A recent ruling by the Telecom Regulatory Authority of India (TRAI) mandating a two-stage 27.5 percent hike in tariff ceiling for "non-addressable cable areas" should not be seen as a negative for multiple-system operators (MSOs) and direct-to-home (DTH) players, according to VD Wadhwa, CEO, Siti Cable Network .
"The cost of content should go up when it comes for renewal," the Siti chief told CNBC-TV18's Ekta Batra and Anuj Singhal in an interview. "But we can pass it through to the consumer."
Consumers in India paying "Rs 300 for a three-hour movie" can afford to pay for "Rs 250 a month for 300 channels, 24/7 sitting at home" as long as MSOs and DTH players provided good content, he said.
"So, on a net-net basis, in the value chain, broadcasters will gain more, but so will the local cable operator (LCO) and MSO. It is a welcome step," he added.
Also read: Trai move on cable TV tariff hike to help broadcasters: Sun
Siti shares rose 6 percent Tuesday in Mumbai trading after the firm converted warrants into equity shares that were allotted to two promoter group (Essel) companies for Rs 243 crore.
"We will require net funds of about Rs 600-700 crore for Phase 3 and 4 of digitization. This funding is good enough for us for two quarters," he said. "Total promoter stake currently stands at 72 percent post the rights issue conversion."
Below is the interview of VD Wadhwa, CEO, Siti Cable Network with Ekta Batra & Anuj Singhal on CNBC-TV18.
Ekta: The Telecom Regulatory Authority of India (TRAI) notified inflation linked hike of 27.5 percent in tariff ceiling. It supposes to be negative for direct-to-home (DTH) as well as cable operating companies but positive for broadcasters. Can you explain to us what the value chain would look like and why it could be negative for a company such as yours and the impact that we could see on your profit and loss (P&L)?
A: I would like to clarify that this is a myth that it is going to be negative. This is in the analogue area, and MSOs are on a fixed-fee deal basis (with broadcasters).
TRAI has suggested increasing consumer tariff so the consumer can start paying more. Once the consumer starts paying more, as per the revenue sharing formula suggested by TRAI, LCOs will gain more, MSOs will gain more and the broadcasters will also gain more.
Most of the deals at Siti are on a fixed basis, so the cost of the content is not going to go up till when it comes up for renewal. But will be passing on the cost to the consumer.
On net-net basis, in the value chain, the broadcaster will gain more but so will LCO and MSO. I do not think MSOs will be losing money in this. It is a welcome step
Ekta: What is the downside risk to this? Is there a fear that you could lose consumer because of a higher tariff. Would that be the worse case scenario that would pan out?
A: To some extent yes, but today everyone pays Rs 300 plus for watching a three-hour movie while DTH and MSOs are providing close to 300 channels, 24/7 sitting at home and charging hardly Rs 250 per month. So, this kind of increase can easily absorbed so long as MSOs and DTH players are giving better-quality service to the consumer. I do not see a major risk on this issue.
On the contrary, I would say consumer average revenue per user (ARPU) has not gone up in the last 15-20 years and will start seeing an upside. And this (cable tariff hike) is happening only for the analogue regime and you know there is a compulsory digitisation move [for the entire country] by December 2014. So, whatever impact is there will be only for the next nine months.
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