Cable TV

Can the Indian cable television industry truly head the US cable television industry way?

People often tend to compare the cable television industry in India with that of the US. They say that the industry is headed the US way. One of the crucial points is internet service and more specifically broadband service. This business and revenue growth alternative has been gaining a lot of attention from the cable television industry as an expansion strategy. Higher Average Revenue Per User (ARPU) in India, to the extent of 3 to 5 times the ARPU earned through transmission of television bouquets, certainly makes this service an attractive proposition.

Comparisons with a mature market like the US may not work in India. Indian cable television players have a long road ahead before any comparison or trying to relate with the industry, in any way could even start to make sense.

One of the foremost factors is money. According to the National Cable and Television Association, USA (NCTA), the total US broadband industry investments since 1994 is about US$ 1400 billion (4.7 per cent of the US’s estimated revenue for 2014) or 60.7 per cent of India’s nominal GDP of US 2308 billion in April 2015. Money can bridge the technology gap, leapfrog it, as it has in many instances in India.

Of course, this leads to the oft repeated point about the high cost of implementation of all DAS phases. It is a foregone fact that the capex starved cable television industry with poor balance sheets is going to deploy more money towards that effort if it wants the government to allow it to remain in business. Delays in deadlines may be possible, but in the current scenario, DAS is there to stay and is required for the benefit of all stakeholders.

Notwithstanding the bureaucracy logjam that India is notorious for, another major stumbling block is the slow and hugely over vamped judicial system (besides regulation) in India that could take years to decide on any dispute. Settling of civil disputes has no deadline in India. The cliché, for businesses, ‘time is money’, holds good here too.

Let us look at internet services

The number of internet users worldwide will surpass 3 billion (300 crore) in 2015, according to eMarketer, increasing 6.2 per cent next year to reach 42.4 per cent of the entire world's population. By 2018, eMarketer estimates, nearly half the world's population, or 360 crore people, will access the internet at least once each month.  

eMarketer says that by 2016 India will jump the US as the second-largest internet user population. China leads the world in terms of number of internet users with estimated 66.98 crore users, followed by the US with 25.93 crore and India with 24.23 crore say eMarketer estimates. In 2016, the publication estimates an Indian internet user base of 28.38 crore, higher than the 26.49 crore projections for the US. By 2018, India’s estimated internet subscriber base will be 34.63 crore or probably in the range of about 25-28 per cent of the population of the country at that time. Indian population figures for 2013 are an estimated 125.2 crore. Current population estimates for the US are about 32 crore, or the US has an internet density percentage of about 80, while China’s internet density percentage is about 50 and India just under 20.

“Inexpensive mobile phones and mobile broadband connections are driving internet access and usage in countries where fixed internet has been out of reach for consumers, whether that's due to lack of infrastructure or affordability," said eMarketer senior forecasting analyst  Monica Peart. "While highly developed markets are nearly saturated in terms of internet users, there's significant room for growth in emerging ones; for example, India and Indonesia will both see double-digit growth in each year between now and 2018."

The growing youth population is another important driver, as the most technologically savvy, and their demands shape internet development itself, says a Euromonitor report.

According to the Telecom Regulatory Authority of India (TRAI), India had a wireline broadband subscriber base (speed greater than 512 kpbs) of 155.2 lakh and 852.3 lakh wireless broadband subscribers as on 30 April, 2015 or 1007.6 lakh broadband subscribers totally. This means that less than 1 per cent of the total population of the country has broadband. There is no denying the fact that the potential is huge, more so for broadband.

Siti Cable (Siti), a multi system operator (MSO), believes that its strategy of cross-selling broadband services to its existing cable television subscribers and new customers will provide it with an opportunity to increase ARPUs, increase retention rates, ensure higher sustainable EBITDA margins and leverage upon its existing pan India presence.

A few players such as medium sized MSO Atria Convergence Technologies (ACT) had actually changed its strategy since 2012 and started focusing more on broadband services, without losing focus on its MSO operations. It offers broadband internet in areas where it does not have cable subscribers. Despite being a regional player, ACT is the second largest private wired broadband player in the country, just after the mobile telecom behemoth Airtel. ACT’s broadband subscriber base has grown by 43.76 per cent to 6.11 lakh in the 12 months until 31December, 2014. As on 30 April, 2015, ACT had a wired broadband subscriber base of 6.8 lakh.

However, ACT has followed a different strategy when compared to the other MSOs who use DOCSIS on the existing television cable for internet delivery. The company has laid separate optic fibre lines for internet delivery and hence owns even the last mile, rather than use its existing cable infrastructure and be dependent upon the LCOs’ whims and fancies.

