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Help DTH faces telecom pricing woes
Six private players, 28 million subscribers with projections of becoming the largest direct-to-home (DTH) market in the world. But these enviable statistics have not quite helped in the struggle for better bottomlines and profitability for the Rs 5,000-crore Indian DTH industry-—an industry expected to overtake the US in volume terms as it prepares to hit the 30-million subscriber mark by year-end, just seven years after its inception.

So, what really is the significance of these numbers; and, more importantly , will these new consumers being added everyday help the soon-to-be biggest DTH market in the world turn around?

The industry agrees that a huge subscriber base does not necessarily equal to greater revenue generation in the DTH industry, mirroring the Indian telecom story. A report by research firm Media Partners Asia (MPA) published earlier this year said India will boast of 36 million subscribers by 2012 with an 18% growth rate annually.

India is expected to add more than 10 million subscribers this year itself but it has been a tough going for the industry.

“The race for eyeballs is dominating the DTH industry right now as each player is trying to increase its subscriber base. The immediate goal is to drive up valuations by acquiring the highest number of customers,” says Jehil Thakkar, executive director, KPMG. Industry analysts feel that this mad rush to bring in new customers will continue for another 2-3 years before any change in the industry starts to take place.

Predatory Pricing

For now, competitive pricing has helped consumers shift from the 90-million strong analogue cable platform to the digital. Industry players say distributors today offer new connections in lieu of a recharge request as entry point prices have hit rock bottom, throwing up a new challenge for the industry. Estimates say the annual churn will go up by 10% to almost 35%, factoring in the recent price war.

In mid-October, starting with Tata Sky all the six DTH players slashed prices of their Set Top Boxes (STB) to sub-Rs 1,000 levels. Although, Tata Sky says the move was not directed towards unleashing any predatory pricing in the market, the industry has seen consumer churn rise post this new pricing regime.

“We introduced the Rs 999-entry price to give our customers the option to choose their own pack of channels. The idea was to give our customers the option which says no conditions apply,” says a Tata Sky spokesman. The DTH player says this move led to a significant spike in customer acquisition in the last one month compared to last year although , no numbers were made available by Tata Sky.

“The DTH industry saw sub-Rs 2000 entry price triggered by incumbents in 2008 to counter the launch of Reliance BIG TV and Airtel, which recently got pushed down to sub-Rs 1000 level.

The prices are likely to stabilize for some time, but only till the next big wave of penetrative price intervention, which will be led by the digital cable industry,” says Sanjay Behl, CEO, Reliance BIG TV.

Differentiation is key

Competitive pricing coupled with low average revenue per user (ARPU) has crippled the industry along with other regulatory issues, feel analysts.

‘Competition will give way to consolidation’

With average revenues touching $4 per customer, India is abysmally low on the ARPU front when compared to other international markets.

For example, while the US has an ARPU of $60, Europe boasts of average revenues of around $40 and Asian markets like Singapore earn around $15-20 per customer.

“India will always be a low ARPU market but what we are looking at right now is to create a big base of customers. We want to keep acquiring new customers for a few more years and then focus our attention on unlocking value from these customers,” says Salil Kapoor, COO, Dish TV. Dish TV has the biggest chunk of subscribers in the industry at 9 million with ARPUs at Rs 139, and it expects to turn profitable in the next one year.
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