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Phase III monetisation delay to affect MSOs’ profitability: ICRA

MUMBAI: Delay in the monetisation of Phase III of digitisation is likely to disturb profitability of multi-system operators, an ICRA report has stated.

While the subject of discontinuation of analogue signals in Phase III markets remains under litigation, monetisation of Phase III markets is expected to get deferred by nearly a year before the benefits of healthy set-top box (STB) seeding, achieved during Phase III markets, start percolating.

Subrata-Ray-gallery“In view of potential delays in Phase III monetisation, the ability of MSOs to improve cost efficiencies and ARPUs from Phase I and Phase II markets remains crucial to support profitability metrics during the current fiscal,” ICRA ratings senior GVP Subrata Ray said in the report.

During this transition phase, the cash accruals of MSOs are expected to improve gradually even as incremental capex requirements are likely to remain low.

In the cable TV space, during the current fiscal, revenue growth of MSOs will remain sensitive to regulatory changes, the report said.

While lifting of stay orders and consequent discontinuation of analogue signals in Phase III markets will remain a key subscription revenue growth driver, any extension with respect to Phase IV deadline (beyond 31 December 2016) will impact activation revenues, the report said.

With an estimated population of over 60 million households in Phase IV markets, cable TV players do not anticipate any extension to the Phase IV deadline. However, implementation is expected to be along the experience of Phase III, with analogue signals being discontinued in phases, the report said.

Within the analogue population in Phase III and IV markets, residual analogue subscriber base among the top three MSOs stood at 9.5 million subscribers only (as on 31 March 2016), against a total analogue population of over 60 million in the country, indicating healthy growth opportunities for DTH operators and regional MSOs.

In this direction, DTH operators have introduced lower-priced vanilla STBs and channel packages to tap the opportunity in Phase IV markets.

However, DD Free Dish is also expected to emerge as a key player in Phase IV, given the price-sensitive nature of subscribers.

“Over the last few years, market leaders in the cable TV space have adopted an inorganic growth strategy for entering new geographies and increasing their subscriber universe. Consolidation in the cable TV space is expected to continue as MSOs look at further strengthening their market position in their respective geographies,” Ray said.

While the overall placement revenues are expected to remain buoyant, driven by new channel launches and the inclusion of Tier II and Tier III markets in audience measurement metrics, some correction due to the change in the nature of content deals (net of placement revenues) with larger broadcasting networks is anticipated.

“The capex outlay of MSOs over the medium term will be driven towards achieving higher broadband penetration in identified markets, investments in LCO management and improving penetration of value-added services such as HD channels and video-on-demand in digitised markets. In addition, replacement capex for STBs seeded in Phase I and Phase III markets will also drive the investment requirements of MSOs over the medium term,” Ray explained.