city that falls under Phase II of DAS. The remaining 20,000 STBs are shared between DEN and GTPL. Outside cable, direct-to-home (DTH) operators have a pay TV subscriber base of 35,000.

Srinivas Gaddam, a BRDS affiliate, is the largest cable operator in Solapur city. He has 3,000 connections and is hungry for more. The average monthly cable TV bill in his area is Rs 200.

For LCOs like Gaddam, there is potential for organic growth in TV households due to the setting up of NTPC, new factories and upcoming apartments. With this, the average number of STBs per LCO would go up from the current 550.

  • Total 200 LCOs
  • Average STBs per LCO: 550
  • Average LCO income: Rs 88,000 per month
  • Current payout to MSO: Rs 35,000 (incl Ser Tax)
  • Estimated payout to MSO (under Rs 85 rate) this fiscal: Rs 46,000 (exc Ser Tax)
  • Overhead costs vary

Solapur, however, does not have cable broadband. “I hope to start cable broadband in a year’s time. That is how we can increase our earnings. Raising ARPU from video service will always be a challenging task,” says Gaddam.

That is a mathematical equation many LCOs in Solapur might want to chew over at this particular juncture.

cover inside solapur sty

For the smaller cable operators, choices will be fewer if they are unable to raise consumer ARPUs. Consolidation is the way out. Eight years back, the number of LCOs shrunk from 300 to 200. They have hung on since then, and the growth of the   carriage fee economy meant that the MSOs did not focus on subscription revenue. The LCOs grew under bandwidth-choked analogue cable and under-reporting of subscriber numbers.

Mukesh Sethia“The small operators will find it impossible to survive if ARPUs do not go up. DAS in that sense has become poisonous to them as the bigger LCOs will be in a better position to up ARPUs,” says Solapur District Cable Operators Association secretary Mukesh Sethiya, who is himself a cable operator for the last 20 years and has 800 subscribers.

The LCOs complain of being overwhelmed by high entertainment tax. Including service tax and Rs 45 as entertainment tax in the monthly cable bill, the LCOs are having a hard time finding roaming room to hike rates to an acceptable limit.

According to government data, entertainment tax has grown 24.8 per cent to Rs 329.37 lakh in the fiscal ended 31 March 2014, up from Rs 263.95 lakh a year ago.

The valuation of last-mile acquisition has gone up after the introduction of DAS. The last deal that took place was more than a year back, at Rs 2,000 per connection. Now the asking price is Rs 3,000 per subscriber and, even then, nobody is keen to sell.

Wait is the game. Chhabria is not in a hurry. BRDS has direct connections to consumer homes amounting to 20 per cent of its total network. “The price of last mile has gone up after DAS. We will acquire when there is a correction in price,” avers Chhabria.