Motilal Oswal CAS report: Cable ops likely to be hit

MUMBAI: A Motilal Oswal Inquire Indian Equity Research (MOSt Inquire) report on impact of CAS has forecast that local cable operators (LCOs) could eventually lose their bargaining powers and profitability due to the impact of taxation.

The report has predicted that financing options which will crop up in the next few months would lead to a 30-40 percent box penetration in the four metros within 12 months of the cut-off date. The report also foresees that MSOs, broadcasters and consumers would be the ones most benefited from implementation of CAS. 

The report has given the following reasons for its deductions:

Ø Pricing of the basic tier, comprising free-to-air (FTA) channels would be Rs 60-90 per month per subscriber. The local cable operator (LCO) would have to pay for entertainment tax (Rs 30 in Mumbai) and service tax (5 percent on revenues) out of this collection.

Such a pricing would mean that LCOs would have to market the premium tier (comprising pay channels) to subscribers, in order to make decent profits. 

This would also ensure higher consumer surplus (at least Rs 110-140 considering current outgo of Rs 200 per month as cable rent today) to spend on pay channels after paying for the basic tier.

Ø The pricing of the STB would be a key issue, which could determine the penetration of boxes in cable homes. It is believed that digital boxes would ensure fairly high protection against hacking and would be a future proof standard to adopt. Current government import imposts are 56 percent for boxes. The landed cost of the entry-level digital box would be Rs 7,000 in the current scenario.

However, the price could fall to Rs 4,000 if the manufacturing/assembly could be taken up in India and volumes build up. Motilal Oswal analysts believe that consumer finance options for boxes would make them affordable for consumers. Some MSOs, notably InCable, are open to subsidizing boxes if subscribers promise to be on the network for a specified period of time.

Ø The report points out that inspite of the reservations in some circles that advertising revenues would get hit due to poor box penetration, the box availability would not be a big issue.

MSO s would come forward to encourage box take-up by subscribers and financing options would emerge. That would lead to a 30-40 percent box penetration in the four metros with in 12 months of the cut-off date.

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