Indian telcos trying to unlock value from DTH biz

The ongoing digitization drive of the Indian government is definitely helping the direct-to-home (DTH) industry. According to Media Partners Asia's (MPA) annual research report, DTH subscriber base in the country is estimated to grow from 23 million in 2010 to 64 million by 2015, and 83 million by 2020.

Digitization is carried out in four phases. In the first phase--which ended on December 31, 2012--the four metros switched to set-top boxes (STBs). In the second phase, 38 cities in 15 states moved to STBs by March 31, 2013. In the third phase--the deadline for which is September 30, 2014--all urban areas of India have to switch to STBs. By December 31, 2014, the entire country will have to switch to STBs.

While this has led to more demand for digital cable services (via STBs) and digital DTH services, competition too is hotting up. Estimated to have 30 million subscribers today, the DTH industry today has six operators--Dish TV, Airtel Digital TV, Tata Sky, Sun Direct, Reliance Digital TV, Videocon D2H, and DD Direct. Four of these players--Airtel Digital (owned by Bharti Airtel), Tata Sky (a joint venture between Tata Sky and STAR), Reliance Digital TV (owned by Reliance Communications), and Videocon D2H (owned by the Videocon group)--also offer mobile telephony services.

And these telecom players see the rising demand for DTH services in India as an opportunity for them to unlock the value of this business. This way, they can reduce the strain on their finances. News reports reveal that two players in the DTH business--Reliance Communications and Bharti Airtel--are planning to sell their stake in the DTH business due to tough competition.

Anil Ambani-owned Reliance Communications is said to be in talks with South-based Sun Group to sell its DTH business for an estimated 20 billion rupees (US$367 million). Similarly, there have been reports Bharti Airtel is in talks with Liberty Global and a couple of private equity firms to sell 25 percent stake of its DTH business. Both are reportedly looking to exit from satellite business due to financial issues.

According to the news reports, the main aim of Reliance Communications is to reduce debt which is estimated at 370 billion rupees (US$6.8 billion). Reliance Digital TV currently has 4.6 million subscribers, with 9 percent share of the DTH market in India. Sun Direct has 8.5 million DTH subscribers.

Bharti Airtel reportedly also has started the process to sell up to 25 percent stake of the company's DTH arm, estimated to be valued at US$1 billion.

Reports also noted that U.S.-based DTH players like Comcast and Liberty Global are in talks with Bharti Airtel to buy a stake in its DTH arm. Some of the private equity players like KKR, Providence, Bain Capital, and GAAP are also said to be in the fray. Bharti is looking to raise over US$200 million from the sale.

Two other players--Tata Sky and Videocon--are planning to raise funds through the IPO (Initial Public Offering) route. Tata Sky, which has over 10 million subscribers, is looking for an IPO with a valuation of around 80 billion rupees (US$1.5 billion). Even Videocon is looking to raise funds through the IPO route. Tata Sky is planning to raise 20 billion rupees (US$367 million) by putting on offer 25 percent stake.

Digitization pushing up STB demand 

Television viewing services in India is currently provided mainly by three mediums--analog cable services, digital cable services (through the use of STBs), and digital DTH services. 

Analog cable services have existed in India for nearly 30 years, but it offers limited number of channels and no extra features or value-added services. Due to the digitization drive, consumers are fast switching to digital cable services and DTH. Both offer superior audio and video quality as opposed to analog cable services.

Earlier this week, Infonetic Research issued a statement regarding the growth of STBs. Julien Blin, directing analyst for consumer electronics and mobile broadband at Infonetics Research, said in the statement: "Contrary to popular opinion, the set-top box market is alive and well." Revenue from these devices grew almost 10 percent in 2012, a considerable rebound from a year ago, according to Infonetic.

The market for STBs is expected to remain healthy in the near-term as operators in China, India, and Latin America introduce new digital services, the market researcher added.