To promote his BSKYB DTH service in the UK and Ireland, Murdoch gave away set-top units free. Today, BSKYB boasts a 30 per cent share of the market. Could he do a repeat here? Certainly Rupert Murdoch, Chairman and CEO/News Corporation

At 9.30 p.m. on October 1, 2003, Jawahar Goel, the younger brother of Zee Telefilms' founder Subhash Chandra, and the head of the group's distribution business, finally received the clearance for which he had waited 17 months. The government had finally issued Zee subsidiary ASC, a licence to offer DTH (Direct To Home) satellite television services. Less than 24 hours later, on October 2, a national holiday in India to celebrate the birth anniversary of Mahatma Gandhi, the company launched its DTH play, Dish TV.

Around the same time on a spring night a little over four months later, Goel narrates the story to this correspondent making little effort to hide the pride in his voice. He is standing in a room roughly the size of a basketball court; there are empty server racks, tall wooden giant-pigeonhole stands for screens; and the flooring has been removed in places, exposing wires and wires and wires. Goel walks around the room at a rapid clip, jabbing his finger excitedly in the air as he explains how the room will look when it is finished. The room is the nerve-centre of the second phase of Zee's DTH plans, which will see the company increase the number of channels on offer to customers from the existing 48 to 120. And it is easy to imagine how it will look when done; it is a larger replica of one, a floor above, from where the company manages its 48-channel offering. In these four months, Dish TV has signed up some 75,000 subscribers; it hopes to end 2004 with 1.5 million.

A week before the events described above, and 1,461 kilometres away, in Mumbai, a busload of Silicon Valley venture capitalists, mostly of Indian origin, are received by a clutch of winsome female executives in striking blue-and-green saris-these are the corporate colours of Reliance Infocomm-at Dhirubhai Ambani Knowledge City, the 140-acre new centre of gravity of the Reliance Empire in New Bombay. All VCs are given high-end LG phones and Reliance Infocomm connections for their use while they are in the country. Then it's demo-time: first, the VCs are shown how to view music videos on the phone; then, how they can play a movie or song they want on a television through Reliance's broadband gateway. A little later, while addressing the VCs, Reliance Chairman Mukesh Ambani says, "We are planning a broadband home revolution in 2004-05."

Goel is hoping to cater to "cable-dry" and "cable-frustrated" areas with his DTH service. The estimated size of the market: some 40 million households Jawahar Goel, Vice-Chairman, ZEE

This is triple play, as Reliance execs term it, the cohabitation of voice, data, and streaming audio and video on one network. Tentatively named Netway, this is broadband on steroids. A sampling: 160 television channels, music and video on demand, information services, super-fast net access, personal video recorder, voice over internet protocol (VOIP) telephony, the works. Reliance is reported to be testing out this service in its mammoth refining facility at Jamnagar, and in Mumbai-suburb Nerul. "Mukesh Ambani has never hidden the fact that he thinks there is an opportunity for a company like Reliance in India's highly fragmented cable market," says the CEO of a multinational equipment manufacturer that supplies to Reliance. Reliance itself refused to comment on the issue. As did the Tata Group and Star TV, which, together, constitute the third interested party in this emerging fight for last-mile ownership. In late January, the Tata Group and Star TV subsidiary Space TV entered into a 80:20 joint venture to offer DTH services.

With aggressive plays by three such entities (see Who's Got What?) the 42-million-household, Rs 7,000-crore cable television market is set for an interesting ride in 2004. And it will likely be one that India's 40,000 cablewallahs and 12 multi service operators (large companies providing cable television services through cable operators) will not enjoy.

Reliance's netway, a broadband home gateway, could be its first step to effectively own the customer and offer her a bouquet of services Mukesh Ambani, Chairman/Reliance Industries

The Point of Inflection

The strange thing about the point of inflection-mathematically, the point on a curve when it changes from concave to convex or vice versa-is that most people know nothing about it until it has passed them by. This year, 2004, could well mark the point of inflection in the evolution of the Indian cable industry. At last count, the country boasted 42 million cable households, roughly 210 million customers, or 420 million eyeballs. That's a bit, and credit for it should go to the anarchic nature of the market and the complete absence of regulations.

In the early 1990s, cable was the next big thing for countless small entrepreneurs. By the late 1990s, a handful of MSOs had seized effective control of most networks, but the lawlessness continued unabated. In the absence of any regulation, broadcasters could refuse to allow some MSOs access to their channels.

Still, while the number of cable households continued to grow, not one of the three groups involved was happy. Customers had no say in the channels they could access; cable operators and MSOs complained constantly about having their arms twisted by broadcasters; and the broadcasters themselves alleged that cable operators consistently under-reported the number of viewers for their pay-channels.

