NEW DELHI: TRAI's argument that carriage fees paid by TV channels to cable MSOs are necessary to fund their digitisation appears to be falling apart scarcely a week after it was made. Instead, large cable distributors have themselves said that one factor alone -a huge six-eight times hike in subscription revenues alone as declarations spiral with addressability-would significantly buttress their already profitable balance sheets.

With additional revenues from broadband and VAS, industry estimates also say that a bundled digital and broadband + VAS business model will result in the payback period being reduced by a year to 24 months, as opposed to 36 months under a standalone digital cable TV proposition. This comes even as industry reports --including one released five months ago-- have been pointing out that all major national MSOs are already adequately funded for Phase I digital deployment (mandatory only in the four metros from July 1, 2012).

Given that the government is also shortly planning to hike FDI for MSOs from 49% to 74%, industry analysts have questioned why TRAI assumed MSOs and cable distributors needed money in the form of mandatory carriage fees by TV channels -an annual recurrence-- to fund their upgradation, which is only a one-time investment. This is especially inexplicable, as TRAI's own April 30 Explanatory Memorandum to the DAS Regulations states: "In the addressable systems, due to transparency in ascertaining the number of subscribers, the subscription revenue is expected to go up. Therefore, the dependence of MSOs on the carriage fee, as a source of revenue, is likely to be reduced".

It has been well known that the cable distributors are the profitable, cash rich last mile, with even many smaller operators who under-declare subscribers/taxes, expanding into other activities like real estate, auto agencies, ancillary services, etc --while most broadcasters have turned sick due to a killer combo of low ad rates, gross subscriber under-declaration and huge carriage/placement fees.

The national MSOs, are, in fact, almost all profitable, with even newer ones like Den Networks having posted a 20.7% yoy revenue growth in Q3 of the fiscal just ended, including a 6.6% rise in its net profit. That is why the added bonanza of TV channels having to now mandatorily pay MSOs carriage fees caused MSO share prices to jump after the TRAI tariff order was announced-- even as listed broadcaster scrips sank.

Shares of Hathway Cable and Datacom had closed last Wednesday (May 2) at Rs 185.40, 19.23% above its previous BSE close, missing the upper circuit by a small margin, Den Networks also touched an intraday high of Rs 116.90, before closing at Rs 110.80, 2.12% above its previous close, etc.

Earlier, a Media Partners Asia (MPA) report ("Investing in Digital India") of December 2011 had projected a six times increase in subscriber revenues for MSOs, albeit with a 20% subscriber churn to DTH -but MSOs themselves reacted very positively over the TRAI tariff order.

Hathway Cable & Datacom MD & CEO K Jayaraman told a business daily last week, that his company expects revenue to go up by 250% post-digitisation. "We have 9 million homes and, at the least, we expect to double the subscriber base. Eighty to 90% of the carriage revenue will go to MSO. Broadly, after taking churn and loss in the carriage fee, we expect revenue to go up by 250%", he said. The company's CFO, G Subramaniam, said during the same interview, that while carriage fees would reduce, the subscription revenue would rise from 10-15% of the revenue mix currently. "This increase is likely to be six-eight times, and will make up for the loss of carriage fee", he added. Both said that digitisation would help them grow their broadband business -already significant, given that as per Jayaraman, Hathway already had 4 lakh broadband subscribers and a Rs 150-crore topline, which he expected would double in the next couple of years.