Mukesh Ambani, chairman and managing director of Reliance Industries, speaks during a panel session at the World Economic Forum in Davos, Switzerland, on Jan. 17, 2017. (Photographer: Simon Dawson/Bloomberg)

Reliance To Buy Controlling Stakes In Den Networks, Hathway For Rs 5,200 Crore

Reliance Industries Ltd. agreed to buy controlling stakes for more than Rs 5,200 crore in two of India’s largest cable and wired internet services providers as the nation’s richest man Mukesh Ambani prepares to disrupt broadband and direct-to-home TV services industry.

RIL will invest Rs 2,045 crore to subscribe to preferential shares and buy Rs 245 crore worth of stake from the promoters to pick 66 percent holding in Den Networks Ltd., according to a statement by Reliance Jio Ltd. It will also invest Rs 2,940 crore through a preferential issue for a 51.3 percent stake in Hathway Cable and Datacom Ltd.

Reliance Industries will also make an open offer to the shareholders of both the companies to meet SEBI norms. The deals are subject to regulatory approvals.

Investments in Den and Hathway create a win-win outcome for local cable operators, customers, content producers and the ecosystem, RIL Chairman Mukesh Ambani said in the media statement. “With local cable operators now as part of the Jio ecosystem, we look forward to bringing Jio’s advanced JioGigaFiber and Smart Home Solutions to more Indian homes, even quicker.”

The investments would give Ambani’s telecom arm Reliance Jio Infocomm Ltd. last-mile connectivity as it aims to gather nearly five crore broadband subscribers. That comes after parent RIL announced plans to launch JioGigaFiber—a fibre broadband network targeted at homes and businesses across 1,100 cities. The service, which will come with routers and set-top boxes for television, is expected to fuel competition in cable TV and DTH services after Reliance Jio sparked a tariff war in India’s telecom industry.

Through the investments, Reliance and Jio will be strengthening the 27,000 local cable operators aligned with Den and Hathway, RIL said in its statement. They together have 14.4 million cable and about 800,000 broadband connections.

RIL will make an open offer to existing shareholders of Den Networks and Hathway Cable. According to SEBI’s takeover norms, any entity whose shareholding in a listed company crosses 25 percent has to offer to acquire another 26 percent from public shareholders. RIL will also make an open offer to shareholders of GTPL Hathway Ltd., in which Hathway owns 37.3 percent stake, and Hathway Bhawani Cabletel and Datacomm Ltd. in which Hathway owns 51.6 percent stake.

What Hathway, Den Bring To RIL

Hathway Cable offers cable services across 140 cities and broadband services across 21 cities. In the last five quarters, the company’s customer base didn’t grow. Yet, its average revenue per customer rose by Rs 10.

Reliance To Buy Controlling Stakes In Den Networks,  Hathway For Rs 5,200 Crore

Den Networks, which claims to have most subscribers among cable players, has limited presence in broadband. In the last five quarters, the company’s subscriber base – cable and broadband – declined. It generates a lower revenue per user than Hathway.

Reliance To Buy Controlling Stakes In Den Networks,  Hathway For Rs 5,200 Crore

Next Big Disruption

The acquisition kicks off consolidation in a fragmented market dominated by regional players. Local cable operators were so far sceptical about any kind of association with Reliance Jio fearing that they would lose bargaining power, Aditya Suresh, an analyst at Macquarie who tracks RIL, said in a prior note. With this deal, they will be left with limited options.

Direct-to-home operators like Dish TV, Tata Sky and Airtel could also face pricing disruptions and a higher churn. The DTH industry has five service providers with the top three controlling nearly 88 percent of the market and adding subscribers at a steady pace.

The fixed broadband subscriber base, however, declined in 15 months to July. Jefferies attributes this to expensive pricing and lack of focus and execution among incumbents. The industry has five major players and is dominated by two government-owned companies.

Subscriber base and penetration levels have been low as the existing players found it difficult to scale up due to higher capital requirement, according to Jefferies. Local issues complicate last-mile access and customer stickiness acts as an entry barrier, he said.