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Business News/ Opinion / Online-views/  New broadcast service rules to attract investors
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New broadcast service rules to attract investors

Valuations will go up both in cable and DTH as the government has made the climate conducive for investment, say experts

Photo: Hindustan TimesPremium
Photo: Hindustan Times

Direct-to-home (DTH) operators, cable networks, headend-in-the-sky (HITS) platforms and mobile TV operators can now raise 100% foreign direct investment (FDI) without seeking approval from the Foreign Investment Promotion Board (FIPB). That is what the policy announced by the government on Monday spelt out. In short, it means 100% FDI via the automatic route for broadcast carriage services has been allowed.

Interestingly, the National Democratic Alliance government first raised the FDI limit in the sector immediately after the Bihar electoral debacle in November. This time, the further easing of norms came soon after Reserve Bank of India governor Raghuram Rajan announced that he wasn’t seeking another term at the office. Foreign investment rules were liberalized in nine sectors, probably in a bid to denote the government’s commitment to reforms.

In November 2015, the government raised the foreign investment limit for DTH operators, cable networks and HITS platforms to 100% from 74%, but with only 49% FDI allowed through the automatic route. For 100% FDI, companies were required to seek FIPB approval.

In the new policy, the government has said that fresh foreign investment beyond 49% in a company which is not seeking licence or permission from the sectoral ministry will require FIPB approval if there is a change in the ownership pattern or a transfer of stake from existing investors to new foreign investors.

The fresh tweak in the policy has evoked a mixed response from the industry. On the face of it, it’s a welcome move. Cable networks, which have been bearing the cost of digitization without any fiscal or tax incentives, could do with such investments. Except that even after the FDI norms were eased in November, there has been little activity or buzz around investments in the sector by foreign firms.

Ashok Mansukhani, whole-time director at Hinduja Ventures Ltd, explained that FDI investments have been low because by now DAS or digital addressable system, which was introduced at the end of 2012, should have been the prevalent regime. But the large number of court cases and stay orders have affected deployment of set-top boxes, leading to disruption in the investment outlook, he said. Hinduja Ventures has interests in cable networks and a HITs platform.

There are other roadblocks to investments in the broadcast carriage services sector too. The market is hugely fragmented and Arpu (average revenue per user) is low. According to Mansukhani, while Arpu for a DTH operator is around 175 a month, for a digital MSO (multi-system operator) it comes to around 150, and for cable in non-DAS areas it is about 90 a month.

“In mature foreign markets, Arpus are easily 20 to 30 times as much," he pointed out, adding that the India numbers make the business neither sustainable nor attractive to foreign investors.

According to the Telecom Regulatory Authority of India (Trai), there are currently seven DTH firms, two HITS platforms, 700 MSOs and 60,000 cable operators in the country. Clearly, consolidation is an urgent business imperative to make the picture in the broadcast services sector appealing.

To be sure, the cable distribution industry’s size is approximately 110 million homes today, with 150 million expected in the next five years.

Foreign investors haven’t lined up outside DTH companies either. DTH as a whole has invested close to $4 billion in the development of the sector. Executives working for DTH firms say that the current cross-media holding restrictions are a disincentive. For instance, Rupert Murdoch’s Sky Plc cannot increase its stake in Tata Sky Ltd, its DTH joint venture with the Tatas.

The current cross-media holding restrictions prevent any such change by the foreign partner as a broadcaster cannot hold more than 20% stake in DTH operations. And Murdoch has Star India—an entertainment television network in the country.

However, Ashish Pherwani, advisory partner (media and entertainment) at consulting firm EY, is surprisingly upbeat about the new rule allowing 100% FDI via the automatic route. “You will see action in a year and a half," he said, and added that after digitization is complete, the cable networks can leverage their subscriber base.

“In markets like the US, for example, digital cable networks with 10 million subscribers get $50 billion valuations. In India, at 10 million, the valuation is barely $1 billion. They have a long way to go and this (100% FDI via the automatic route) will be an important step for them," said Pherwani.

Valuations will go up both in cable and DTH as the government has made the climate conducive for investment, he said, adding that “Arpus will move up. India is a beautiful story which foreign investors will like."

Agreed Mansukhani of Hinduja Ventures: “Regulatory issues have now stabilized and Trai plans to issue Digital Code for Tariff and Interconnection and Quality of Service Regulations. Once these come into effect and DAS restarts, investments will come in."

Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.

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Published: 23 Jun 2016, 03:39 AM IST
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