BT dot.com: The Cable Guy

A furious race is on to capture the last mile into your home. The man who controls the pipe, holds the key.

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Here's a story, probably apocryphal, that must have played itself all over urban India. In the early days of the cable and satellite TV boom, soon after the Gulf War, my bemused and bewildered neighbourhood video rental store owner paid his hi-tech cousin a 'visit'. A cup of chai wasn't on his mind; when he left, the cable TV operator was a nervous wreck. Eight years on, the operator's still there...and the video library is a trashy music store and real estate office. For the guys servicing what has grown into an estimated 35 million cable and satellite (C&S) homes in the country, Round One was a pushover.

Now, in Round Two, the tribe of cable operators (the number varies between 30,000 and 70,000) is fighting to hold the trump card in a game of gargantuan proportions. Shorn of all the hype, this motley crew-unregulated, and fighting to remain so; disorganised and chaotic; and sometimes bordering on the seamy-controls your umbilical cord to the outside world. In other words, the last link in the convergence gameplan. If broadband services like video-on-demand, internet through cable, interactive TV, and services on tap have to reach the consumer in his home, they have to be piped via the cable operator.

A powerful combine of broadcasters and builders is seeking to weld this group into malleable alliance partners. For the big boys, it makes sense to terminate their pipes at the cable operators' end. The problem is that the operators are reluctant to let go of their hold on a gold pile: according to estimates, they retain about 90 per cent of the subscription revenues. ''Cable operators are earning some Rs 20-30 lakh per annum on an initial investment of, say, Rs 10 lakh,'' says T.S. Mohan Krishnan, Research Director (eTechnology Group), IMRB. Ironically, it's the lack of money that could be the cable guy's Achilles' Heel.

While the consolidation of cable operators has been underway since the mid-1990s, the stakes have become much higher with the promise of convergence. Or so many feel, but that's for later. Rajan Raheja's Hathway, Hindujas' In2cable.com, and Zee's Siticable have been the early movers in this space. Hindujas' In2cable.com-which has 4.5 million cable subscribers-has launched net-on-cable in three locations in Mumbai, and will soon debut in Bangalore, Hyderabad, and Delhi. Says K.V. Seshasayee, President, TMT Group: ''We plan to go live on nine locations by end of November and 16 locations by end of March, 2001.''

Similarly, Hathway is affiliated with some 2,500 cable franchisees in eight major cities, including Mumbai, Chennai, Delhi, Bangalore, and Pune. Hathway has already started cable ISP operations in Mumbai, Chennai, and Pune, and says it has some 5,000 users, both companies and homes. On the back of Siticable's presence in 43 cities, Zee TV has ambitious plans to build a convergence platform, which is to be rolled out by the end of the year.

Then, there are the premium players like Punj Lloyd's Spectranet and Bharti Group's Mantra, who have recently started offering internet-via-cable services in Delhi. Both hope to convince users to pay a premium to receive quality Net access through OFC. Calcutta-based RPG plans to roll out its operations in January next year. ''We expect an uptake of 15-20 per cent in the initial phase,'' says P.K. Bose, CEO, RPG Netcom, the JV between RPG and Satyam Infoway for cable-internet in Calcutta. Satyam, incidentally, has test-launched its internet-through-cable services in Jamshedpur.

It's an expensive business to wire consumers' homes. Sure, the bulk of the bandwidth costs (approximately Rs 1.6 crore for a 2-MB link) are borne by the ISP. This link can, of course, be divided between multiple cable operators. Every single operator needs a cable modem termination system (CMTs) that allows conversion between IP (Internet Protocol) and RF (Radio Frequency) signals. A CMTs to serve 2,000 households costs Rs 25 lakh. The routers-one at each end-come with a tag of Rs 10 lakh, and then there's other software and hardware for billing, authentication, and network management purposes. The total tag: Rs 35-40 lakh. All this is borne by the ISP.