The government got into the act in the 2000s and tried to regulate the sector using the Conditional Access System (CAS) route-essentially set-top boxes with a card to unscramble pay channels that would, at one shot, allow customers to choose what they want to see and ensure that broadcasters were paid (for pay channels) for every viewer. However, unable to work out details related to pricing and the choice of free channels across regions the government has passed the buck to telecom regulator Pradip Baijal (see "The Cable Industry is Totally Indisciplined and Distorted"). The man who brought a modicum of sanity to India's messy telecommunications scenario is yet to unveil his recommendations, but based on his track record as a regulator, they will likely foster competition, provide for interconnect agreements between broadcasters and MSOs and DTH service providers (Star and Sony, for instance, are yet to sign an agreement with Dish TV), and allow free-market dynamics to do the rest. That's good for the customers. And it's also good for companies like Zee, Reliance, and Star.

A Question of Co-existence

The MSOs are confident that DTH and TV over broadband or IP (Internet Protocol) TV as some refer to it, will not affect them. "The initial capital expenditure in DTH is much higher," says K. Jayaraman, CEO, Hathaway Cable & Datacom, a MSO in which Star TV holds a 26 per cent stake. "Our higher penetration in the last mile will make it difficult for DTH to make any headway." Amit Nag, the CEO of RPG Netcom, Kolkata's largest MSO is equally sanguine. "I do not foresee any challenge to cable in the next couple of years," he says. "I cannot see the mass market moving to the more expensive DTH platform." Hathaway's post-CAS offering involves a start-up deposit of between Rs 499 and Rs 999, and monthly subscription fee starting as low as Rs 40. RPG Netcom's Nag says its subscription fee and rental for the set-top box could be as low as Rs 300 a month.

Messrs Nag and Jayaraman are right. DTH is expensive. The Dish TV offering involves a start-up cost of around Rs 7,500 (for dish, receiver, and decoder) and a monthly subscription fee of Rs 110 for 48 channels, excluding the Star and Sony bouquets. Five exclusive movie channels can be had for an additional Rs 110. "It is reasonable to assume that Zee plus Sony plus Star will cost Rs 400-500 a month," says Mrinal Chatterjee, Director, Akash Sutra, a Kolkata-based cable company.

Still, the prospects for DTH and TV-on-broadband are brighter than cable execs make them out to be. Dish TV, says Goel, is looking to serve customers in "cable-dry" and "cable-frustrated areas"-places where cable hasn't penetrated or where the quality of service is poor-not "cable rich areas". If, as Shashikanth, Director, ICE Network, one of Bangalore's largest MSOs, says, "DTH will not take off in a major way unless somebody seeds the market by giving dishes free," then someone surely will. That's exactly what Rupert Murdoch did for the BSkyB DTH service in the UK and Ireland: he gave away set-top boxes. Today, BskyB boasts 7.2 million subscribers. And Reliance Infocomm's broadband offering is likely to be priced as competitively as its Reliance IndiaMobile mobile telephony service. Indeed, the company's Netway may well be the beginning of its campaign to own the customer; everything else, banking services, e-shopping, and the like will follow. Remember, Mukesh Ambani is watching you.

-additional reporting by Vandana Gombar and Sahad P.V. in New Delhi, Arnab Mitra in Kolkata, Dipayan Baishya in Mumbai and Venkatesha Babu in Bangalore

INTERVIEW WITH PRADIP BAIJAL "The Cable Industry Is Totally Indisciplined And Distorted."

The telecom regulator now has the additional responsibility of policing the cable industry. His take: India's 42 million household, 40,000 cable operator, and 12 multi system operators (MSO) market "is totally indisciplined and distorted". Should cable rates be regulated? (Yes) "There are no formal rates even within a colony." Is there a plan to have more than one cable operator per area to boost competition? (No) "More than one operator may not be viable. Competition will be from wireless (DTH) and broadband ultimately." "Someone has to take up the unpleasant task of tariff regulation until competition-from direct-to-home (DTH) and broadband-takes over." Do you draw lessons from the telecommunications sector for broadcast regulation? (Yes) "We started with tariff regulation and competition has ensured that it is all under forbearance (market determined) now." Can a regulator mandate that all DTH operators carry each others channels? (Not sure) "If I mandate it, I will have to fix rates also. There has to be a distinction between commercial issues and regulatory issues." Is the tight integration between the broadcasters, MSOs and local cable operators a cause for concern? (Yes) "There are serious monopoly issues there." Do you see telcos foraying into the cable space? (Yes) "It will not be one-way only. Cable companies may enter telephony." Are you looking at convergence-based regulation? (Yes) "Unification of telecom licences is a first step to convergence." Are you drawing upon lessons from the rest of the world for cable regulation? (Yes) "India is the last country to do cable regulation. I am studying experiences of other countries." -Vandana Gombar