BENGALURU: The Digital Addressable System (DAS) Phase III deadline has helped boost Indian cable TV companies’ top and bottom lines by way of higher than normal activation fees that they charge, and how! Be it Siti Cable, Hathway or Den Network amongst the major players in the field, the companies have reported higher revenues and profits or reduced losses for the quarter ended 31 December, 2015 (Q3-2016, current quarter). Even a regional player like Ortel saw its cable TV connections rise by 32.7 per cent, both year-on-year (YoY) and quarter-on-quarter (QoQ). It is quite likely that without the hike in activation revenue, the big three players would have reported losses.
Another significant development that has occurred in Q3-2016 is that Siti Cable has become the largest player in terms of revenue. Until the current quarter, it was placed at number three in terms of total revenue among the four players in this report. Den now stands at number two, while Hathway is at number three. Without activation revenue, it is Den that has the highest operating revenue followed by Siti Cable, with Hathway at number three and the minnow Ortel placed at number four in Q3-2016. Please refer to Fig A below. It must be noted that Ortel’s numbers are not indicated in Fig A. Its quarterly operating revenue was in the Rs 45 – 50 crore range as compared to the Rs 300 – Rs 370 crore of the other three players mentioned in this report.
In terms of cable subscribers, again, it is Siti Cable as well as Ortel that have added cable subscription numbers, with the Den and Hathway cable subscriber base remaining stagnant. Siti Cable added about 11 lakh subscribers in the current quarter and now stands just behind Den. Hathway has moved behind a place to number three in terms of subscriber base. Ortel’s total cable subscriber base was less than six lakh at the end of December 2015. As a part of an on-going process that began with the implementation (even before in some cases) of DAS Phase I, most multi system operators (MSOs) have been replacing analogue set-top-boxes (STBs) with digital and High Definition (HD) boxes, this report does not dwell on these replacement numbers.
Note: (1) 100,00,000 = 100 lakh = 10 million = 1 crore
(2) Some figures are approximate.
(3) Other income has not been factored in for EBIDTA in the report.
(4) Some figures are estimates.
(5) This report is more skewed towards the financial performance parameters in a limited way, rather than the operational and operational performance parameters of the sample companies.
Other Revenue Streams
Another revenue stream that is growing is wireline broadband internet (broadband). Revenue contribution from the broadband segment of each of the four companies has been increasing steadily, to the extent, that in the case of Hathway, broadband internet revenue was 26.2 per cent of operating revenue in Q2-2016 and Q3-2016. The companies have been regularly reporting increase in broadband internet subscription base. Many MSOs have been focusing on broadband internet as a growth engine for revenue and profitability because of the high average revenue per user (ARPU) that the segment brings in. Wireline Internet signals can ride on the MSOs’ existing cable fibre and they don’t have to lay fresh optics. Also, for most MSOs, it is easier to rope in existing cable subscribers for broadband internet services.
From that point of view, Q3-2016 is an anomaly of sorts, and for this also, it is the higher than normal contribution to revenue by activation charges that is responsible. In Q3-2016, broadband revenue as percentage of operating revenue was either flat QoQ (Hathway) or has declined in the case of Siti Cable and Ortel, while it has increased marginally in the case of Den. But that does not imply that broadband revenue has declined, it is only that its contribution to overall revenue that has been affected. In absolute rupee terms, it has increased YoY and QoQ in Q3-2016 for all the four companies.
Besides broadband, some companies such as Den have e-commerce portals and also manage a soccer team. This report does not cover those revenues.
Cable Operations and Activation Fees, Profitability
Cable operations revenue comprises Subscription Revenue, Activation Fees, Carriage or Placement charges and other income. Fig A1 below gives a breakup of the first three income streams of the three major players.
Two of the four companies in this report have reported profit after tax (PAT) – Ortel and Siti Cable, while the other two have reported YoY and QoQ EBIDTA increase for the current quarter.
Let us look at the profitable companies first from their cable operations and activation and profitability perspectives. Please refer to Fig B below.
Siti Cable
Last year, in Q4-2015, the Essel Group’s Dish TV reported profit for the first time and led the direct to home (DTH) industry in terms of improved numbers. The trend has continued so far. In Q3-2016, it is another Essel Group company from the carriage industry – Siti Cable that has reported profit after tax (PAT) of Rs 56 crore (15 per cent margin on operating revenue or OPREV) as compared to a loss of Rs 18.5 crore in the corresponding year ago quarter and a loss of Rs 19.4 crore in the immediate trailing quarter. The growth essentially has been driven by higher activation revenue in the current quarter due to the 11 lakh subscribers added in Q3-2016.
Siti Cable’s activation revenue in the current quarter was almost eight times (grew 7.7 times) YoY at Rs 105 crore (28.4 per cent of OPREV) as compared to Rs 13.6 crore (6.1 per cent of OPREV) and grew by more than five times (5.4 times) QoQ as compared to Rs 19.4 crore (8.8 per cent of OPREV). EBIDTA in the current quarter more than doubled (up 2.6 times) YoY at Rs 129.9 crore as compared to Rs 50.1 crore and also more than doubled QoQ (up 2.5 times) from Rs 51.5 crore.
