interview with You Telecom CEO EVS Chakravarthy|
companies should start thinking like DTH operators'
on 18 February 2008|
acquired a broadband company in 2006, Citigroup Venture Capital International
has set its eyes on the cable TV business. You Telecom has floated a subsidiary
to meet the FDI (foreign direct investment) guidelines for cable and acquired
Bangalore-based Digital Infotainment, a small-sized cable network.
Telecom intends to invest Rs 7 billion over four years as it takes steps to enter
the digital convergence space. Banking on building a Headend-In-The-Sky (HITS)
platform, the company plans to invest Rs 1.2 billion in the first phase of infrastructure.
an interview with Indiantelevision.com's
You Telecom CEO EVS Chakravarthy talks about the onslaught from direct-to-home
(DTH) players to grab the digital space and the need for cable TV operators to
up their services and invest in brand building.
Since Citigroup Venture International holds 85 per cent in You Telecom India,
how are you restructuring the foreign holding to stay within the regulatory cap
of 49 per cent so as to kick start cable TV operations in India?
set up a company called Digital Outsourcing where Citigroup holds 49 per cent.
The balance 51 per cent is being held by high net worth individuals. We have done
the capital restructuring in the cable TV company to meet the FDI guidelines.
Did Citigroup buy out the Mumbai-based broadband company from British Gas in
2006 because it saw opportunity in expanding the footprint to cable TV?
will probably be the only pure broadband player to get into cable TV. Unlike Sify
and the other ISP operators, we have built a cable-based infrastructure. So it
is a logical extension for us.
Are you looking at acquisition of cable networks as the entry route in different
Digital Outsourcing has bought 50 per cent stake in Bangalore-based
Digital Infotainment. This is our entry into cable TV operations. We will be rolling
out digital services in the next couple of weeks. In other markets, we are also
looking at people who could partner with us through joint ventures where we will
be offering multiple services.
Why have you set up a headend in Delhi but not yet rolled out services? Is it
that you don't have a content tie-up with broadcasters?
Though we have
set up a headend in Delhi, we haven't started operations. We are looking at opportunities
like a JV or a 100 per cent buy out. We are also looking at an outsourced service
model for digital solutions to cable operators as one option.
are banking heavily on the HITS model. How much are you going to invest in the
We will be investing Rs 1.2 billion in the first phase for setting
up the HITS infrastructure. We are waiting for the government to come out with
the regulations before we go ahead. We expect the Telecom Regulatory Authority
of India (Trai) to come out with its recommendations on HITS in the next 2-3 weeks.
For the digital solutions including set-top boxes, we will be using Scientific
Atlanta. And for HITS, we will also be looking at Motorola.
How much are you going to invest in the overall business?
We plan to invest
Rs 7 billion over four years. This will be in addition to Rs 4 billion that we
have already put in for laying out the infrastructure for broadband. We will be
doubling our footprint to 24 cities.
Why are you so bullish on digital cable when there is a very low STB penetration
in the Cas (conditional access system) belt?
2008 will be the defining
year for digital. After Reliance launches its DTH service, expect fireworks on
the ground to start. The cable industry is not fully prepared to combat the DTH
onslaught. Cable operators will have to figure out who is going to provide them
with the right ammunition to fight DTH tomorrow.
should have a one-million digital box seeding plan.
Then everything will fall in place'
What will you offer that will make cable operators come to you?
time cable companies started thinking like DTH operators. Cable TV has to match
DTH service standards - be it brand building, billing, marketing and services.
Multi-system operators (MSOs) today are not concentrating on that. They will have
to support the last mile operators with all these things. Otherwise, how are the
operators going to fight DTH on behalf of the MSOs. The old mindset has to change.
There has to be a complete revolution in digital cable and related services like
broadband. If the old MSOs don't do it, new players like us will show the way.
Cable operators are willing to part with equity to those MSOs who are offering
them more. Isn't that the deciding factor?
In the initial land grab situation,
it is capital. But in the medium term, it will be quality of management and the
systems and processes they work with. The valuations operators are asking for
has gone up dramatically with new MSOs entering the field. But it is like the
sensex; it will not last forever. We are not willing to pay exorbitantly just
because we want to expand our size. In cable, it is important to remember that
there is no case of first mover in the consumer's mind. The future battle in cable
will be for grabbing attention in the consumer space through brand building and
quality of service. The MSOs have never thought of this as a strategy. And don't
forget that HITS will open up the smaller towns and networks. So the opportunities
down close down for any new entrant.
What brand building exercise you have put in place?
We have an equity
capital reserved for brand building. Bennett & Coleman Company Ltd (BCCL),
the holding company of the Times of India, has a five per cent stake in You Telecom.
We are looking at doing more such media deals. We are setting in a discipline
by allocating equity for brand building.
have also invested in technology. We have introduced the Oracle-based billing
system which we are willing to outsource to others. We have 170,000 broadband
subscribers, spread across 12 cities including Mumbai, Bangalore, Chennai, Hyderabad,
Gurgaon, Surat, Baroda, Ahmedabad, Rajkot and Pune. Our broadband ARPU (average
revenue per user) is Rs 460. Our revenues will be Rs 1.10 billion this fiscal
with just broadband in our business mix at this stage.
Won't the cable business require huge doses of capital?
We realise that
growth needs capital. Citigroup is committed to infusing capital to grow the business.
We have a plan in place.
But for a venture capital fund, isn't analogue cable a matter of concern for its
revenue leakages across the last mile?
When Citigroup bought out the company
from British Gas, they looked at the convergence space. We are uniquely positioned
in that we already have a good broadband play. When we are in cable, we are only
extending our laid out infrastructure to a new area of business. It is important
to remember that a single service play is like an analogue video play. We see
alliances emerging with broadcasters and cable networks across the value chain.
is the challenge for MSOs in digital cable?|
MSOs should have a one-million
digital box seeding plan. It is possible with a well-evolved cable eco system.
Once an MSO has such a deployment, then everything will fall in place. It will
be like building a long lasting real estate value - with multiple services including
broadband, cable TV, gaming and VoIP. Later we will see bigger cable companies
converting carriage fee into equity in broadcasting networks.
are your views on Trai's regulation for non-Cas areas?|
The regulator has
given it some shape. If the MSOs had implemented Cas more successfully and effectively,
then Trai perhaps would have been confident of extending it to other areas.
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