Is it a threat or opportunity? This is what officials of the Mumbai-based Hathway Cable & Datacom are wondering at the change of government in Tamil Nadu.

Mr. K. Jayaraman, chief executive, Hathway Cable was surprised when he was told that AIADMK - the party now in power in the state of Tamil Nadu – had declared in its election manifesto that it would break the cable TV monopoly of Sun Cable Vision (SCV) – the largest multi service operator (MSO) and part of Sun TV network.

So, what has a statement in an election manifesto got to do with Hathway Cable? Well it may be recalled that Hathway Cable inked a non-compete deal with SCV (See Hathway signs peace pact with Sumangali Cable Vision) dividing amongst them the cable TV and net-over-cable business in Chennai.

For SCV, the positive fall out of the unique deal between Hathway Cable and SCV is the near-100 per cent declaration by cable operators of their subscriber base. This is something unheard of in the Rs. 3,500 crore Indian cable TV industry. For Hathway Cable, however, the peace deal while increasing its subscription revenues froze its market share.

SCV has also, with its aggressive strategy, sent BPL's cable TV operations packing from Coimbatore (a major city in Tamil Nadu), besides commanding the entire turf in Madurai and Virudhunagar, the other major markets apart from Chennai.

The commanding market share of SCV has forced the smaller cable operators to make full declarations of their client base and naturally they were unhappy and made a song and dance about its monopoly status. Nevertheless they adjusted their loss by increasing the monthly subscription rates in good measure shifting the blame conveniently on SCV.

Now you would wonder why a full declaration of the subscriber base should worry the operators? Isn't it something natural in a business relationship? Unlike in the West, smaller cable TV operators have consistently held back their correct subscriber numbers from the satellite TV channels, thus denying the TV companies their due share in the cable revolution. TV channels have been fighting a tough battle to curb this menace and had even toyed with the idea of direct-to-home (DTH) broadcasting with a view to doing away with the intermediary of cable operator. All this had not yielded much success.

Meanwhile it is too early to say whether the change of government in Tamil Nadu is good for Hathway Cable or not, as the government is currently seized with the issue of breaking the cement cartel in the state.

Will Hathway Cable renege its agreement with SCV and start its cable operations or allow the status quo to continue are issues yet to be decided.

"But what is sure is that the cable TV business in Tamil Nadu is sure to undergo a radical change. Either Hathway Cable will be politely told to cancel its deal with SCV and go it alone or Jaya TV can itself start is own cable outfit as vertical integration being the norm of the satellite channel trade," says an industry official.

If it is latter, then Hathway Cable can very well write off Tamil Nadu as the business will be divided between SCV, Jaya TV and small operators respectively. Surprisingly Siti Cable, part of the Zee Group, is not interested to set up its business in the state.

While speculations are on Hathway, the country's second largest MSO with over 3 million homes connected, is focusing its energies on Ludhiana and Bangalore where it is rolling out its cable TV and net-over-cable operations respectively.

For the company Bangalore is going to be the activity hub in the south as its Tamil Nadu market is turning out to be a damp squib. One proof of the increased importance Hathway Cable attaches to Bangalore is the shifting of the office of its vice president (south) from Chennai to the Garden city.

For the uninitiated, Hathway Cable came into existence when Rajan Raheja group, a big name in real estate development in Mumbai, bought BiTV of Business India group in 1998. While initially the company was only into cable TV operations, it decided to cash in on the convergence of technologies, leveraging its large household connectivity to become an Internet service provider (ISP).

The company got large cash infusion last year when Mr. Rupert Murdoch's Star TV acquired 26 per cent stake in Hathway Cable for $75 million. The Raheja's are also present in Kerala cable TV industry acquiring the business from Asianet group.

Cagey about talking numbers Mr. Jayaraman, a chartered accountant by profession and with the Raheja's for quite some time says, "This is a closely held company and I can't give you critical numbers."

Cable the lifeline

It is a really pitched battle that rages in the Rs. 3,500-crore cable TV industry and Hathway Cable has notched up impressive 65 and 70 per cent market share in Mumbai and Nasik respectively. In cities like Delhi, Pune, Bangalore, Hyderabad and Chennai its share ranges between 25-45 per cent of the total market. Currently this division brings a major portion of the company's revenues.

A MSO like Hathway is typically in the middle of the cable TV pyramid. At the top of the pyramid are the satellite channels from whom the MSO's receive broadcast signals for a fee that is based on its subscriber base. The MSO in turn relays the feed to its franchisee-cable operators for a fee that is again based on the number of homes the latter has connected.

While the business model seems fine outwardly, the rampant under declaration of the subscriber base by the cable operators (averaging around 40 per cent) is what is hurting MSOs. The MSOs for sometime played the same trick on the pay channels but couldn't continue the same as the latter started to cut off their signal feeds.

Unfortunately the MSOs are not able to do the same with their cable operators fearing desertion. Even the franchisee agreements are non-exclusive and there are operators who offer more than one MSOs connection.

Says an industry source, "The business model is basically flawed one. MSOs can't allow themselves to be blackmailed by cable operators indefinitely." One way out is the Chennai experiment. "Such agreements have to be tried out in other markets as well", wishes Mr. Jayaraman.

But the lasting solution is the introduction of conditional access system or the addressibility box - a gadget that allows a subscriber to choose the channels he would like to watch.