Siti Cable executive director & CEO V D Wadhwa said, “Focussing on our guiding principle of creating value for all stakeholders, the company has achieved the financial turnaround for the first time in the history of the company and reported PBT of Rs 56 crore in Q3-2016 and Rs 5.1 crore for the nine months of FY16. At Siti Cable, our efforts to strive for operational excellence continue and during the quarter the company has added 1.1 million digital subscribers, over 10,000 broadband customers and achieved all-time high EBITDA growth of 159 per cent YoY. We expect this momentum to sustain in the coming quarters.”
“We are also aggressively looking for inorganic growth opportunities in the geographies, which make strategic sense for us to expand and have acquired some networks in the western part of the country, which shall add additional 1.5 million subscribers to our existing subscriber base of 10.7 million. We strongly believe in cohesiveness among like-minded players and are actively engaged in our efforts as a consolidator in the industry,” he added.
Ortel
The Bibhu Prasad Rath led regional cable television and broadband internet player Ortel Communications Limited reported a 21.8 per cent YoY revenue (Total Income from Operations or TIO) at Rs 48.03 crore in the current quarter as compared to Rs 39.44 crore and 4.9 per cent QoQ growth as compared to Rs 45.79 crore. The company reported PAT in Q3-2016 at Rs 3.89 crore (8.1 per cent margin) as compared to a loss of Rs 0.1 crore in Q3-2015 and 37.5 per cent higher QoQ PAT as compared to Rs 2.83 crore (6.2 per cent margin). Ortel provides services in the Indian states of Odisha, Chhattisgarh, Andhra Pradesh, Madhya Pradesh and West Bengal.
Ortel’s connection (activation) fees increased 32.7 per cent to Rs 1 crore as compared to Rs 0.70 crore and increased 33.8 per cent as compared to Rs 0.70 crore. Ortel’s YoY revenue generating units (RGU) grew 19 per cent to 626,475 as compared to 526,551 and increased 9.6 per cent QoQ as compared to 571,834 in Q2-2016. Cable TV RGUs increased 19.3 per cent YoY in Q3-2016 to 558,766 as compared to 468,274 and increased 10 per cent as compared to 508,171 in Q2-2016. Ortel’s YoY primary digital cable RGUs grew 33.9 per cent to 127,098 in Q3-2016 as compared to 94,926 in the corresponding prior year quarter and grew 8.3 per cent QoQ to 117,401. The company says that its cable TV penetration stood at 23.7 per cent in the current quarter.
Ortel president and CEO Rath said, “I am delighted to share that our key strategy of LCO buyout is receiving huge response in our markets. Healthy addition to RGUs has led to strong growth of 38 per cent in bottom-line on a Q-o-Q basis. Given the strong pipeline of RGUs yet to be integrated, we are confident of improving upon this solid performance in the coming quarters.”
“FY-2016 will be one-of-the-best-years in the history of Ortel Communications backed by record RGU additions and solid visibility for LCO buyouts in the coming year. With more than 90 per cent subscribers on ‘last mile,’ we remain committed to this model and strongly believe it will create tremendous value for all stakeholders going forward,” he added.
Hathway
Indian MSO Hathway Cable and Datacom Limited reported 25.6 per cent YoY growth in standalone Total Income from Operations (TIO) in Q3-2016 at Rs 300.43 crore as compared to Rs 239.15 crore and 9.6 per cent more than the Rs 270.03 crore in Q2-2016.
Activation revenue in Q3-2016 more than tripled (3.1 times) YoY to Rs 22.3 crore as compared to Rs 7.2 crore and was almost fivefold (4.7 times) the Rs 4.5 crore in Q2-2016.
The company’s EBIDTA (excluding other income) in Q3-2016 more than doubled (by 2.02 times) YoY to Rs 49.81 crore (16.6 per cent margin) as compared to Rs 24.58 crore (10.3 per cent margin) and increased 45.8 per cent QoQ as compared to Rs 34.15 crore (12.5 per cent margin) in the immediate trailing quarter.
Hathway’s loss in the current quarter reduced to Rs 32.58 crore, in Q3-2015 it was Rs 58.05 crore and in the immediate trailing quarter it was Rs 48.94 crore.
Den Networks
Den has reported activation revenue of Rs 86 crore in Q3-2016, more than fivefold YoY as compared to the Rs 15 crore in Q3-2015 and more the than three times the Rs 27 crore in the immediate trailing quarter. The company says that it has added nine lakh digital subscribers in the current quarter, taking its digital subscriber base to 85 lakh as compared to the 76 lakh in the previous quarter. The company had reported a digital subscriber base of 68 lakh for the Q3-2015, hence the share of its digital subscriber base has gone up from 58 per cent in Q3-2015 to 65 per cent in the current quarter. The company says that its Cable DAS ARPU has increased 3.8 per cent to Rs 80 in the current quarter as compared to Rs 77 in the immediate trailing quarter.
Den reported a lower YoY and QoQ consolidated loss of Rs 48.37 crore in the current quarter as compared to a loss of Rs 62.60 crore in Q3-2015 and a loss of Rs 75.23 crore in the immediate trailing quarter.