It must also be noted that the number of internet subscribers that each major cable television player in the US has runs in crores in a couple of cases. The largest MSO in India in terms of cable subscribers – Den Networks, with about 130 lakh subscribers has less than half the customer relationships that Comcast’s Cable Communications segment has with 272.34 lakh subscribers, of which about 223.75 lakh are video subscribers and 223.69 lakh are high speed internet subscribers. While Den’s cable subscriber base is about 58 per cent of Comcast Cable Communications segment, its internet subscriber base as on 31 March, 2015, is a small fraction at just 23,000 or just a little more than one thousandth of the internet subscribers that Comcast has. Even, ACT’s internet subscriber base of about 7 lakh is less than one-thirtieth of Comcast’s Cable Communications High-Speed internet subscribers. Is there any comparison?

According to Nielsen’s 2015 Advance National TV Household Universe Estimate (UE), there are 11.64 crore TV homes in the U.S. prior to the start of the 2014-15 TV season. The number of homes represents a 0.5 per cent increase from Nielsen’s 2013-14 TV Household Universe Estimate. The number of persons aged 2 and older in U.S. TV Households is estimated to be 29.6 crore—also an increase of 0.5 per cent from last year. This puts the number of subscribers in the previous year as per Nielsen’s estimates at 11.58 crore.  The Indian carriage universe has 16.8 crore homes (44.3 per cent more than the estimated US TV homes) according to the FICCI- KPMG Indian Media and Entertainment Industry Report 2015. (FICCI-M&E 2015 report).

The number of video subscribers through wire in the US as of 2013 was about 6.6 crore or the country had a cabletelevision percentage density just under 21. India has a TV home (TV Households or TV HH) density percentage of a little less than 13.5 (this includes DTH for India).

Besides a number of cable television and IPTV service providers, the US has two big DTH players – Dish and Directv that had a combined subscriber base in Q1-2015 of approximately 341 lakh, or about 29 per cent of the total TV homes in the US estimated by Nielsen. India had an active DTH subscriber base of about 405.4 lakh (24.3 per cent of TV HH in India) as on 31 December, 2014.

 As mentioned above, in India, internet services ARPU is much higher than the ARPU from cable television services as compared to more mature markets such as the US, where it is the other way around. At the time of writing of this report, internet services monthly ARPU could be between 50 to 65 per cent of the video monthly ARPUs’ in the US. Video monthly ARPU would typically be in the range of US$ 75 to US$ 95, while internet monthly ARPU would range between US$ 40 to US$ 50. Is there an ARPU comparison? No way!

Let us look at three players in the US. The entities in this report – Comcast Corporation’s Cable Communications segment, Time Warner Cable (TWC, about half the size of Comcast Cable Communications segment) and Charter Communications (Charter Comm) (About half the size again of TWC) represent about 32 per cent of the total US TV homes estimated by Nielsen.

In Q1-2015, these entities combined video subscribers dropped by 6.12 lakh (1.61 per cent) to 373.47 lakh (32.09 per cent of Nielsen’s estimated TV Homes) from 379.59 lakh (32.77 per cent of Nielsen’s estimated TV Homes) in Q1-2014. Individually too, all the three entities reported loss of video subscribers in Q1-2015 to the extent of 1 per cent in the case of Comcast and Charter Comm and 3.08 per cent in the case of TWC, as compared to the corresponding year ago quarter. Despite the drop in video subscribers, the other two reported an increase in revenue from video in Q1-2015, while TWC even saw its video revenues drop by 1.04 per cent in Q1-2015 as compared to Q1-2014.

The total number of internet subscribers of these three entities exceeded the total number of video subscribers in Q1-2015– internet subscribers grew to 392.5 lakh (5.1 per cent more than video subscribers) as compared to 369.45 crore (2.67 per cent less than video subscribers) in Q1-2014. All the three players reported increases in their internet subscription base as well as revenue from Internet in Q1-2015 when compared to the year ago quarter.

Triple play (or triple product) subscribers increased in all the three cases, between 0.61 per cent in the case of Charter Comm to 14.49 per cent in the case of TWC and 4.26 per cent in the case of Comcast in Q1-2015 when compared to Q1-2014. TWC and Charter Comm’s double play subscriber base shrank 8.05 per cent and 0.6 per cent respectively, while Comcast’s double play subscription numbers increased in comparison during similar periods.

Notes: (1) 100,00,000 = 100 lakh = 10 million = 1 crore

(2) Revenues for US companies and some figures in this report have been mentioned in US$, million; subscription numbers in lakh or crore and TV homes in crore.

