By imposing digitisation, government is giving away the market to DTH: BP Rath

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By Vishaka Chakrapani Posted on : 18 Jun 2014 07:06 pm

When he is not actively focused on growing the business of the company, he is a family man.  He spent eight years at his current group’s parent company- Indian Metals and Ferro Alloys and then driving the group’s venture into cable and television in 1998. Currently the president and CEO of Ortel Communications, Bibhu Prasad Rath has ensured that the company not just grows, but becomes one of the big players in the country.
 
From finance to marketing and then to the cable business, he has seen it all for the company headed by Jay Panda and Jagi Mangat Panda. By taking a cue from the US cable TV  biz, he and his team at Ortel looked at consolidating the fragmented mom-and-pop Indian cable TV industry.
 
Rath took out some time to talk to indiantelevision.com’s Vishaka Chakrapani about Ortel’s future business plans, rollout of digitisation and the key areas of growth and development in the coming few years. Excerpts:
 
What is the philosophy at Ortel?
 
The core philosophy of Ortel is to have access to the consumers’ homes. We want to be a communication pipe to consumers’ homes which is capable of delivering a wide range of related services in future. To achieve this we decided right from the beginning that we would have last mile ownership, because in cable TV, video services are one way, and data is two way. Two way services are extremely sensitive to network parameters.
 
In the traditional B2B model where the MSO reaches out to the LCO and then to the consumer, close to 80 per cent of the work is done by the LCO. The MSO does very little and so there is no quality uniformity and many times the LCO lacks the right equipment. Workmanship matters a lot in any communication network. It is a choice that we made from the beginning that we wouldn’t deal with any LCOs. Our business is B2C.
 
Many people tell us that our model is unique. We, at Ortel, follow the international model by having a network that is capable of delivering both the services- cable and data.
 
The biggest advantage of this model is that we can build a network and also provide data services.  The disadvantage is that because you are doing last mile, it is capex heavy. So you can’t do the kind of large spread operation that an MSO-LCO model can do.
 
What is your reach?
 
We are now operating in four states- Odisha, Chattisgarh, West Bengal and Andhra Pradesh. On an overall basis we have a network capacity of 800,000 homes but the subscriber base is 520,000 of which 80 per cent is concentrated in Odisha and the rest in the other states.
 
We want to expand a lot more in other states but we haven’t been able to raise money. We look forward to raising capital in the next one year. Then our focus will be to expand in our existing and other neighbouring states such as Madhya Pradesh. Our focus is also to expand geographically to other states and more in Chattisgarh and Andhra Pradesh. Our idea is to build a regional last mile play. We do not intend to go national now.
 
What is the status of your IPO?
 
Right now, though the markets are improving and we hope that they continue to do so for next three to four years, we are not actively looking at it. We are looking at other means of fund raising such as private equity as well as international strategic options. The likelihood of opting for private equity is definitely higher.
 
What has been your progress in digitisation?
 
We have been digitising for nearly five years now, much before the mandate came in. We don’t have an under-declaration issue. We have to digitise because it enhances the capacity by getting more number of channels so that we can effectively compete with DTH operators.
 
Odisha comes mostly in phase III and IV. Kolkata came in phase I and Vishakhapatnam (Vizag) in phase II. Our digital base is 15 per cent of our total subscribers. Analogue has always been a fixed price model. In every city you have different sections of consumers with different needs for content and different paying abilities. In digital you can offer customised products to customers. Digital is an important tool to tier the service. There are four markets in Odisha where we have been digitising- Bhubaneswar, Cuttack, Rourkela and Jharsuguda, apart from Kolkata and Raipur.
 
Which are your key investment areas for digitisation?
 
We are doing three kinds of investments. One is backend. We have five headends in Bhubaneswar, Jharsuguda, Rourkela, Kolkata and Raipur. We don’t intend to set up any more headends. What we are looking at now is intercity connect through infrastructure providers (IPs), mainly RailTel. Wherever we do digital we will take the feed from Bhubaneswar. At present, we give the feed to Vizag through RailTel.
 
The next area for investment is the network. We have a fully digital network which is broadband ready so that isn’t an issue.
 
The third cost is the set top boxes (STB). Currently we get a STB for Rs 1700. The box vendor asks for only half the amount and we pay the rest in installments, while we charge consumer only Rs 500 per box. We are looking at raising money for geographical expansion.
 
What is your current ARPU?
 
