Bhibu Rath heads one of the small regional cable TV players in the TV distribution business: Ortel Communications. The MSO began as a local player in the state of Odisha. But, it has since spread into neighboring states such as Chattishgarh, West Bengal, Andhra Pradesh and Telangana. In fact, it is one of a handful of cable TV distribution companies which went in for an IPO and are listed on the Bombay Stock Exchange.

Rath has been with Ortel since 1999 and no one probably knows the company and the business it operates better than he does. Hence, he has focused on building a two-way state-of-the-art communication network enabled for ‘triple play’ services (video, data, and voice capabilities) with control over the ‘last mile’ over the last few years. That regulation has stymied his VoIP ambitions, has not been a stumbling block. In fact, it has emboldened him to move aggressively in the direction of broadband.

Rath was one of the key note speakers at IDOS 2016 here. And, he had a one-on-one conversation with the Indiantelevision.com CEO and Editor-in-Chief Anil Wanvari. He was forthcoming and transparent on a range of issues. Read on to find out what he had to say:

Are you at an advantage or disadvantage of being a niche player ?

It’s a great advantage actually. You need to understand that why we are a regional player.  Because, we have always believed in depth and not in width. So, we are actually a last-mile player unlike other national MSOs. In a lighter vein, in fact, I keep telling people that we are not a MSO, we are the largest LCO. So, if you are  doing a last-mile network, you have limitations of national presence. So, we have consistently focused on the regional markets and, even within regional market, we have consistently focused on Phase III markets – tier 2, tier 3 markets. Not on the metros.  Like we are there in Telangana but not in Hyderabad. So, currently, we are focusing on four states even though we are present in six states  — that is Odisha, Chattisgarh, Andhra Pradesh and Telangana. And, we have a small presence in West Bengal and Madhya Pradesh. So, it gives us a great advantage that we are focused, we are localized, we are last mile, we are going directly to the consumer.

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Your non-Odisha market is around 233,000 subscribers and your major part, that is, 770,000 subscribers, are in Odisha. Is non-Odisha market going to grow or Odisha?

That’s (non-Odisha) the one which is growing. In March 2015, when we went public we had half a million subs. Today, we are close to 800,000. Our guidance to the market has been — we will get to a million by March 2017.  If you see the growth in the last five quarters — that is four quarters of last year and Q1 of this year — you will see 70-75 per cent incremental growth has come from outside Odisha, and they are mostly in Andhra Pradesh, Telangana and Chhattisgarh. So that’s the trend going to continue and most of the growth will come from outside Odisha.

Your analog and digital ARPUs are at Rs 141 and Rs 169 a month, but your digital ARPUs have come down. Why is that and where do you see it going?

Well, digital ARPUs have come down marginally. But, the mix of analog and digital has gone up. So, digital as a percentage of cable TV swap has gone up very significantly in last five quarters. As of June-end, it was 45 per cent. That’s the reason why ARPU has marginally gone down.

I have a slightly different view from the rest of the people from the industry. We don’t think this is a great ARPU-driven business. You need to realize that this is a wireline business — not wireless like DTH. So, the wireless guys like DTH have an inherent advantage that they can choose and pick their customer. 5,000 customers in Delhi, 50,000 in Odisha – it’s the same for them. We are in the wireline business. We are laying cable in front of homes and its extremely capex-heavy unlike the MSOs model. If you keep aside the STB, the last mile model is capex-heavy as compared to the MSO-LCO model, because a large part of the network is actually built by the LCO. Whereas, here we deal with it ourselves.

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Now, say, you network 100 homes. My objective is to get as as many of these 100 homes as I can as my customers instead of trying to raise my ARPU by Rs 10. I would prefer to operate at a moderate to low ARPU but I increase my market share and penetration ratio and make up through the number of customers than trying to increase the ARPUs.  So, if you see my penetration ratio: 770,000 customers I have 1.2 million home passes – that is like 60 per cent. To my mind that is a more important metric in the business than just the ARPU numbers. Having said that ARPU will increase – but only marginally, I am not a great believer invery high level of ARPU increase.

