MUMBAI: Digitisation is meant to bring about transparency and order to what has for long been talked about as an unorganized business. The pressure of scaling up in order to deliver digital cable TV has also had an expected fallout: consolidation. Smaller cable ops, independent operators have been forced to join hands with existing national MSOs like Hathway or DEN or amongst themselves. And this fusing has resulted in the reduction of the number of headends in the major metros – especially in Delhi and Mumbai where there has been a shrinkage from 110 to 15 and from 50 to seven respectively.

“Consolidation of headends is taking place in the transition from analogue to digital phase. Also the trend now is that the MSOs set up headends only in areas where they cannot get access to a fiber line or a digital line. Also they are looking for solutions like getting a line from say Delhi or Mumbai to the nearby areas,” informs an industry expert.

Industry experts attribute this change to factors such as rising costs of digital headends, billing procedure and administrative control.

Explains Hathway Cable & Datacom MD & CEO Jagdish Kumar: “With digitisation has come the convergence of technologies and features like high definition content, VAS and broadband accessibility. All this in turn requires large amount of investment to manage economies of scale, thus ushering consolidation.”

While Hathway currently has 23 headends and seven backup headends, including GTPL, several independent operators, informs Kumar, have evinced a keen interest in aligning with its ongoing digital plans, largely due to its success in Phase I and II.

“We’ve drawn up ambitious expansion plans for Phase III and IV. We will soon make announcements on a few strategic acquisitions,” he exults.

IndiaCast Media Distribution executive vice president Amit Arora agrees that a number of Delhi and Mumbai-based independent operators have started taking their digital feeds from bigger MSOs.

“This arrangement is gaining popularity since it isn’t easy for every independent operator to make the huge capital investment needed for digital headends. And consolidation of headends has led to central warehousing of data and SMS,” he says.
According to Ortel Communications CEO BP Rath, with a 200 channel headend costing nearly Rs one crore, it is not worth investing that kind of money for an independent operator who caters to say 10,000 customers in a small town.

“So, they are joining bigger players in order to take feeds from them. While smaller operators merged with bigger players even during the analogue phase, it is now happening on a larger scale. And one will see further consolidation during phase III of digitisation,” he says.

Apart from independent operators joining forces with bigger MSOs, the other reason for consolidation is the advent of the conditional access system (CAS) and the subscriber management system (SMS), as well as the prerequisite for getting these systems audited and approved by broadcasters.

“When the bigger MSOs are taking so long to adjust to the new system and maintain quality as per the regulation, how will the small players be able to do it?” questions InCable managing director Ravi Mansukhani. “With consolidation, the big MSOs will take care of all the back office problems and the on-ground activity will be done by the independent operators.”

“All this has led to a whole lot of process issues, which the smaller MSOs find difficult to manage and that is why independent operators are joining bigger players,” adds Rath.

Ortel, which has 31 analogue headends, two digital headends and four analogue plus digital headends, is waiting for phase III. “It is only after that, we will see consolidation happening in Orissa and Chhattisgarh. Though we have our own headends, we are also talking about intercity connectivity,” informs Rath.

Kumar too feels that “the trend will continue even in phase III and IV. The demand for digitisation will impact local independent operators, who will find it difficult to manage independently. Hence, the independent operator would continue to look to aligning with the bigger MSOs.”

However, Arora thinks otherwise. “The consolidation process has already come to a phase where I do not see any further consolidation happening in phase III. The big wave has already happened in phase II,” he says.

So when a smaller operator takes digital feed from a bigger MSO, how do they share revenue? “The revenue share worked out between bigger MSOs and independent MSOs is purely on mutually beneficial terms based on investments and services being provided in the market,” says Kumar.

Arora elaborates: “Everybody has worked a different revenue model. Someone has opted for a 49:51 split, some have a 50:50, while some will have a 51:49 split. The revenue share depends on the strength and the need for funds.”

Coming to another metro, Kolkata, unlike Delhi and Mumbai, its five big players: GTPL, Hathway, Manthan, IMCL and Digicable Network have not seen an urge to merge.

Meanwhile, Arora sounds a cautionary note. “A takeover of one MSO by the other in Kolkata would only be possible if there is a national degree of consolidation.”

According to Mansukhani, the biggest consolidation will take place nationally. “Right now only the small and middle level players are going to the big players and then ultimately few major players will have control.”

Mansukhani feels that even international players will show interest in India once they see healthy cash flows of the MSOs in DAS I and II areas. “This is when the maximum consolidation will take place and this will happen once the entire phase I and II is complete.”

Talking about the evolution of cable TV on the ground in Kolkata Manthan Broadband Services director Sudip Ghosh says, “Players with a subscriber base of more than five lakh might not consolidate headends. But Kolkata can see the consolidation of players with others having a subscriber base of around three to four lakh.”