Ahead of the 31 October deadline for the first phase of cable network digitization, the United Progressive Alliance government has liberalized the broadcasting carriage services sector by increasing the foreign direct investment (FDI) cap to 74% in direct-to-home (DTH) as well as cable services.
Even though it comes a bit late in the day, the move will provide the much needed push to the sector in need of serious money to meet its digitization commitment. To switch all the television viewers from analogue to digital cable in Delhi, Mumbai, Kolkata and Chennai, operators need Rs.2,500 crore. Under the law, the entire country must have digital television distribution by the end of 2014 requiring nearly Rs.20,000 crore.
It is true that few investors showed interest in India’s cable sector when 49% foreign funding was allowed. But it is equally true that analogue cable was a losing proposition thanks to under-declaration of actual subscriber numbers by the last mile operators.
Digitization will change all that. Cable networks will become addressable and the customer identifiable drawing the attention of foreign companies such as Time Warner Cable, Comcast Corporation and Liberty Media to this burgeoning market. For now, they may be waiting in the wings to see the first phase roll out. The initial signs are positive. According to the ministry of information and broadcasting, the four metros have achieved nearly 68% of cable television digitization.
The policy has put all forms of foreign investment—FDI, foreign institutional investment, among others—under the 74% cap. Besides, only those cable companies which have applied for a digital cable licence will be permitted 74% foreign investment. A plethora of pre-conditions to obtain the digital licence will lead to a natural shake-out and consolidation.
The crowded DTH sector, where each one of the six private operators is bleeding, will also do well with infusion of foreign funds. The sector has 40 million subscribers. However, companies in the sector are looking for more sops to succeed. Their grouse is that they pay between 15% and 30% entertainment tax in different states in addition to the service tax. The DTH licence itself is sought on 10% revenue share with the government. Besides, the set-top boxes are subject to customs duty. Although increased FDI cap in the cable sector may change the game, DTH is looking for more than foreign funds.
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