"The cost of box is the inhibiting factor. Abroad these boxes are supplied by MSO's to homes free but none of the Indian players have the financial muscle to do the same," complains Mr. Jayaraman. Nevertheless the company is offering the 'Star Gold' package under conditional access system charging the subscriber for the box.

Reacting to that a person close to the industry blames the MSOs for this state of affairs. "They lack the foresight. If only they had introduced the addressibility box on their own by investing some money, the under declaration problem wouldn't have be there. Even now it is not too late," he remarks. Similarly no MSO is willing to do a census of connections in each locality and confront the operator.

However, for Hathway, it is smooth sailing for the company when it comes to other related operation viz the cable channel operations. The company has three channels - CCC Hindi language national channel and two regional language channels. It has a library collection of 1,200 movies of various vintage acquired for rates ranging between Rs.1.5 lakh and Rs. 50 lakh.
As his wont, Mr. Jayaraman refused to give any revenue figures pertaining to cable TV/channel business.

The future hope

Though the revenues from the cable TV and channel business are growing at a steady rate it is the company's net-over-cable operations on which Mr. Jayaraman is pinning his hopes, an area where Hathway Cable is investing sizeable sums.

Speaking to domain-B about the Internet business Mr. Jayaraman remarks, "We have around 20,000 internet ready homes in four cities-Mumbai, Delhi, Pune and Chennai-and they will be soon connected." Currently the company has around 5,000 subscribers and has great plans to ramp this number up to one lakh by getting into newer markets like Bangalore, Hyderabad and New Delhi.

Denying the rumours that Star India had second thoughts about Hathway Cable's internet venture, he says, "Star is very much in favour our net-over-cable venture from the beginning and the Rs. 500 crore expansion plan announced includes the internet business."

During the first year of operations the company's focus was on tapping the corporate base as well as converting the existing cyber cafes to its fold. Suffice to say that it has achieved considerable success.

 "Eighty per cent of our subscribers are corporates," remarks Mr. Jayaraman. Interestingly Hathway Cable has connected one of Satyam Infoway's cyber café in Chennai - it doesn't have any plans of having its own high speed cyber cafes.

Alongside the company is now targeting the home segment. "We are not advertising on a big scale for this purpose. Our campaign will be focussed at the local community," says Mr. Karthik Bhaskaran, branch manager, Internet Division, Chennai.

Part of the strategy is to hold free live demos in Food World stores located in up-market areas of Chennai and later in Bangalore. Hathway Cable is growing its market in a steady manner. The strategy is to exhaust the market in a particular locality before expanding to other localities. 

However the stumbling block is the service cost – at Rs.12,000 for the cable modem and a monthly subscription of Rs. 1,000, the charges may seem to be very steep for household use.

"Look at this way. A normal Internet user with dial up connection might browse the net atleast for 30 hours per month and pay telephone charge of Rs.24/- per hour apart from the ISP charges for narrow band connectivity. But ours is an 'always on' broadband service and costs just Rs.1, 000 or Rs. 1,500 if the modem is rented," justifies Mr. Bhaskaran.

According to him modem rental is not very lucrative as the company recovers its investment only after two years.

Nevertheless the company is planning new ideas to reduce the cost for the households. On an experimental basis in Chennai the company has connected couple of apartments in a residential complex via a router.

In Bangalore the company is looking at a subscriber base of around 300 during the first year at an investment of around Rs. 60,000 per point. Here the company seems to be on a steady wicket as Siti Cable is rumoured to be losing steam and the other player Atria Convergence Technologies is also new to the trade.

Meanwhile competition is really hotting up. While contending with existing competitors like Siti Cable, BSES Telecom, Spectranet, Cyberwave in markets where it is present it also have to face the onslaught of emergence of new cost efficient broadband technologies.

For instance the Direct Internet Access System (DIAS)-a digital subscriber line (DSL) technology- developed by Intel invested Chennai based Banyan Networks. Banyan Networks has tied up with MTNL and BSNL for deployment of its technology in Mumbai and Bangalore respectively. It is learnt that MTNL will be charging Rs. 1, 000 per month and this technology separates voice and Internet traffic thereby saving the subscriber the telephone charges. It is learnt in Andhra Pradesh one cable operator is already offering DSL connectivity using DIAS.

One of Banyan Networks' sister company N-Logue is planning to become an ISP and plans to wire homes at very competitive rates using corDECT technology. This is being planned typically like a cable connection with no telephone interface.

In addition big names like Reliance Infocomm, Bharti are really investing loads of money in this segment. "We don't know Reliance's business plan. Let them come and we will tune our plans accordingly," responds Mr. Jayaraman.

However the talk of the industry is broadband via wireless route. Many players like Bharti, Dishnet Ltd - currently offering DSL connectivity- are considering wire free connectivity.  For instance Bharti Broadband is looking at wireless LAN technology for the last mile access. Similarly Dishnet, it is learnt is in touch with Adaptive Broadband, US for wireless connectivity.

The advantage of this technology is that it avoids the pitfalls of cable connectivity like the operators hold on the last mile and other infrastructural problems.

All these does not unnerve Mr. Jayaraman who confidently says that the business will rake in more cash than other divisions - cable TV and cable TV channel. And that is for the future to prove