Even in the context of digitization, I kept saying that its objective is not to increase ARPU. Why would the government and the regulator do something wherein the cost to the customer would go up? That’s just the antithesis of what the government does. The government would like to do what helps the consumers, and what helps the consumers is to give them choice, not raise prices.

So, in doing digitization, give the choice to the consumer — let the consumer pick up at Rs 99, and let someone else pick up at Rs 500. Let your average be at Rs 150-200. Hence, we operate at high penetration, and moderate ARPUs.

Being a regional player, do you have enough negotiating power? You recently concluded deals with Star and Indiacast which were challenging. Has it become easier for you to deal with the broadcaster?

It’s a relationship  with the broadcasters — which has been going on but recently we have tried to bring a major shift in the relationship. The two deals which you mentioned with Indiacast and Star TV – they are two of the top half a dozen bouquets operating in India. What we tried to do actually is we tried to test and implement the true spirit of digitization. This means consumer should decide. Whether he wants a channel or not, he should decide and if he should pay.

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With these two deals, we said we will go a la carte. And, as you know, a la carte prices are extremely high. The effective price that a broadcaster gets from the consumers is typically between 10–15 per cent of a la carte price.

So, for example, the Star TV bouquet – the a la carte prices are at Rs 200, the bouquet prices are typically at Rs 25-26. Despite the a la carte being high, we decided to try it. And we decided to offer it to our viewers and consumers, and allowed them to decide. And, to my surprise, the results have been fantastic.

Being a last mile model, I don’t have issues of packaging, etc. So, we have complete packaging on our network. We have a backend which can activate a channel. A consumer can send an SMS and get his channel in two minutes via a call centre as well. The payout to me has come down significantly – very significantly — on these two bouquets. But, for consumers, it has gone up, for some it has gone down. So, it’s working very well. This is the way forward. Having done these two deals, I don’t want to do any more soon. I would like to stabilize these two first.

Has your revenue been impacted because of this?

Not at all, because when you put a channel on a la carte, there are two models that have been implemented. One is we have put a la carte add-on – that is consumers pay and take it. In another experiment I did, I just threw open the channels to consumers. I said you don’t have to pay anything extra, just decide what you want.  There are
consumers who will be happy to pay a significant amount for the channels like Fox Life, CNBC, TLC and that’s beauty of doing a la carte, instead of dumping a CNBC channel on the entire base.

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In our markets, 90-95 per cent of the viewers don’t watch CNBC or Fox Life. Why should I dump it? Instead, let me give it to these 2-3 per cent consumers, and let them pay.

So my revenue has not gone down and my costs have reduced. I am even ready to let go my revenue because these two are interrelated. Whether I increase the ARPU by Rs 10  or I reduce my cost by Rs 10, it doesn’t matter to my ROC. The whole idea is to move on to a pass on the model where consumers decide. The revenue may increase or decrease, only time will tell.

The MIB says that 93 per cent of Phase III has been digitized whereas you have stated in your areas it is 50-55 per cent. Where lies the truth?

I don’t want to comment on the MIB numbers because I actually don’t know where the numbers are coming from. We are below 50 per cent. As regards the litigation of DAS Phase III, we are one of the guys who went to court and got a stay. And, that hearing for case is coming up in October.

That does not mean I did not want to digitize. I definitely want to godigital. I definitely want to get to 100 per cent but we wanted time. And, in many parts of the country, analogue was running in the month of January, and it is running even today. And I can safely tell you, if there was no stay order, analogue would have continued for some more time. I wanted legal cover that If I am doing analogue, I am not doing something illegal. I am pursuing digital in the true spirit. And, the offtake of digital has been very good actually. And, I don’t expect the court order to continue for a very long period. Irrespective of what happens in court, I am pursuing it and I will complete digitalization. We are fully committed to it.

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Your content cost has come down to Rs 50 or so is it because of Star and Indiacast deals or is it because of other factors? Do you expect them to go down further?

I expect content costs to go down little further. It has been the combination of a couple of factors;  it is not because I got better deals with  broadcasters. The content cost has come down is because of two factors — one is the deal with Star TV and Indiacast on a la carte basis. But, this cost will go up in the long run because consumers will adopt more and more channels and we are mentally prepared that this will go up.

