How RIL’s Hathway and DEN deal will impact DTH and broadcasters?

Reliance Industries’ (RIL) acquisition of majority stakes in two multiple system operators (MSOs) – Hathway Cable & Datacom and DEN Networks will be impacting broadcasters and direct-to-home (DTH) players negatively.
Jio Giga Fiber IndiaThe acquisition will give RIL direct access to MSOs’ broadband infrastructure and pay cable TV subscribers, India Ratings and Research said.

RIL can use this last mile connectivity to accelerate Reliance Jio Infocomm’s foray into the fibre-to-the-home (FTTH) market. The deal will resolve four big challenges facing MSOs: high leverage, large Capex requirements for broadband roll-out, lack of a wide spectrum of content and competition threat from Jio.

The key objective for Mukesh Ambani-promoted Jio for the deal is to shorten the time for its FTTH foray because competition or partnership with the fragmented local cable operators (LCOs) would be a time-consuming process.

The deal gives Jio direct access to around 6.5 million broadband households, representing about 36 percent of India’s total fixed broadband subscriber base of about 18 million. Jio will get access to 12.5 million cable TV subscribers, representing nearly 7 percent of total TV households, who may not have broadband connectivity yet.

Jio’s aggressive marketing could lead to an expansion in the broadband market. Jio’s target to reach 50 million household over the next 3-4 years looks achievable through the acquired subscribers of MSOs, higher penetration in existing markets and possible aggressive tariffs for other geographies.

The subscriber base of 50 million household, at the current monthly broadband tariff of INR 500-600 per household, represents INR 300 billion-360 billion revenue market for Jio. At present, Jio 4G offers less than Rs 140 ARPU.

Jio will be able to get access to Hathway and Den Network’s subscriber base. Hathway has a major presence in Maharashtra, Karnataka and Madhya Pradesh and GTPL Hathway has a strong presence in Gujarat and West Bengal. Den Networks has a significant presence in northern India.

Both Hathway and Den Networks are reliant on LCOs for the last-mile connectivity for their cable TV businesses. While RIL would address the leverage, Capex and content availability situation for them, response from their LCO partners remains to be seen.

LCOs may cooperate with MSOs provided there is no impact on their earnings and any fresh subscribers acquired remain associated with LCOs. The rise of on-the-top platform in India is already implying that content providers may start interacting with end-consumers directly in the long-term, thereby making the presence of MSOs and LCOs redundant.

The consolidation in the MSO space is negative for broadcasters as their bargaining power to command higher subscription revenue may be impacted. DTH players had adopted a barbell strategy and were active in the market where LCOs could not lay their cables or where pay TV subscribers were willing to pay premium.

Jio’s strategy to enter into the pay cable TV market is yet not clear. It is highly likely that Jio would offer bundled plan to include both the broadband and pay cable TV markets, which would negatively impact DTH players.