Our analogue ARPU is Rs 150 plus taxes, digital is about Rs 185 plus taxes and broadband is about Rs 375 plus taxes.
 
Then we also get 15 per cent to 20 per cent incremental customers.
 
How digitisation ready are you?
 
In our case, SMS, encryption, billing, tiering and CAF for every digital customer and encryption, billing, and CAF for analogue customers is already in place since the past 15 years. We have a billing database where every customer’s data is entered. A collection team of nearly 700 people on contract basis go to all the neighbourhoods at the beginning of the month and collect money by providing a bill and receipt. We have a call centre where customers can lodge complaints and the locally situated service centres take care of their complaints. So the entire B2C backend is already in place.
 
Our main challenge now is to seed the STBs. It isn’t possible to complete that by 31 December at the pace at which it’s happening right now. Our current focus is not on spread but on depth. Our biggest market is Bhubaneswar which is already 65 per cent digital. By 31 December about half of our entire subscribers should be digital.
 
What do you have to say about TRAI’s digitisation mandate?
 
We don’t believe digitisation is mandatory, it needs to be voluntary. When you go to smaller markets, digitisation becomes unviable. The main issue is how do you take the signal to homes? It’s either by setting up a headend or RailTel.
 
In smaller markets the number of people is less, so the cost per person increases and becomes unviable. We have spoken to regulators that going forward, smaller markets are going to be difficult and by imposing digitisation, they are giving away the market to DTH which isn’t fair to the cable industry.
 
We also intend to explain this to the government. They need to do a further cut off for phase III and IV, say half or quarter million population. Below these population numbers, we require either an exemption from mandatory digitisation or even longer time until the market situation stabilises and costs come down and people start getting returns to invest for digitising the less populated areas.
 
What is your subscriber churn?
 
We are facing around 1 per cent churn every month but on net basis it is positive. Churn happens because people shift their house to another city or maybe in the same city, some due to timings such as exam time, and I’m sure some due to bad service. On an average we also get around 500 DTH converts per month.
 
What is the status of your broadband offering and what are your plans for the same?
 
Broadband has been a key focus area at least at a mental level. 10 years ago, TV was the only thing in life. Now people are slowly moving to browsing and watching videos on smartphones. The TV set as a device at home is going to see a reduced utility over a period of time and internet is going to be used more. Ultimately we see this business as a broadband business and not just as a TV business. Whether this will happen in 10 or 20 years, I don’t know but it’s going to be business of broadband, not so much of analogue or digital.
 
Out of our entire network capacity, we can give broadband to 400,000 homes. But our actual subscriber base for broadband is 11 per cent of total TV subscribers, that’s about 55,000. This 11 per cent gives 20 per cent to 22 per cent of overall revenue.
 
Our focus is to increase broadband penetration from 11 per cent to 25 per cent.
 
What broadband services do you offer?
 
We are currently operating on DOCSIS 2.0. The same cable that goes to a consumer’s house is split inside for TV and for PC. We also have wired and wireless modem services for using many devices. In retail we provide speeds ranging from 512 kbps to 2 mpbs.
 
What is your main focus now for Ortel Communications?
 
Our main focus for the next few years will be digital and broadband. Any other service rides on broadband or digital. The only other service we have been trying to get in the past also, but it isn’t working out due to regulatory issue, is the voice service.
 
Our aim is to go from the current subscriber base to 30,00,000 in the next three to five years.
 
How has your growth come? Organically or through LCO acquisitions?
 
We have acquired about 1000 LCOs since 2008. Half of our growth is organic and half is inorganic.
 
Initially our growth was only organic and in competition with LCOs. Subsequently, since 2008, we switched to the LCO acquisition model. We acquire the LCO, dismantle the network and lay our own network.
 
The LCO exits the business with a revenue share. We buy out the LCO with a structured payment where part of money is paid at the time of buying and the rest is given over a longer period of time ranging from 5 to 7 years. So the LCO owner gets more than what was originally committed because he gets a revenue share. The LCO’s owner does not go back and start competing with us.
 
The key difference is that in the organic model when you are competing, you need a longer time to reach critical mass. If you are acquiring then it happens right at time of acquisition. Depending upon what works best for a situation, we follow either model.
 
How has your revenue grown?
 
Last year our revenue was Rs 132 crore, while this year we expect it to reach Rs 155 crore. The EBIDTA margins are usually 32 per cent to 33 per cent.

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