Scatmag.com

January 2017

THE FUTURE OF CATV & BROADBAND



LOOKING BACK

Cable TV commenced in India soon after the Gulf War began in August 1990 & CNN began C-Band satellite transmissions over India. At that time, Cable TV was a highly entrepreneurial business, with no entry barriers. In less than 3 years, there were more Cable TV homes in the country, than government monopolies had installed telephones, in 50 years!

Today, with all cable TV networks - even those in villages forced to go digital, entry barriers have been ushered in by the government.

Competition has increased from alternate delivery platforms like DTH, IPTV and HITS.

Cable TV distribution is now a mature business. As with all mature businesses, profit margins will be low and competition high.


LOOKING FORWARD

There seems to be a concern, for the road forward.

Despite emerging technologies and reduced profit margins, one can safely predict:

1. Cable TV and broadband will continue to exist well into the foreseeable future i.e.. for 10 years or more. it will provide Cable operators access into consumer homes. This is a major asset that must be utilised by Cable operators.

2. Cable TV revenues are likely to yield a 30% gross margin; net margins will be of course much smaller.

3. Wired broadband into the cable TV consumer's home will be far more profitable yielding gross margins of more than 50%.

While Content Is King in Cable TV, Reliability & Speed will be the main factors for quality broadband.


Content Is King For TV, Speed Is The Need For Broadband






BROADBAND

Unlike cable TV content which must be procured from specific broadcasters, broadband bandwidth is a commodity that can be procured from the lowest priced seller. This will keep the Cable operator who retails broadband, in control of his business and profit margins.


MARKET SEGMENTS

The broadband business must be clearly seen in 2 separate market segments:

1. WIRELESS BROADBAND (3G/4G)

Cable operators will never be in this business and hence we should not be disturbed by this market, which is left for the mobile phone companies to battle between themselves.

Temporary free offers by mobile operators should be ignored. They are only temporary and not sustainable.

2. WIRED BROADBAND

The wired broadband business is what cable operators will deliver.

This business must have the following 2 main features:

a. It is faster than wireless broadband.

b. It is cheaper than wireless broadband. Wired broadband will be definitely cheaper than wireless because cable operators do not have to pay for airwaves.

To ensure that the wired broadband you deliver is faster than 4G, please do not buy any equipment which delivers wired broadband at below 4G speeds.

On the other hand, do not over spend in this very rapidly developing field.


GOOGLE FIBRE'S FAILURE

A good example of a business that has failed by over spending and being too early into the market is Google Fibre.

Google Fibre launched a Gigabit speed service via fibre in the USA. Laying Fibre into consumer's homes involved high capital costs for the company. the service was priced at US $ 70 per home per month. After a year's roll-out in various cities, the customer numbers just insufficient to sustain operations. Google Fibre retrenched half its work force and dropped its service to just 100 MBps @ $ 50 per month. This is similar to what Cable TV networks in the USA, like Comcast currently deliver via DOCSIS-3 cable Modems to their customers.


Broadband Is The Opportunity Of The Decade For Cable TV Networks


PLAN CAREFULLY

Clearly, investing in Broadband networks requires careful thought.

Every wireline broadband network certainly needs to deliver more than 4G speeds. 4G networks can theoretically deliver around 50 MBps. However, in practice, most of them deliver around 20 MBps or less. hence plan your wireline network to deliver atleast 50 MBps. These speeds would be adequate in semi-urban and rural areas, while in prime metro areas, with demanding customers, a minimum broadband speed of 100 MBps ... upgradeable in the next 3 years, would be desirable.

Broadband network equipment prices will rapidly fall, and it would seem prudent to plan for upgrades and spends in future, (above 100 MBps) rather than invest in such costly infrastructure today.


RELIANCE JIO

Often concern is expressed that Reliance Jio's prices are absurdly low, and such predatory prices are impossible to counter.

This is not true. In fact, the Reliance Jio prices declared at the company's AGM are rather expensive, for both - "Free" voice & data!

According to the TRAI, an average mobile user in India pays Rs. 107 per month for voice calls, (national average ARPU).

Jio is offering Free Mobile Voice calls after you pay a minimum of Rs. 149. This is more than what the average mobile user currently pays for paid voice service!

Airtel Broadband already offers 200 GB per month @ 16 MBps for Rs. 2,000 per month. That is Rs. 10 per GB and much lower than the price declared by Jio for even their largest data plans.


THE FUTURE

With the TRAI's new tariff regulations offering much higher returns to Digital cable TV networks, Cable TV will continue to be an attractive, sustainable business well into the next decade.

The TRAI has declared that it has proposed changes in policy that will facilitate Digital cable TV networks to deliver high speed broadband. This along with the fact that bandwidth can be purchased as a commodity, from multiple vendors at rapidly reducing prices, makes broadband delivery, the opportunity of the decade for Indian Cable TV networks. n