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How Reliance Jio plans to shake up the cable TV market

MUMBAI: Cable TV companies guard their territories and rarely bother about what is going on outside their gate. They did shake their legs and ran to defend when direct-to-home (DTH) operators threatened to invade, but never feared they would be crushed. Now they are bracing for an alien creature called Reliance Jio, which is yet to arrive and the form of which they can only visualise but are unable to predict.

In the dying days of analogue cable, billionaire Mukesh Ambani is nursing ambitions to become a mix of Comcast and Verizon in India. There is no quad-play service provider yet and no private company has immediate plans to change the landscape with internet, TV, landline and wireless provisions.

Ambani’s Reliance Jio, armed with a mammoth Rs 70,000 crore (Rs 700 billion) investment plan, is readying a commercial proposition that will keep quad-play in contention in the Indian marketplace. Attractive pricing will form an important piece of the strategy in this fast-changing world of converged digital media.

A line of Reliance Jio’s armoury is the digital cable TV side of the business. In typical Reliance style, two former CEOs of leading cable companies have been hired to win the game. K Jayaraman, who led Hathway Cable & Datacom’s growth as the country’s largest multi-system operator (MSO), is the CEO of Reliance Jio’s MSO business. SN Sharma, who as CEO rapidly built DEN Networks as the second-largest MSO, is also part of the top leadership team and reports to Jayaraman. A raid of few key people from their earlier workplaces has taken place, and there could be a few more exits to follow.

All this is rattling the existing MSOs. “With Jayaraman and Sharma on the same side, it is going to be a formidable team. One is reminded of the pre-DEN era when they were together at Hathway. Now with the backing of Reliance and oodles of capital, they are a force to reckon with,” said a former CEO of a leading MSO on condition of anonymity.

Starting from scratch is no easy job and will take time. Reliance Jio Media, a subsidiary of Reliance Jio, has applied to the Ministry of Information & Broadcasting (MIB) for an MSO licence. The MSO application is awaiting clearance from the Ministry of Home Affairs (MHA).

SN SharmaWhile Reliance Jio Media waits to make an entry, national MSOs like Hathway, DEN, and Siti Cable Network have grown in size and have a fair spread of digital cable. They have also carved out their spaces in Phases I and II of digital addressable system (DAS) that cover 41 top cities including the metros of Delhi and Mumbai.

Hathway leads the pack with a digital cable TV subscriber base of 8.5 million, as per data till 31 December 2014. The MSO’s home broadband passed two million subscribers while broadband subscribers stood at 0.43 million.

DEN services 6.8 million digital cable TV users while Siti Cable’s base is 4.85 million, according to data available till 31 December 2014.

“Phase I and II cities of DAS are fairly settled. If Reliance wants to bite here, it will have to play a disruptive role,” said a senior cable TV executive, who did not want his name to be revealed.

By all appearances, it seems Reliance Jio Media’s first outing will be in Phase III and IV DAS cities. Since the DAS cities under Phases I and II have already been digitised, any new battle will mean spoiling the market by giving free set-top boxes (STBs) and dropping subscription rates.

There is another reason that could make Reliance stay away from initially preying in the Phase I and II DAS cities. With government mandating the death of analogue cable TV in Phase III DAS towns by 31 December 2015, Reliance will have very little time to kick-start operations and grab market share in these areas.

Phase III and IV DAS towns are also an open ground for competition. With an estimated 70 million households to be digitised, the size of the market is attractive.

“It looks logical that Reliance Jio Media will initially target the Phase III and IV DAS towns as the market size is huge and there is a deadline to be met. They may even feel stifled if the original deadline for Phase III is unchanged and could lobby for an extension,” said the CEO of a leading MSO.

Local cable operators (LCOs), who own the last-mile access to the consumer homes, are confused about what to expect from Reliance Jio. They are not sure whether they would stand to gain or lose. Several of them in DAS cities wish for free STBs and free subscription rates for a particular period of time. This might spoil the markeReliance_Jio-cover_logot by setting a precedent for not paying an MSO.

