Equity analysts feel that the markets have overreacted to TRAI’s recommendation of complete digitisation by 2013. Stocks in the cable distribution and DTH business, DEN Networks, Hathway Cable and Dish TV saw gains in excess of five per cent each.

These gains are unsustainable and only DTH operators would reap the benefits of complete digitisation as individuals feel it is a nuisance to interact with local cable operators, said an analyst from a large broking house. DTH operators like Tata Sky, Dish TV and Reliance Big would do well as it has already been proved beyond doubt that mandatory CAS (conditional access system) implementation has not worked, he added.

But there are contrarian views as well. “Every geography does not support DTH and hence cable operators will survive side by side. Though the TRAI recommendations have been made, implementation is still some time away,” says Mr Anand Shah, Media Analyst at Angel Broking.

Thumbs up

Market players are gung-ho about the implementation of digitisation. They feel the waiver of customs duty on set top boxes for three years coupled with an eight year tax holiday will benefit all players – broadcasters, distributors and MSOs (multi system operators). “Whatever the ratio of cable to DTH, it will benefit all players. Even the government envisages collecting approximately Rs 1,400 crore in the form of service tax, against the existing Rs 75 crore. This would be backed by a steady increase in ARPU (average revenue per user) and a significant increase in declaration levels that was pathetic erstwhile,” added Mr Shah.

Consumers are also voluntarily shifting towards CAS given the quality of reception, say market players.

The preference seems to be CAS wherever the population density is high and DTH in far flung areas.

One cannot replace cable with DTH for the simple reason that cable is very efficient and can also triple up to deliver broadband and telephony services (if regulations permit).

When companies with low declaration levels could register a gross margin of 30 per cent, this move towards digitisation would surely provide a boost to existing players and a 50 per cent margin would not unrealistic to expect.

This is because the business operates on a predominantly fixed cost model with one time expenditure and steadily increasing annuity income, said an analyst.

The recommendations have indicated a funding requirement Rs 55,000- Rs 60,000 crore for full digitisation across India.

This would entail large scale funds being raised overseas through the FCCB/ECB/GDR route by companies.

The cable broadband business is in the same stage of evolution in India that telecom was 10 -12 years ago and hence the entry of large players with deep pockets into this business is imminent, the analyst added.

DEN Networks, Hathway Cable and Datacom, and Dish TV closed 12.29 per cent, 8.53 per cent and 6.19 per cent over their respective previous closing prices to close at Rs 237.25, Rs 211.95 and Rs 49.8 on the NSE.

Source: The Hindu Business Line