With a nearly seven-million strong subscriber base, Siti Cable should have been ideally sitting pretty with a permanent smile pasted on the faces of the executives managing it. But the head of India's biggest MSO and additional vice chairman of Zee Telefilms, Jawahar Goel, oftentimes appears a none too happy man. Scowls crease his face as he punches the keys on his laptop where data is flowing in from various parts of the country.

Information about some franchisee cable operators switching loyalty to a rival network taking with them a sizeable number of cable homes, a broadcaster's demand for higher minimum guarantee, constant bickering in the cable industry and the need to justify investments in set-top boxes that have been lying pretty much idle in warehouses in the aftermath of the CAS fiasco make Goel's job that much more difficult. Especially when as a fully owned subsidiary of the listed Zee Telefilms, shareholders' concerns have to be addressed.

"If the (cable) industry doesn't mend its ways and plan for the future, bottomlines in the cable business would be under pressure over the next two to three years," Goel says in a matter of fact way. His justification: impending competition from new technologies like DTH and broadband.

According to him, the Rs 150 billion (excluding broadcast segment) cable industry has grown in a haphazard way over the years, and the time has arrived when consolidation is imperative.

A view shared by the Hong Kong based media analyst firm Media Partners Asia (MPA). According to MPA's India-specific estimates, released in the first half of 2005, the cable TV industry's subscription revenues totaled $2 billion in 2004, signifying a 10 per cent year-on-year growth (versus 23 per cent in 2003). But the crunch is that while broadcasters extracted a 13 per cent share of the pie ($270 million) in channel subscription revenues, MSOs had only a 6 per cent share of the subscription pie in 2004 ($121 million), while local cable ops (LCOs) controlled 78 per cent of the pie. And, a majority of LCOs still think that cable networks could be run like a mom-n'-pop shop, which does not require investments.

With new technologies coming in and gaining popularity, MPA forecasted DTH as a primary digital platform in the long term, acquiring more than a 65 per cent share of subscribers, followed by IPTV at under 25 per cent and cable at 10 per cent. Goel narrows the forecast down further: "By middle of 2006 when other DTH services would have also come up, there would be at least a five per cent shift of consumers from cable. By end of 2007, the shift would increase to 10-11 per cent."

THE PAST

Siti Cable commenced operations in 1994 as an MSO in Delhi. A year later the Rupert Murdoch-controlled News Corp acquired a 50 per cent stake in the company in an equal joint venture with Zee. In 1999, Zee re-acquired the 50 per cent stake from News Corp as part of a bigger buyback plan by Zee in three joint ventures (total deal amounted to $ 296 million in cash and stock) and Siti Cable became a wholly-owned subsidiary of Zee Telefilms Limited.

Siticable is a Category A ISP license holder which enables it to distribute Internet over cable across the country. In its first phase of operations in 2000, it started providing Internet in Bangalore city.

Presently, Siti Cable operates over 50 headends in 43 cities and has an approximate reach of over 6.5 million households. The company operates via joint ventures with cable operators and is said to have JVs with more than 6,000 cable operators across the country to distribute television channel signals received from various satellites through an aerial network of approximately 8,000 km of coaxial cable & optical fiber.

Last year, parent company Zee Telefilms made some additional capital restructuring in view of Siti Cable's new business activities.

The restructuring, done primarily as a result of the proposed implementation of the headend in the sky (HITS) project, saw certain moveable assets replaced by technologically upgraded equivalents. The period also saw past business losses at Siti Cable, totaling Rs 1,491 million, being written off by way of reduction in share capital of Siti Cable, which also reduced Zee Telefilms' corresponding investment in the cable company.

In a note on its website in February 2004, Zee Telefilms said, "These measures are in tune with the reworked business model of Siti Cable in which it has prepared itself for offering consumer addressability on the cable platform and provide infrastructural support for the DTH services of ASC Enterprises (Dish TV). Consequent upon the proposed adjustment, Siti Cable's equity capital will be Rs 9 million and share premium account will be nil. Siti Cable capital is being rebuilt corresponding to its business requirements under the upgraded offerings that it has planned and is working on."

MAPPING THE DNA OF A DIGITAL FUTURE

After the capital restructuring, Goel has been systematically beefing up Siti Cable's activities. He admits: "We've been doing adjustments (read, getting aggressive) in cities where the company had lost ground and is adding more places through a reworked business plan."

The MSO, which was rated the second largest in the whole of Asia by Multichannel News, had over the years slipped in several cities, including those considered its bastions (Hyderabad, Bangalore and Delhi), for various reasons ranging from complacency to aggressive competition. For example, despite Siti being headquartered in Delhi, rival Hathway Datacom controls more than 50 per cent of the cable market in the National Capital Region. Though according to cable operators, who some time or other have been franchisees of Siti Cable, the MSO lost steam because of a shift in business focus, Goel now insists Siti Cable is "working hard and afresh to not only make up lost ground, but also hang on to its top spot."