The company reported EBIDTA of Rs 42.99 crore (12.2 per cent margin) in the current quarter as compared to an operating profit of Rs 0.28 crore (0.1 per cent margin) in Q3-2015 and an operating loss of Rs 11.27 crore in the immediate trailing quarter. The company’s pre-Activation Cable EBIDTA in the current quarter was Rs 6 crore as compared to the Rs 34 crore in Q3-2015 and a negative Cable EBIDTA of Rs 5 crore in Q2-2016.
Broadband
As mentioned above, while broadband revenue in the current quarter has increased YoY and QoQ for all the four companies in this report, it contribution to overall revenues has gone down in the case of two companies, is stable in the case of another one and has increased fractionally in the case of fourth company. Please refer to Fig C below.
Hathway’s Broadband subscription revenue in Q3-2016 increased 53.4 per cent YoY to Rs 78.7 crore as compared to Rs 57.7 crore and increased 9.5 per cent QoQ as compared to Rs 57.7 crore.
Siti Cable Broadband revenue in the current quarter almost doubled (grew 99 per cent) at Rs 13.9 crore (3.8 per cent of OPREV) as compared to Rs 7 crore (3.2 per cent of OPREV) in Q3-2015 and increased 49.5 per cent QoQ as compared to Rs 9.3 crore (four per cent of OPREV).
Den has also ramped up its broadband subscribers by 33.3 per cent to 76,000 in the current quarter from 57,000 in the immediate trailing quarter. The company’s broadband segment revenue increased by over five times YoY (5.5 times) at Rs 11.96 crore (3.4 per cent of TIO) as compared to Rs 2.17 crore (0.8 per cent of TIO) in corresponding prior year quarter and increased 58 per cent QoQ as compared to Rs 8.23 crore (three per cent of TIO). The segment’s YoY operating loss increased to Rs 19.57 crore as compared to Rs 12.37 crore, but reduced QoQ as compared to Rs 23.07 crore. The company says that broadband ARPU has declined by Rs 10 in the current quarter to Rs 760 from Rs 770 in the previous quarter.
Den’s Broadband Post Activation EBIDTA in Q3-2016 was negative Rs 16 crore as compared to the negative Rs 11 crore in Q3-2015 and negative Rs 20 crore in Q2-2016.
Ortel’s broadband segment reported 16.3 per cent higher revenue at Rs 8.28 crore as compared to Rs 7.12 crore in the corresponding year ago quarter and 1.7 per cent more than the Rs 8.14 crore in Q2-2016. The broadband segment reported an operating profit of Rs 4.78 crore in the current quarter as compared to Rs 4.52 crore in Q3-2015 and 9.1 per cent higher than the Rs 438 crore in Q2-2016.
Ortel’s Rath said, “Broadband business continues to do well and remains a key focus area for us. We are working towards delivering notable growth in subscriber base, which would further augment our performance and overall profitability.”
Concluding remarks
With 31 December, 2016 as the sunset date for DAS phase IV, the next four quarters should be growth periods for the carriage industry – this includes cable, DTH and HITS (head-end in the sky) companies. How and how well they exploit this opportunity will decide their fate in the medium to long term. Two of the players in this report – Siti Cable and Ortel have said that they are looking at organic growth, and the growth in their subscription base over the past few quarters is a clear indication of that intent. Companies’ toplines and bottomlines will definitely grow over the next few quarters.
Cable industry players face competition from the existing internet service players like the behemoth Airtel, which is the second largest wireline broadband player in the country after the public sector BSNL. While BSNL and the third largest wireline internet services player in the country – another public sector company MTNL, have been stagnating or losing in terms of subscribers, another MSO, a regional player, ACT Broadband is the fourth largest wireline broadband internet services company in the country. ACT had about 8.4 lakh subscribers at the end of November 2015. It has laid separate optic fibre for internet, rather than let it ride on its cable fibre network and has been canvassing for customers as a pure wireline internet services player in areas where it does not have cable subscribers.
The race between activation fees and broadband revenue in terms of growth is likely to continue over the next few quarters, until the industry reaches maturity and activation revenues peter out. It remains to be seen how the companies will perform once the big revenue stream from activation fees dries up. Notwithstanding, the court stays that some players in carriage industry will obtain to delay the digitisation process, the next 24 months should be an interesting time for carriage ecosystem as it matures.
Telecom major Bharti Airtel Limited (Airtel) is not far behind ACT in subscriber additions during the 10 month period. Airtel has added two lakh net new subscribers or 21.05 per cent of the net new all India additions during the period. Its subscriber base grew two lakh (grew by 14.18 per cent) in the first 10 months of CY-2015. Airtel’s wireline broadband internet subscriber base grew from 14.1 lakh (9.20 per cent of the all India base) as on 31 December, 2014 to 16.1 lakh (9.90 per cent of the all India base) as on 31 October, 2015. While the share of subscribers of Airtel, ACT and You BB has been growing, the shares of the public sector BSNL and MTNL have fallen, either because of fall in number of subscribers or because of no growth in numbers. Please refer to Fig 2 below.