And, at some point, even a la carte may actually exceed and go beyond what I was paying on a fixed-fee model. It will take time. But, we should be prepared to pay more on a la carte model. But, by then, consumers should also take more a la carte channels and my revenue should also go up.

The other reason is that we are expanding a lot to other markets and, our expansion strategy has been to acquire LCOs  and the local MSOs. So, we basically do a lump sum, lock stock and barrel buyout. And, those guys we take over have been extremely efficient as compared to what we were doing in terms of negotiating with the broadcaster – their costs are low. Their costs essentially get passed on to us. So that counts for a little cheaper price. But, it will increase.

You will not set up digital headends rather will go with opex model by taking intercity bandwidth. Is it a way forward for smaller players rather than investing in digital headends which are expensive?

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I think it cost around Rs 10 lakhs a year per link – that’s the deal I have.  I am sure Hathway, Den and Siti must be having better deals because of the size.. So we have taken a view that we will go on opex model. It will be like we will have one head end in Odisha and one for Andhra and Telangana  and one for Bengal and Chhattisgarh because they have language issues and content mix is different. That’s the way forward for the smaller guys.  But when you talk about the smaller guys, they may not have multiple locations to take link actually one of the reason the cable community in Phase III and Phase IV are finding difficult to execute digitization is essentially this.

Because of this in Phase III you have markets with a million population and you have markets with 10,000 population. If you see the list that the government has issued, there are markets with 10,000-15,000 population at the low end. There are some states which have removed those lists and there are some states which never reacted.

I have seen the Telangana, Andhra Pradesh list. There are homes with 10,00-20,000  population. For 20,000 population places,  that is about 4,000-5,000 homes. Out of this, 1,000 will be on DTH. You will have 3,000-4,000 cable customers. How does one actually do digital? Hathway, DEN, Siti and I can do it. Because, I have many other locations, I can take a link for Rs 10 lakh.

But, if there is an independent guy, it is simply not possible, not viable from his perspective to set up a headend. The link is not an option for the smaller guys. That is one of the fundamental reasons why there has been a resistance to digitalization in Phase III and Phase IV. So that’s slowly getting sorted out. The link costs are coming down. The headend costs are coming down. The awareness is going up. So I am sure it will happen.

You are investing  Rs 120 crore in coming year?

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When I did my IPO on 15 March, I had a two-year capex plan for FY-16 and FY-17. For FY-16 and FY-17, my plan was to go from half a million to one million by  FY17. So, to add this 500,000 customers, we had to put a capex of Rs 250 crore in these two years. Maybe this year’s numbers are part of it. So, if you are asking me, where is this going – in video, broadband or cable? In technology, nothing is called video or broadband, everything is based on the packet. So, given that we are a last mile player, our entire money goes into the network or buying out the LCO. And, even when I buy out an LCO, I dismantle the entire network and build my own network. So, the entire money goes into the network, creating the homes passed.

Your broadband ARPUs are Rs 400. Are they going to up? Are the markets resistant to ARPU hikes in broadband?

On the broadband side, the story is different. Video operates on a high penetration ratio. Broadband is on low penetration.  And, I believe that Broadband ARPUs will grow faster than cable TV ARPUs. Simply because there is a lot of upgradation change happening in the product itself. Earlier, we were on DOCSIS 2.0. We could provide 10 MBPs. Most of the consumers were on 512 KBPs or 1 MBPS or 2 MBPS. Now we have started DOCSIS 3.0. The technical spec is 300 MBPs. On the ground, we are able to deliver 100 MBPs. And the offers we have are 10 MBPS, 20 MBPs, 50 MBPS, and 100MBPs. This number is very less. This ratio between DOCSIS 2.0 and DCOSIS 3.0 is going to change. Increasing the speed will obviously lead to more downloads and streaming online. Hence, these ARPUS will increase.

What we also have been doing is build mobility into the wire line. For example, you have a home wifi modem, you can use it to make your home wireless. You don’t need to put a separate router, the cable models of DOCSIS 3.0 have inbuilt routers. We are also building public hotspots. A KFC or a coffee shop — where consumers spend an hour or so. So you use the public hot spot and use your login and password to continue enjoy all the broadband speeds you enjoy at home. All these factors will lead to our broadband ARPUs going up.

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