Digital Cable Makes Debut in India

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By Alan Breznick

Alan Breznick, a veteran business journalist and analyst, is the editor of Cable Digital News and a frequent contributor to other communications industry publications.

After years of disappointing delays and distractions, digital cable is finally making its long-awaited debut across the vast Indian subcontinent.

Two of India's larger cable operators, namely Hathaway Cable & Datacom and InCable Net, are now rolling out digital video service in select markets throughout the booming country. The much-anticipated commercial rollouts by the two large MSOs follow several field trials earlier in the year and in 2005, as well as much discussion about the industry's digital deployment plans in prior years. Seeking to follow in their footsteps, several other cable operators are now conducting digital service trials.

“They've been talking about it for years,” says Michael Paxton, a senior analyst at In-Stat. “Now they're pushing it out the door finally.”

Hathaway Cable, one of India's three biggest MSOs with strong financial backing from Rupert Murdoch's News Corp., introduced digital service in at least two large cities, Delhi and Chennai, in the middle of the year. Market research analysts estimate that it has signed up as many as 100,000 digital subscribers so far.

InCable, not quite as large or financially endowed as Hathaway Cable, got off to a smaller, slightly later start in 2006. Analysts reckon that it has now netted as many as 20,000 digital video customers with its initial deployments.

But, even with the pioneering digital service rollouts by Hathaway Cable and InCable, Indian cable operators still lag far behind their counterparts in North America, South America, Europe, and even nearby China, because of the unique nature of the Indian market. In a video-crazed nation that ranks as the world's third largest television market with up to 108 million TV households and the world's third largest cable market with about 61 million basic cable homes, digital cable still accounts for far less than 1% of all cable subscribers.

“It seems like everything in India is a long and protracted rollout,” says Mark Kirstein, vice president of multimedia content and services for iSuppli, an international research and marketing firm. “It's (Digital cable is) still a little bit slow because the rollouts are so complex.”

Plus, while digital cable is expected to grow steadily in India over the next few years, market watchers don't believe the service will take off nearly as quickly it has in the U.S. and other TV-loving countries. Instead, they see digital cable gaining ground mostly in the nation's handful of very big cities.

“It's happening in the major cities,” Kirstein notes. “But beyond the major metropolitan centers, it will be very slow and very protracted.”

Why so slow? Market analysts cite a host of reasons for the long-delayed and still snail-like progress of digital cable in India.

For one thing, India has a huge amount of cable systems, many, if not most, of them tiny local operations with just hundreds, or even scores, of subscribers. The latest estimate is that the nation has more than 30,000 cable systems, or nearly four times as many as the U.S. About 10,000 cable systems are considered “serious” operations.

“The issue with India is that it's so incredibly fragmented,” says Ben Reneker, a senior analyst with Kagan Research. “It's really a dynamic and clouded market.”

Exacerbating this problem, the small, local cable operators are the ones who generally control the crucial last mile to the home. While the larger operators may have a lot of fiber in their networks, these Mom-and-Pop operations tend to have poor, antiquated coax systems with lots of signal noises, leaky amplifiers, and cable wires strung haphazardly over trees and other obstacles.

“The cable industry there is pretty complex,” says Kirstein in a classic understatement. “It doesn't lend itself well to deploying digital cable quickly in large numbers.”

Signal piracy is another major obstacle blocking speedy digital cable progress in India. With Indian cable operators generally unlicensed and few cable systems employing a conditional access system (CAS) to encrypt video signals in order to keep them secure, piracy runs rampant right now. In fact, eMarketer, another international research and marketing firm, estimates that up to 80 percent of cable and satellite TV viewers may not even be reported in the government's official figures.

The Indian government is now trying to resolve this problem and encourage the spread of digital cable by weighing the adoption of mandatory CAS requirements for cable operators. But such a requirement would force cable companies to install addressable digital set tops in subscribers' homes, potentially raising the cost of delivering pay TV service considerably.

“The government is very pro-advanced technology and tries to foster the environment for it,” Kirstein says. “But the cable industry is fairly significant in the number of subscribers and is very distributed. It's not a simple regulatory change.”