On the other end, the cable operators have to upgrade their networks at one go-Rs 3 lakh for the basic infrastructure (splitters, amplifiers, and so on) and Rs 3,000 for wiring up each subscriber. Analysts feel as penetration increases, costs per subscriber will come down. Mantra, for instance, feels it will stabilise to Rs 15 lakh per 10,000 subscribers. But this will take a while, as demand is not even a blip on the horizon. ''Most of the cable operators cannot make high investments in technology-which is where ISPs come in,'' agrees IMRB's Krishnan. Remember, besides investing in the cable operators' equipment like routers and CMTs, ISPs are also offering to help upgrade the network down to consumers' end by leasing or selling the two access devices: cable modems and set-top boxes.

Each ISP is trying out a different formula to ally with the cable operator. For instance, Spectranet is building a relay system to transmit TV and the internet. Spectranet is thus trying to ink exclusive equity tie-ups. On the other hand, you have non-exclusive, non-equity relationships being forged by the likes of Mantra, which wires the cable operators' doorstep but leaves the last mile to them. ''Cable operators have knowledge of the local area and have long-standing relationships with their subscribers. So, we are looking more at strategic tie-ups, also JVs with larger players,'' says Atul Kunwar, CEO, Mantra Online.

Hathway and other cable operators like SitiCable, RPG, and In2cable.com already have huge franchisee networks (that takes care of the tie-ups). Adds Praveen Shrikhande, CTO, Hathway Cable and Datacom: ''Our contracts with our franchisee cable operators are exclusive.'' Exclusive contracts-proving to be a problem with other players-are apparently not an issue here. ''The new franchisees we are tying up with are eager because they see a brand new revenue stream,'' says TMT Group's Seshasayee. ''We plan to invest $50-100 million in upgrading the network by year end,'' he adds. This figure includes equipment at the operators' end and the wiring charges.

However, there's no denying that in these early days, fragmentation is proving to be a major problem. ''Some of the cable operators are tying up with us, some are not,'' says Atul Punj, Chairman, Spectranet, which has picked up equity up to 90 per cent in certain cable networks. With some 50 subscribers being added per day, Spectranet claims to have 6,000 subscribers throughout Delhi.

Clearly, many cable guys are taking the convergence gameplan with a pinch of salt. The savvier ones have banded together, and forged relationships. ''There are economies of scale and one feels much more safe as a part of a consortium,'' says K.D. Khanna, 46, Director, Home Infotainment. But the bulk remain impervious. There is an obvious reluctance to yield control, however small, to the big companies. Says cable operator Khanna, who has tied up with Mantra: ''I would like to offer a choice to my customers at some point in future.'' There is also scepticism among cable operators about whether the services will take off, which perhaps mirrors their customers' initial reactions. So, if ISPs offer to help the cable operators technologically in return for exclusive contracts and equity in the network, most cable operators remain wary.

It's early days yet, though all the ISPs' estimates are, rosy. BT learns that Spectranet's business plans project that 50 per cent of the households will opt for the service. Adds K.V. Seshasayee, in2cable.com: ''Once bandwidth becomes more affordable-right now it is four times the international cost-and once networks are upgraded, and customers understand the utility of the service, I see a market of 15 million homes in the country being served internet on cable.'' Adds Mantra's Kunwar: ''The discerning user will be willing to shell out more for quality. He is looking for value for money.''

Well, for now the problem is that subscribers will have to pay a monthly fee of Rs 1,000-1,500. The access device cost (a one-time cost) comes to Rs 7,000 for a set-top box or Rs 15,000 for a cable modem. That's expensive, considering that most cable subscribers pay below Rs 200 per month. It's not surprising then that everyone expects prices to come down. ''An average household would spend around Rs 2,400 per month on telephone charges alone for surfing the internet. So, Rs 1,000 should be an ok price point. Of course, as one goes around the metro, the uptake will vary in pockets,'' says Punj.

Adds Shrikhande. ''We expect services to take off once cable modem prices come down to Rs 7,000-Rs 8,000.'' The volumes then are expected to come from set-top boxes (Samsung has already sold 5,000 of them) once Satyam, Mantra, and Hathway launch their versions. While these companies are considering financing options, set-top boxes have an inherent limitation as users cannot download or store, or in some cases, even print from the internet. Finally, the initial lot of cable operators signing on have all emerged from upmarket localities. The real test then will be when the other parts of metros join. Here, not only should prices fall, the relationship with the cable operator will define the future path of India's convergence experience.