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'Challenge for cable ops is to offer additional services at a reasonable price' : Faizal N Syed - International equity investor and chairman of EMC, Taiwan's largest cable company

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For the cable operators in India, there is much to learn from Taiwan. The industry, which was unorganised, has undergone changes: consolidation, network upgradation, and a slow but steady march towards digitalisation. Almost 40 per cent of the national cable TV network is two-way activated.

There is a long way to go though, as the country targets 85 per cent digital television pneetration by 2006. Of a total of 4.2 million paying subscribers, there are less than 125,000 true digital customers in Taiwan.

Eastern Multimedia Company (EMC) Ltd, Taiwan's largest cable TV operator with 1.04 million subscribers through its 13 majority-owned local system operators (SOs), is leading the way in the digital drive. It provides over 100 analogue channels and it is accelerating deployment of its digital platform. The company has invested NT$ 6 billion to upgrade its network to 750 MHz and make it two-way enabled.

EMC chairman Faizal N Syed says the multi system operators (MSOs) in Taiwan control the pipe from the digital headend to the subscribers, encouraging capital infusion into cable companies. Also an international equity investor as the managing director of AIDEC Management Company Pte Ltd (which manages a US$400 million private equity fund), he has broad oversight of regional investments in capital intensive projects in the media, telecom, water, power and transportation sectors. He has experience in international mergers and acquisitions as an advisor and has also worked at JP Morgan Securities as a banker to numerous Indian and South East Asian clients.

In an interview with Indiantelevision.com's Sibabrata Das, Syed talks about how crucial it is for the MSOs in India to control the cable TV distribution pipe end-to-end if they are to attract big investments. Taiwan has also allowed 60 per cent foreign investments, creating a healthy corporate governance environment.

Excerpts:

Despite a drive towards digitalisation of cable TV, why has the progress been slow in Taiwan?
The slow take up for digital cable service is largely due to huge capital expenditure requirements, lack of premium programming for the digital platform, and regulation. There are less than 125,000 true digital subs in Taiwan, far behind the government information office's target of an 85 per cent digital television penetration rate by 2006. The cost for the set-top box (STB) alone for full digital deployment would be approximately $382 million or NT$12.6 billion (NT$ 3,000 x 4.2 million subs), not to mention other costs. Our company has invested NT$ 6 billion in digital.

What made the cable industry in Taiwan invest more than Indian companies?
In Taiwan, the multi system operators (MSOs) control the pipe from the digital headend to the subscribers. That is not the case in India. The MSOs here will have to control the pipe end-to-end. The rationalisation between the signal originated and to the household has encouraged us to make more investments in the pipe. We have increased our value added services.

What helped the MSOs in Taiwan to consolidate and modernise their operations?
In Taiwan, cable TV began in as ad hoc a manner as in India. It was actually the regulator who provided an enabling environment for consolidation in the industry. Licensing came into practice. We now have dual operators per licensed area. We also have sole operators in certain territories. More interestingly, the regulator has allowed 60 per cent foreign ownership at the MSO level. Foreign capital has come with conditions and corporate governance has improved.

How then has Taiwan prevented the emergence of cable monopolies?
There are anti-monopoly provisions which prohibit MSOs from amassing one-third or more of total subscribers in Taiwan. There is, thus, a limitation on ownership to the customer base. The five major MSOs control 80 per cent of the cable TV market. The remaining 20 per cent is controlled by more than 20 independent players. According to June 2004 figures, Taiwan has 4.2 million paying subscribers. Our company enjoys 25 per cent of market share. The natural outcome of this consolidation has meant that cable companies have made investments over time. There is an incentive to invest.

Are MSOs investing on network upgradation to make it two-way enabled?
Only 40 per cent of the national cable TV network is two-way activated. EMC has upgraded 87 per cent of its network to 750 MHz. In Taipei City, 91 per cent of our network is two-way enabled while in Island City it is at 64 per cent.

'It was the regulator who provided an enabling environment for consolidation in the Taiwan cable industry'

Does Taiwan have a rate regulation system like we have in India?
The tariff cap for basic cable TV subscription fees has been kept at NT$550 to NT$600 per month for approximately eight years. Our price is at NT$550. It is difficult to bring in premium content at the regulated price. For increasing rates, we have to go digital.

How has that affected the industry?
Prices on cable are very sticky. They don't go up. Customers are spoilt because they get more channels but the price umbrella is very low. Niche services are costly. And delivery on those pipes cost money. The challenge for cable operators is how to provide additional services at a reasonable price.

Is payout to broadcasters a big issue?
MSOs in Taiwan actually pay uniform price to the broadcasters. There is one price in the marketplace for content. This system has evolved over time. And by government regulation, all MSOs have to carry the same channels and at the same position. It is only in the past that MSOs put different channels and on different positions.

What are the digital plans for EMC?
We want to first roll out digital services in those areas where we are sole operators. Since we would be exclusive operators, we would face no threat of price wars from rival cable networks. This will allow us to invest on content and in our customers. We can offer them a host of value-added services. In the next phase of growth, we will stretch our digital services to territories where there are dual operators. Our operating strategy is to encourage migration to digital platform, increase channel capacity, and offer on-demand and premium services. We can put our focus on package offerings - family, kids, adult entertainment and value - which will be priced differently. We are developing proprietary content in conjunction with international partners.

Are cable companies able to grow broadband subscribers?
Broadband growth is an important part of the competitive dynamics in Taiwan. We are pushing our broadband services. We have a 15 per cent penetration.

Chunghwa Telecom, the nation's biggest phone company, has started delivering TV signals over its high-speed Internet links in an effort to tap into the digital broadcasting sector. How do you see competition emerging from telecom companies?
Telecom companies will come into this area and we will have to compete with them. Chunghwa Telecom has access to all the homes. Telecom companies will seek to make inroads but, barring access to a level playing field, the MSOs will continue to provide quality entertainment programming at a reasonable price. And if fully supported, EMC and the other MSOs would be pleased to provide affordable telephony services.

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