To make matters tougher, the government's strong existing price controls for pay TV programming keep Indian cable operators from raising their monthly service rates much, even if their own programming delivery and other operating costs jump dramatically. So MSOs seeking to go digital face a likely cost squeeze, where they're forced to subsidize digital cable set-top installations without being allowed to charge much more for the extra channels and enhanced service.

“The real story with digitization in India relates to the regulatory environment,” Reneker notes. “India has a history of doing price caps.”

Not surprisingly, the cost to Indian consumers of going digital is a key issue as well. In a still poverty-stricken country where the average analog subscriber pays the equivalent of just $4 to $5 a month for cable service—only a tiny fraction of what U.S. cable subscribers pay—an increase of even a couple of dollars could be quite financially prohibitive.

“The consumer proposition is not there in India,” Paxton says. “The lack of digital programming is an issue too. But the primary issue is the price.”

In that sense, India bears great similarity to its large neighbor to the east, China. In China, another booming, but still poor, nation that's struggling to stimulate consumer deployment of digital cable service, the average analog cable subscriber now pays the equivalent of just $2 a month.

“It's somewhat similar to China,” Paxton agrees. “There's a huge analog [cable] market that's been relatively slow in adopting digital, largely for economic reasons.”

Now that Indian cable operators are finally getting digital video service off the ground, they face the challenging prospect of competing head-to-head with the nation's new fleet of satellite TV providers. Over the past few years, the national government has licensed several satellite TV operators, after banning direct-to-home (DTH) service up until 2003 or 2004.

The new DTH players include two key providers—Tata Sky, a joint venture of News Corp. and India's large Tata Group conglomerate; and Dish TV, a partnership between the big Indian media firm Zee Telefilms Ltd. and ASC Entertainment. Other major Indian media companies, such as national broadcaster Doordashan, also have entered the space.

“The satellite services have been growing pretty quickly in India,” Kirstein says. “Satellite is a very big deal.” In fact, the early DTH market leader, Dish TV, already has enlisted at least 1.5 million subscribers, putting it considerably ahead of the entire digital cable business to date.

Tracking this quick growth, iSuppli projects that the number of Indian satellite TV subscribers will surge from 250,000 in 2004 and 2.3 million in 2005 to 6.1 million by the close of 2006. The firm then sees the total soaring to 10.7 million in 2007, 15.9 million in 2008 and 20.8 million in 2009. In a far less bullish forecast, Kagan sees the number of satellite TV customers rising from 1.7 million at the end of 2006 to 3.8 million at the end of 2009.

Unlike China, Japan, much of Europe and even the U.S., India has not yet seen telco-delivered Internet Protocol TV (IPTV) emerge as a serious competitor to cable. Although several Indian telecom carriers have begun staging IPTV service field trials and even pilot deployments, the technology still lags behind both digital cable and satellite TV.

“The battle is between satellite and cable right now,” Reneker says. “There's no real threat from IPTV.”

But, while less of an immediate threat than satellite TV, IPTV still looms as another potentially powerful rival to the Indian cable industry. In fact, in a phenomenon perhaps unique to the Indian market, research analysts expect all three technological platforms to advance and to mature at just about the same time over the rest of the decade.

“The pay television market in India is growing up in a very competitive environment,” Kirstein says. “In India, IPTV, digital cable and satellite TV are all becoming available in the 2007-2009 timeframe. If anything, satellite is ahead but only by a couple of years.”

Given all these market dynamics, the experts think that cable operators will respond by introducing digital cable service gradually but steadily throughout India, at least in the country's four or five biggest population centers (which include Delhi, Chennai, Calcutta and Mumbai). But they believe that faster growth will be held back by the complexity and fragmentation of the cable distribution system, severe cable infrastructure limits, conflicting government regulatory goals, and consumer pricing concerns.

For instance, Kagan forecasts that the number of digital cable households will climb from 266,000 in 2006 to 2.2 million in 2009, or between 3% and 4% of all cable homes. More favorably, iSuppli predicts that the number of digital cable subscribers will rise from about 160,000 today to 4.5 million, or slightly more than 7% of all cable households, three years from now.

“It's very much a case study in the way different markets develop,” Kirstein says.

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