(2) SARPU, a term similar to ARPU has been coined by the writer to bring terms to a common denominator for all the three US entities. To arrive at SARPU, the writer has added the quarterly revenues from each stream and divided the result by the number of customer relationships in that quarter and further divided the second result by 3 to arrive at a rough estimate of the revenue earned per relationship per month by the entity. Similarly, individual revenues from video, internet and voice streams/business have been divided by the number of subscribers of video, internet and voice streams respectively, further divided by 3 to arrive at an SARPU of that stream. Residential subscriber numbers have been used wherever available.

(2.1) VIVE, another term coined by the writer, means video, internet and voice, the three main revenue generating streams or businesses for the three US entities in this report.

(3) Voice numbers has been included, since there are number of overlaps in subscription numbers for VIVE of all the three entities.

(4) ARPUs’ and SARPUs’ in this report are on a monthly basis unless stated otherwise.

Comcast Cable Communications segment

Comcast’s Cable Communications segment’s (probably the largest cable company and home internet services provider in the US) comprises 272.34 lakh relationships in Q1-2015 (quarter ended 31 March, 2015). The number grew by just 1.62 per cent from the 268 lakh in Q1-2014, and was driven by increases in double and triple product relationships.  This is what the cable industry in India is trying to ape – the double and triple play numbers.

The breakup of these customers is 83.99 lakh single product, 2.39 per cent lower than the 86.05 lakh in Q1-2014; 88.90 lakh double product, 2.7 per cent more than the 86.56 lakh double product consumers in Q1-2014 and 99.45 lakh triple product consumers, 4.26 per cent more than the 95.39 lakh in  Q1-2014.

The breakup of number of Comcast’s cable operations customers base on products is 223.75 lakh of video consumers in Q1-2015 – the number fell by 8000 as compared to the corresponding year ago quarter; 223.69 lakh high-speed internet consumers – the number increased by 4.07 lakh as compared to Q1-2014; and 112.70 lakh voices consumers – the number increased by 77000 as compared to the previous year ago quarter.

Based on the financials filed by the company for Q1-2015, 69.16 per cent of the company’s consumers’ use two (double play) or more of its products, (up 127 basis points or 1.87 per cent higher) than the 67.89 per cent in Q1-2014.

Let us examine the revenue that these businesses bring in for the company:

Comcast’s Cable Communications segment revenue in Q1-2015 grew 6.26 per cent to US$ 11430 million from US$ 10757 million in Q1-2014. Combined revenue from Video, Internet and Voice (VIVE) businesses in Q1-2015 grew 4.89 per cent to US$ 9281 million (81.20 per cent of Cable Communications segment revenue) from US$ 8848 million (82.25 per cent Cable Communications segment revenue) in Q1-2014.

Video revenue in Q1-2015 was US$ 5331million (57.44 per cent of VIVE revenue), 2.95 per cent more than the Rs 5178 million (58.52 per cent of VIVE revenue) in Q1-2014; Internet revenue in Q1-2015 grew 10.69 per cent to US$ 3044 million (32.80 per cent of VIVE) from US$ 2750 million (31.08 per cent of VIVE) in Q1-2014. Voice revenue fell 1.52 per cent in Q1-2015 to US$ 906 million (9.6 per cent of VIVE revenue) from US$ 920 million (10.4 per cent of VIVE revenue) in Q1-2014.

A simple back of the envelope calculation as mentioned in Note 2 above shows the simple average monthly revenue per user (SARPU) of US$ 113.60 for Q1-2015, up 3.22 per cent as compared to the US$ 110.05 in Q1-2014.

Similarly, Video SARPU grew 3.99 per cent in Q1-2015 to US$ 79.42 from US$ 76.37 in Q1-2014; Internet services SARPU grew 4.25 per cent to US$ 45.36 (56.97 per cent of video SARPU) in Q1-2015 from US$ 43.51 (57.12 per cent of video SARPU) in Q1-2014; Voice SARPU fell 5.06 per cent to US$ 26.80 from US$ 28.23 in the year ago quarter.

Time Warner Cable

Let us see how another big player in the US performed – Time Warner Cable (TWC).  In Q1-2015 the company saw its highest q-o-q growth in internet subscriber base since 2007 by 3.15 lakh to 119.90 lakh from 116.75 lakh in the quarter ended 31 December, 2014. Y-o-y, the company’s internet subscriber base grew by 6.32 lakh. However, the company’s video subscribers fell 3.08 per cent in Q1-2015 to 108.19 lakh from 111.63 lakh in Q1-2014. Voice subscribers increased 14.06 per cent in Q1-2015 to 56.04 lakh from 49.13 lakh in Q1-2014. TWC’s customer relationships increased 1.27 per cent in Q1-2015 to 147.16 lakh from 145.32 lakh in Q1-2014.