The first big salvo was fired a couple of months ago when Siti Cable upstaged a deal for cable networks controlled by RPG in Kolkata at a time when the industry had given already the prize to South India-based Sun TV group.

And, what a deal it was! Signed in the early hours of the morning post midnight, Siti Cable gained control of 60 per cent of the approximately 1.2 million cable homes in Kolkata. Price: between Rs 180-200 million with another Rs 10-12 million thrown in to wipe out the dues that RPG owed to various industry stakeholders, including Star India.

It's times like these that bring a smile on the face of Goel as he smacks his lips at the prospect of licking the competition. "Arre bhai, hum bhi to business karne ke liye aayen hain. Koi charity thodi hain (I am also here to do business and not charity)," he says jocularly when asked about the RPG deal.

More such acquisitions are on the cards, Goel promises, hinting that inorganic growth too is part of the strategy. In Delhi, Siti Cable is in talks with a small sized MSO, Spectranet, to lease its fibre network. The deal is expected to come through soon as a draft memorandum of understanding is being studied by Spectranet's promoters, the Punj family.

Apart from looking at the mergers and acquisition route, Siti Cable is also looking at nurturing its franchisees. It has already appointed about 250 affiliates spread across Maharashtra, Gujarat, Punjab & U.P. The target is to appoint 1,000 Affiliates by October 2005 & an aggregate of 2,000 by March'06.

As part of this plan, an affiliate programme was started earlier this year where franchisees would have to pay a certain amount of negotiated money to use the Siti Cable services, but in return some value additions would be done. For example, information on investment for upgradation and technical support would be provided by Siti Cable.

The coaxial network of the MSO too is being replaced with fibre and, Goel points out, 80-90 per cent of the work has been completed. Reason: the MSO is aiming to migrate to a digital set-up. Digitization offers scope for various valued added services such as Video on Demand, EPG, pay per view etc.

In phase one of digitization, which is expected to be in place by end 2005-early 2006, cities like Delhi, Hyderabad, Bangalore, Kolkata, Chandigarh, Varanasi, Kanpur, Haryana and Mumbai are likely to boast of digital networks of Siti Cable, paving the way for improving the quality of service and making some additional value additions too.

It was in 2004 that MSOs like Siti Cable, Hathway and InCablenet began to aggressively market STB-enabled digital services, firming up plans to invest in programmes for pay per view services and secure more agreements with niche channels. Additionally, MSOs intend to develop new revenue streams from broadband Internet services and VOIP telephony.

Going digital has its other reasons too. For example, if MSOs and broadcasters have to break free from the clutches of the LCOs, who control over 70 per cent of the subscription revenue, then investment in future tech is the key.

A digital regime would not only address the problem of bandwidth, which has given rise to carriage fee paid by channels increasing, but would also help in providing more transparency in the system through addressable systems.

"Digitisation is the mantra. In an analog mode, which is what our services are presently on, channel offerings and other services would not grow beyond a point and the lack of this growth would also hamper the overall growth of the cable industry," Goel points out.

No wonder, Siti Cable has gone in for centralized digital headends in Delhi and Hyderabad that has helped in cutting costs. Kolkata is next on the agenda, while other cities that would have such centralized Siti cable headends are Mumbai and Bangalore where the MSO is giving a renewed push by almost taking over local networks and managing them directly.

With year 2004 being a bad one for the cable industry because of price freeze mandated by the Telecom Regulatory Authority of India and the after-effects of the CAS fiasco building up pressure on everybody in the cable industry, MSOs like Siti Cable increasingly woke up to the realities of life.

But Goel's enthusiasm, is tinged with pragmatism too. Not going overboard over the digitisation process underway in the country, he maintains that unless the policy makers are further sensitized to the needs and concerns of the industry, the chaos is unlikely to fade away soon.

This pragmatism may be one reason that has held Siti Cable back from grandly announcing that Internet services too would be provided to all its subscribers and that Siti channel, after becoming a satellite-delivered channel, would be the next big thing amongst city-specific channels.

"We do offer broadband and Net services in Bangalore (subscriber base: 6,700) through our own gateway, but I don't see that happening in other cities very soon," Goel adds.

But the ramping up of activities gives rise to another question: is Siti Cable's valuation being improved through varied activities for an impending initial public offer, which has been hinted at by Zee Tele CMD Subhash Chandra?

Goel, one of the younger brothers of Chandra, takes a modest stand on this. "At the moment," he says, "Siti Cable is in the process of becoming digital-ready. By end 2007, it could be a candidate for becoming a listed company."

But, then, though the industry talks about the future, has anybody seen it clearly? Till future becomes present, we'd have to wait and see whether Goel and company deliver the value that has been promised to the parent company's shareholders.

Also Read:
Cable has to raise its standards to compete with DTH: Interview with Zee Telefilms additional vice-chairman Jawahar Goel

MSOs & the DTH CHALLENGE I: Core business flat, Hathway pushes digital, broadband

MSOs need to have an integrated revenue model: Interview with Hathway Cable & Datacom CEO K Jayaraman