Can DTH Operators Fend Off Ambani’s Data Disruption?

DTH operators are betting on broadband services and streaming content onto mobiles to retain subscribers, who are increasingly watching everything from movies to shows online.

But fending off Mukesh Ambani’s oil-to-retail conglomerate won’t be easy as he threatens to disrupt the pay television industry. The nation’s telecom market is still fighting a bruising tariff war unleashed by his telecom arm.

Having announced a high-speed broadband network last year, Ambani plans to roll out from Sept. 5. Called Jio Fiber, the service will, starting at Rs 700 a month, offer a 100-megabits per second high-speed internet connection with subscriptions from most over-the-top service providers like Netflix and Amazon Prime bundled in. And for a yearly plan, users will get a free high-definition television. It also offers a landline connection with free calls.

Bank of America Merrill Lynch, in a note, said it finds DTH companies like Dish TV India Ltd. most vulnerable to Reliance’s bundled broadband and cable service as they are unlikely to offer dual services. “While the initial impact would be felt on premium DTH companies like Tata Sky, it would likely have derivative impact on Dish if Tata Sky cuts its ARPUs to retain subs (users),” it said, adding that Dish TV would then be forced to avoid churn to Tata Sky.

According to Ketal Gandhi, director at Crisil Research, companies that have the ability to offer triple play—mobile content, cable-DTH and wireless broadband—will gain. “Internationally, we have seen cord-sharing or cord cutting—either customers are cutting the number of connections or cutting down in the number of channels,” she told BloombergQuint over the phone. “We expect this to happen in India.”

BloombergQuint’s emailed queries to Tata Sky, Dish TV and Airtel DTH on future strategy remained unanswered.

Tata Sky, part of the salt-to-software Tata Group, has started offering high-speed internet through its wholly owned Tata Sky Broadband Pvt. Ltd. Already present in 21 cities, the company plans to expand across India, Crisil Ratings said in its June report on ratings rationale.

Tata Sky Broadband had 15,953 users as of March 31, according to TRAI data. The Tata Group also provides broadband through Tata Teleservice Ltd with a customer base of 2.1 million. Crisil said in its July report that the company is evaluating various options, including complete exit.

Broadband will allow Tata Sky to offer bundled services to its existing DTH as well as new customers. While it’s expected to complement its existing DTH business, such services will remain in the investment phase over the medium term, according to Crisil.

The Essel Group, the controlling shareholder of Dish TV, is looking at partnerships as changing consumer preferences make customer acquisition challenging, said Punit Goenka in an interview to BloombergQuint. It had an average revenue per user of Rs 199-200 a month, the management said in first-quarter investor call.

And Airtel DTH, according to TRAI data, already has 114.6 million broadband customers. The company also has 2.34 million fibre-to-home customers as of June. “Our investments in FTTH deployment are now reaping benefits with an expansion in the base and an increase in ARPU after 10 consecutive quarters of decline,” the company said in its August investor call without disclosing numbers.

Both Airtel DTH and Tata Sky have tied up with streaming services, including Netflix, Amazon Prime, Zee5, and Eros Now, to prevent an erosion in subscriber base. Dish D2H launched Watcho, its in-house streaming app earlier this year.

But that may not be enough in the face of Ambani’s challenge.

According to CLSA, Reliance Jio Infocomm Ltd.’s starting broadband tariff appears in line with competitor offerings but bundled-in services could be the clincher, it said. It also announced an introductory offer in which subscribers opting for an annual plan could get a set-top box and a 4K Smart TV free, CLSA said, adding that Reliance Jio has also identified plans to attract premium post-paid users with a combo family plan across fixed line and mobile.

What’s At Stake

The battle is for a slice of a household’s budget on content. Gandhi reckons that to be Rs 2,000-2,500 a month.

Citing example of Bharti Airtel Ltd., she said the operator could provide four mobile connections at Rs 250 each, wired broadband at Rs 800 a month and two TV connections at Rs 350—a total of Rs 2,500.

This is where Reliance Jio will hurt. To counter competition, players will look to retain customers by offering 25-30 percent discount, compared to 10 percent now, for any household spending Rs 2,000 a month, she said.

“But we haven’t seen bundling picking up yet in the market for existing service providers,” she said. “Jio is well placed to offer bundled services and that’s when the pricing will get competitive and DTH players will have to cut prices.”

Wave Of Disruption

The threat from Reliance Jio comes when India’s pay television pie has shrunk. Cable TV operators and DTH subscribers have 54 million fewer users who regularly pay and use services than previously thought, according to regulatory data. DTH operators alone have nearly 21 million fewer active users at 51 million.

That shift in part came after the Telecom Regulatory Authority of India allowed consumers to choose and pay for what they view. Moreover, cut-price data tariffs mean Indians are not averse to ditching TV subscription plans and instead pay for services such as Netflix, Amazon Prime, Hotstar and Zee5 to view everything from original shows to movies.

The new tariff order has increased content costs for DTH operators as most channels turned pay. The service providers will get 35 percent of the user revenue or content cost and a standard Rs 130 per subscriber as network capacity fees compared to bilaterally negotiated prices with broadcasters earlier. That’s expected to affect profitability of operators, Crisil Ratings said in a report.

Still, DTH operators will have no choice but to provide differentiated content based on demand, according to Gandhi. “Cost will go up because we need to have more content than just niche offerings.”

According to Gandhi, the competition will drive consolidation like in the telecom industry. Already Dish TV and Airtel DTH are in talks for a merger, multiple media reports said citing unnamed people. The two companies did not respond to BloombergQuint’s queries on a possible deal.

“But single-service providers will not exist,” Gandhi said. “They will get acquired by players to provide integrated offerings.”