Mumbai: Despite uncertainty in many quarters, these are interesting times for people following the multi-system operator (MSO) industry. Recently, Siti Networks Ltd (Siti) released its Q2 and H1 results for 2017-18, reigniting the hope for growth in the industry. Announcing growth in operating EBITDA, the company outperformed the competition in set-top box (STB) seeding by adding nearly 2.3 million boxes in the first half of the year as against near flat growth by other companies in the industry.
For Siti, this forms the bedrock for future growth as monetisation of these boxes in H2 will bring incremental revenue benefit to the company. In the cable television distribution business, STB seeding, monetisation of seeded STBs, and collection efficiency are the core performance metrics.
The broadband space is exploding with Reliance Jio having announced its impending entry and trial runs across various cities in the country. Siti is looking to leverage existing infrastructure and improve extraction levels. The company will look at a number of business models to ascertain what is the right fit in this business.
In an email interaction, Rajesh Sethi spoke to Indiantelevision.com on a wide range of issues. Here’s what he had to say:
What is the direction you are taking to turn around the fortunes of Siti Networks?
We are one of the largest distribution platforms in the country and are working on the ethos of ‘demand more.’ We will leave no stone unturned to deliver the best to our customers while ensuring enhanced shareholder value. On the video front, this is going to be the last year of major seeding as we consolidate our market dominance. The focus will be on improving monetisation, collection efficiency, and prepaid implementation. We are well prepared to execute the tariff order as soon as the judgment is passed on the same.
On the broadband front, we are looking to leverage our existing infrastructure and improve extraction levels. We will be selective in our broadband expansion and will look at a range of business models to ascertain what suits us best. The focus is on four pillars of people, process, product, and corporate governance with emphasis on compliances, systems and processes, harnessing inbuilt operating leverage, and making the organisation more agile and lean.
What is your strategy to prune losses in the time to come?
In the video business, seeding to capture the opportunity offered by digitisation, subsequent monetisation improvement, and enhanced collection efficiency will be the key priorities. These factors will form the bedrock for strong sustainable growth and ensure recurring cash flows.
Broadband is a field that we are quite bullish on. Uptake in broadband is dependent on 4G pricing, which definitely is now looking to increase. Broadband growth will come from primarily form Tier 2 and 3 cities rather than the bigger cities. Broadband revenue performance will also see uptick with increasing customer base, churn, and fault rate control.
Cost optimisation is a major lever in coming back to profitability and we are looking to rationalise our bandwidth, general and administrative, content, and HR costs to drive increased savings. The tariff order is expected to come by end of this fiscal and will substantially moderate content cost growth; content cost is expected to become a pass through.
These actions are expected to contribute towards improved recurring cash flows and better profitability.
How soon do you see a revival in the cable industry?
The revival you speak of is already underway as Phase 3 and 4 monetisation has started happening and this will only move up, eventually being at par with monetisation levels in Phase 1. The bulk of Phase 4 seeding will be completed this fiscal and you will see strong subscription revenue growth lead by volume and monetisation increases. Thereafter, it is a steady state perpetuity business.
The tariff order will moderate content cost growth as customer choice will dictate the content they view. At the same time, broadband is a big opportunity that will spur long-term growth and drive convergence. The industry is in a transitory phase and things will improve significantly in a year’s time.
Why hasn’t digitisation helped the dynamics of the industry as envisioned?
Ever since the announcement of digitisation, there were multiple delays due to a variety of factors. Phase 3 and 4 deadlines were delayed by more than a year due to multiple petitions, regulatory uncertainty, and other factors. As we speak, the tariff order is pending in the Chennai high court. Most DPOs incurred huge capital expenditure in upgradation of the network and purchasing STBs. The costs were incurred upfront and, therefore, monetisation got delayed.
In addition to these delays, regulatory guidelines such as MIA/SIA also faced delays in enforcement. You are seeing this turbulence as we are in transition right now…once things settle down, you will witness strong recurring cash flows. The content delivery value chain will become more streamlined and the balance of power will shift to the DPOs.
How important is it to have a lean workforce? Do you have a retrenchment strategy in place?
We have been focusing on areas where we can bring efficiencies into the system and one such effort in right sizing was executed in Q2 of 2017-18. This is a regular practice in most mature industries and allows the organisation to become leaner and agile. With this, we have given more latitude to our current employees by adding joint responsibilities in the video and broadband space in terms of delivery. We are focussed on employee growth with regular training sessions being held to upgrade skill sets and clearly delineating what is expected from them. Recently, we also rolled out our seven core values that define our DNA and influence behavior. We want to inculcate and sustain a high-performance culture in this company. These are the guiding principles in our efforts to take SITI to greater heights.
What is your vision for Siti Networks?
We are the leading content provider in the country and will continue to sustain our preponderance in video. Simultaneously, broadband is a natural transition for an entity like ours. Customers have already shown indication towards moving to non-linear on-demand entertainment and we expect broadband penetration to see a huge increase. Hence, we are moving towards delivering non-linear content. This will be the future of content consumption and Siti is preparing earnestly for it.
We are also working with our technology partners to bring innovative products to the market. Our vision is that we should be at the forefront of providing world-class technology to customers.
How do you see the company evolving over the next two years?
Siti will have consolidated its primary growth lever of video with strong recurring cash flows taking place. We will be offering substantial HD, OTT, and other VAS services. In addition, we intend to push the pedal on broadband and ensure we have sizeable presence in the high-speed-wired broadband space. We could go in for some inorganic expansion as well.
