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Cable operators: New entrants fail to connect with investors
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Recently-listed cable companies failed to fire up investor interest in them or the industry. These companies — Den Networks and Hathway Cable and Datacom — have disappointed their investors with poor listing gains below average hardly showered investors with good returns. Den Networks since listing has given only 18%, while Hathway Cable and Datacom has barely 2%.

A prime reason for these companies to stay out of investors’ investing radar is because of their business model, which has hardly delivered substantial revenues not only for these two new companies, but also for already listed old players such as Wire & Wireless. These companies are heavily dependent on their revenues on two factors. First, acquiring local cable operators (LCOs). Second, digitising the subscriber base of these local cable operators.

Acquiring local cable operators indeed brings these companies good subscriber base. However, the strategy of extracting a huge business from their subscribers has hardly been successful.

The reason for this is the under-declaration of paid-subscribers by local cable operators to multi-system operators (these new cable companies). To withstand a tough competition in the highly-unorganised cable television, operators focus on volumes and try to maximise the penetration in their area by resorting to low-price strategy. The strategy works until the subscriber gets channels in his convenient price bracket.

However, if multi-system operators try to affect a price hike, the subscribers resist and they risk losing
customers to another local cable television operators. Furthermore, the penetration of digital cable television in India is less than 5% (around six million) and it is expected to reach just 12% by 2012, according to estimates by Informa Telecoms and Media group and Media Partners Asia (MPA), independent media research firms. Hence, the conversion ratio for these new cable companies has not being encouraging.

Lack of infrastructure, inadequate investment and restrictive regulations continue to thwart the growth and penetration of digital cable television. Not to mention the immediate threat posed by pure DTH players like Dish TV, Tata Sky and others. This has prompted these companies also offer DTH services with offering such as
set-top boxes.

Going forward, it is believed that these cable companies would leverage their network and infrastructure to offer bundled and customised services like broadband internet, video on demand and local news & entertainment, among others. However, for this to materialise, cable companies would first need to digitise a sufficient number of their existing analogue subscribers (around 86 million). This is a long-drawn project and investors may not have the patience to wait for so long.

Source: The Economic Times

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