In Q1-2015, the number of consumers using TWC’s double or triple play increased by 64 basis points (up 1.05 per cent) to 61.45 per cent from 60.81 per cent.

TWC’s overall revenue in Q1-2015 grew 2.06 percent to US$ 4662 million from US$ 4568 million in Q1-2014. Its VIVE revenue in Q1-2015 grew 1.96 per cent to US$ 4638 million (99.49 per cent of overall revenue) from US$ 4549 million (99.58 per cent of overall revenue) in Q1-2014.

Video revenue fell 1.04 per cent in Q1-2015 to US$ 2469 million (53.23 per cent of VIVE revenue) from US 2495 million (54.85 per cent of VIVE revenue); Internet revenue grew 8.86 per cent to US$ 1696 million (36.57 per cent of VIVE revenue) in Q1-2015 from US$ 1558 million (34.25 per cent of VIVE revenue) in Q1-2014. Voice revenue in Q1-2015 fell 4.64 per cent to US$ 473 million (10.2 per cent of VIVE revenue) from US$ 496 million (10.9 per cent of VIVE revenue).

TWC’s SARPU per customer relationship was US$ 105.06 in Q1-2015 or 0.68 per cent higher than the US$ 104.34 in Q1-2014.

TWC’s video SARPU in Q1-2015 increased 2.1 per cent to US$ 76.07 from US$ 74.50 in Q1-2014; Internet SARPU increased 3.12 per cent to US$ 47.15 (61.98 per cent of video SARPU) in Q1-2015 from US$ 45.72 (61.37 per cent of SARPU) in Q1-2014 and Voice SARPU fell 16.4 per cent in Q1-2015 to US$ 28.13 from US$ 33.65 in Q4-2014.

Charter Communications

Charter Communications (Charter Com), an even smaller player than Comcast or TWC, reported 4.48 per cent growth in residential consumer relationships in Q1-2015 to 59.27 lakh from 56.73 lakh in Q1-2014. Video subscription base fell 1 per cent to 41.53 lakh (70.07 per cent of total relationships) from 41.95 lakh (73.95 per cent of total relationships) in Q1-2014; Internet subscription base grew in Q1-2015 by 8.23 per cent to 48.91 lakh (82.52 per cent of total relationships, addition of 3.23 lakh subscribers) from 45.91 lakh (79.66 per cent of total relationships) in Q1-2014; Voice subscribers grew 6.71 per cent in Q1-2015 to 24.81 lakh (59.74 per cent of total relationships) from 56.93 lakh (40.98 per cent of total relationships) in the corresponding year ago quarter.

Overall revenue grew 7.27 per cent to US$ 2362 million in Q1-2015 from US$ 2202 million in Q1-2014. VIVE revenue in Q1-2015 grew 6.68 per cent to US$ 1980 million (83.83 per cent of overall revenue) from US$ 1856 million (84.29 per cent of overall revenue).

Video revenue increased 3.58 per cent in Q1-2015 to US$ 1129 million (53.23 per cent of VIVE revenue) from US$ 1090 million (54.85 per cent of VIVE revenue) in Q1-2014; Internet revenue increased 16.4 per cent to US$ 717 million (36.21 per cent of VIVE revenue) in Q1-2015 from US$ 616 million (33.19 per cent of VIVE revenue) in Q1-2014. Voice revenue in Q1-2015 fell 10.67 per cent to US$ 134 million (6.77 per cent of VIVE revenue) from US$ 150 million (8.08 per cent of VIVE revenue) in Q1-2014.

Charter Comm’s SARPU in Q1-2015 increased 2.11 per cent to US$ 111.35 from US$ 109.05 in Q1-2014. Video SARPU increased 4.63 per cent to US$ 90.62 in Q1-2015 from US$ 86.61 in the corresponding year ago quarter; Internet SARPU in Q1-2015 increased 7.54 per cent to US$ 48.87 (53.92 per cent of video SARPU) from US$ 45.44 (52.46 per cent of video SARPU) in Q1-2014; Voice SARPU fell 16.28 per cent in Q1-2015 to US$ 18 from US$ 21.51 in Q1-2014.

Let us see what the richest Indian does through Reliance Jio Media, for this is probably the only group/entity that has the deep pockets to really offer a shimmer of comparison with the media giants in the US.

Can we truly compare Cable television internet in India with the industry in the US? No way!

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