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DEN Networks to cut down on subsidiaries, demerge broadband biz

MUMBAI: DEN Networks will cut down on the number of subsidiaries to provide a simpler structure and de-merge its broadband business.

For starters, DEN will merge 23 subsidiaries in the cable TV business with itself. “These are subsidiaries where we own 100% or almost the whole of it. The partners could not invest in digital infrastructure, their stakes got diluted and they function like distributors. There will be almost no capital outlay in rolling them up,” a source in the company said.

More subsidiaries will be rolled up over a period of time so that there are fewer companies to deal with, cost synergies are achieved, the single brand gets strengthened, and administrative and regulatory compliances are reduced.

DEN has around 145 subsidiaries. “We see potential in merging more 50–60 subsidiaries into the parent company. These companies were formed in the analogue cable TV era. With the spread of digital addressable system (DAS), there are many who can’t invest in the infrastructure,” the source said.

Consolidation could happen at two levels. One route is to get the subsidiaries merged into the parent company. DEN could also ramp up its stake in joint venture companies with the extensive rollout of DAS.

Last year, some joint venture partners had also wanted to dilute their stakes so that they could expand and invest in Phases III and IV of DAS. “We want to dilute our stake so that we can keep pace with the funding,” Ravi Singh, president of DEN India JV Association, had then told TelevisionPost.com. Singh is also a JV partner in Mumbai-based DEN Satellite Network.

Demerger of broadband biz

As reported first by TelevisionPost.com, DEN Networks will demerge its broadband business into a wholly owned subsidiary. A key reason for this is the lack of clarity on whether MSOs have to pay 8% adjusted gross revenue (AGR) as licence fee on only the broadband business or the company’s total income, including cable TV.

“It is safer to get into a separate regulatory structure by bringing the broadband business into a separate company from the cable TV outfit,” the source said.

Some MSOs had received notice from the Department of Telecom (DoT) to pay internet service provider (ISP) licence fee on not just the broadband revenue but on the cable TV income as well. In fact, the All India Digital Cable Federation (AIDCF) requested the Ministry of Information and Broadcasting (MIB) and the DoT to remove the 8% AGR applicable for MSOs offering broadband services.

The demerger will also allow DEN to increase its focus on the broadband business, which is still at an early stage of growth.

DEN Networks CEO Pradeep Parameswaran said, “We are focused on creating a distinct identity for each of our businesses and the recent in-principle board approval is a step in this direction. This corporate structure will strengthen the brand while also giving us an opportunity for shareholder value creation.”

Hathway Cable & Datacom is also demerging the broadband business into a wholly owned subsidiary, Hathway Broadband Pvt Ltd. The company believes that the market dynamics are different as broadband is a B2C business while cable TV is B2B.

DEN’s broadband business, operating under the brand name DEN Boomband, plans to achieve one million homes passed and 100,000 subscribers in FY16. In the fiscal third quarter, the MSO added ~20,000 broadband subscribers to take its total base to 76,000 broadband subscribers.

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