“This course of action can be bad for everybody. It can send the cable TV industry into a negative spin and allow LCOs to choke the revenue flow distribution. It is an unlikely scenario though,” said an industry expert.

Though nobody can predict which way Reliance Jio Media will go, the most likely approach could be to get market share in Phase III and IV DAS towns and then eye the cities that have already been digitised. If opportunities come in between, Reliance could explore them.

For broadband in the bigger cities of Phase I and II like Delhi and Mumbai, Reliance Jio may look at tying up with LCOs if required. Acquisition of LCOs will also make business sense.

An industry watcher said that Reliance might not chase acquisition of MSOs. “They will look at acquiring LCOs as this will give them direct access to the consumer homes. The LCOs are an important animal to have,” he added.

Reliance Jio has planned a fibre-to-the-home arrangement to offer television channels to consumer homes. Though the business architecture of this is under complete wraps, it is widely known that the overall plan is to be a formidable quad-play service provider.

By hiring Jayaraman and Sharma, Reliance is nursing ambitions to be a very strong national MSO. “The mandate of the new team is to build scale in digital cable and be involved in broadband rollout,” said a source.

Jayaraman has a deep sense of the cable TV business and led Hathway from its stage of infancy to a well-rounded MSO with income from the subscription and carriage route as well as broadband. Spending long years in the industry, the cable TV culture is bred into his bones. A chartered accountant by qualification, he combines finance and business needs with ground-level interaction with cable TV operators.

Sharma also had a big role to play in the childhood and adult formation of DEN Networks. Reliance Jio would particularly expect this ‘territory man’ to swing the north India market, a stronghold of DEN.

The wrestling in DAS Phases III and IV will be interesting to watch. In this battle zone will be newbie Reliance Jio. Besides, Hinduja Group plans to roll out a headend-in-the-sky (HITS) service in competition with JAINHITS, while direct-to-home (DTH) operators are looking at grabbing a good market share.

The canvas is so large that there will be scope for all national MSOs to grow. DEN intends to take its total digital universe to 13 million, meaning an addition of over seven million from its 31 December 2014 scorecard. Siti Cable aims to double its digital subscriber base to 10 million. Hathway has the least ground to cover as it has already digitised 73 per cent of its subscriber base of 11.70 million.

Outside the national MSO ring, there is a vast universe to digitise when Reliance Jio starts its MSO play. There are independent operators scattered across the country who do not have the capital and can be scared of the competition all around. But it won’t be such a simple battle. The market share game will make it a complex fight among all and no home turf can rest secure.

For HITS operators, the challenge will be to build scale. Reliance Jio’s big push in the market can hurt them. Having no base in Phase I and II DAS cities, they will have to succeed in the last two rounds of digitisation.

According to media analysts, MSOs like Ortel Communications and Asianet Satellite Communications, who own the last mile, will have less to fear. In fact, Reliance may decide to initially stay away from geographies like Odisha, Kerala and Punjab where regional MSOs have a dominant presence.

Even for Reliance Jio, it will be no cakewalk. An MSO licence has to be obtained and there is limited time left for Phase III digitisation. “It is in their interest if the deadline is shifted. Expect some lobbying to be done by them,” the head of an MSO said, preferring anonymity.

There is also the challenge of entering the market late. “It is like a cricket match. The existing MSOs are sitting on a score. Reliance Jio will have to enter the crease and score,” said a cable TV executive.

The LCOs are also indecisive as to which way they want to go. Reliance will have to make a winning proposal or instil the fear that competing against them could be suicidal.

For us sitting outside the fence, there is a feeling that we will soon witness the writing of a new period of history in the converged digital media space.

Also Read:

Former DEN CEO SN Sharma joins Reliance Jio
Jayaraman resigns from ZEEL, tipped to join Reliance Jio
SN Sharma quits DEN
Reliance Jio’s MSO licence application pending with MHA, says MIB