ITV

Tag: You Telecom

  • Indiantelevision.com’s interview with You Telecom CEO EVS Chakravarthy

    Indiantelevision.com’s interview with You Telecom CEO EVS Chakravarthy

    Citi Venture Capital International-owned You Telecom India has resized its investment plan amid the economic downturn.

    The trimmed-down plan will mean a fresh investment of Rs 2.5 billion over two years, instead of Rs 4 billion as earmarked earlier.

    Narrowing down the spread, the expansion plan will focus on depth and consolidation of the business in the cities where You Telecom runs operations.

    The redrawn map will mean that You Telecom stays as a niche player in the market for at least two years, shunning away from a frenzy among many multi-system operators (MSOs) to land grab and build scale.

    You Telecom is in talks to rope in Indian investors for Digital Outsourcing, its cable TV arm. Tulsi R Tanti and his family members, promoters of wind power company Suzlon Energy Ltd, hold 49 per cent stake in the company. You Telecom has 36 per cent stake while the balance is held by high net worth Indian individuals.

    In an interview with Indiantelevision.com‘s Sibabrata Das, You Telecom CEO EVS Chakravarthy talks about how important it is for cable TV companies to work on their business models, stay away from reckless acquisitions, conserve capital and penetrate deeper into last mile services.

    Excerpts:

    Two MSOs are in the process of tapping the capital market. Do you think the cable TV sector has reached a stage of maturity for listing?
    The two preliminary draft prospectus filings are the first in the cable TV sector of significance for raising money from the capital market. The outcome of these two IPOs will send strong signals for the future. Investors will watch carefully the pricing of the issues, the intrinsic value of the business it captures and the sustainability of it. Hathway Cable & Datacom and Den Networks need to do everything to make sure that the sector becomes attractive for current and future investors.

    How does this impact companies like yours?
    We are not in a hurry to capitalise on the high valuations in the market today. We want to see if this is sustainable. We prefer to go to the market as a profitable company with a strong business model and management bandwidth. We want to time the IPO appropriately.

    Are you saying that Hathway and Den are in a hurry to raise money via the IPO route?
    Both the MSOs expanded aggressively through acquisition of cable networks. They need further capital to fuel their growth.

    Will these two listings aid digitisation?
    Consolidation will happen faster than digitisation. As a process of consolidation, I wouldn‘t be surprised if Hathway buys Den – or the other way round. Besides, more and more cable companies will get listed.

    Will the climate be favourable for foreign strategic investors like Comcast?
    Foreign strategic players will still stay away because no single Indian cable TV company has built that scale. Post consolidations, they will show interest. For Comcast and others to come, it is 3-5 years away.

    ‘Post listing of the two MSOs, consolidation will happen faster than digitisation. As a process of consolidation, I wouldn‘t be surprised if Hathway buys Den – or the other way round‘

    Since the IPO is throwing open early exit options for private equity firms, won‘t they find the cable TV sector attractive?
    Some of them came into the sector with the hope that the government-mandated Cas (conditional access system) will spread to other cities. That has not happened. Still the sector attracted further private equity investments as everybody saw an opportunity in the distribution business. New PE players will wait to see if the market price of the listed companies is sustainable. The calls that they will take now will be more informed due to the last two years of collective experience of the industry.

    You Telecom had plans to expand in the bull phase and had decided to invest Rs 4 billion over two years. What made you scale back your investment plans?
    We have decided to pump in Rs 2.5 billion over the next two years to boost our cable TV and broadband business (the investments for cable TV are made through a subsidiary company, Digital Outsourcing). Our focus will be on depth and consolidation of the business in the cities where we run operations. We had earlier planned to expand into 15 new cities, including 10 for cable TV services. But in a capital scarce scenario, we will go to six more cities in the first phase. For cable service, we will be adding 2-3 cities to our existing operations in Mumbai, Bangalore and Vizag. After that, we will rework on our fund requirement.

    So you plan to stay as a niche player in the market for at least two years?
    We have seen how some MSOs have been pursuing a high-growth subscriber universe by recklessly acquiring cable networks. Having a large universe can become a liability. The capital has dried up for them and there is no change in their business models. It is important to be consistent, strong, stable and profitable.

    We are looking at an optimum size of 4-5 million in the first phase, up from our current reach of two million. You can‘t just focus on the reach universe when there is just a 20 per cent revenue share (due to under-reporting). Our focus will be to penetrate deeper into last mile services.

    But if government announces a policy for HITS (Headend-In-The-Sky), will you scale up?
    When the regulation comes, we will be one of the applicants. We are ready as far as the rest of the infrastructure is concerned. We will partner with Cisco on technology; we already have an existing head-end infrastructure with them. We have also signed an MoU for the transponder. We plan to invest an additional amount of Rs 1.5 billion for HITS.

    Will Tulsi R Tanti and his family members (Suzlon promoters) commit investments for such expansions?
    They currently hold 49 per cent stake in Digital Outsourcing and stand committed. We might also bring in other Indian investors.

    You Telecom acquired a majority stake in Scod18 Networking to have a cable TV presence in Mumbai. What are the expansion plans under this entity?
    Scod18 has been a Mumbai-centric MSO. We will continue to be a significant player with a significant market share in Mumbai. We will expand in areas around Mumbai and in parts of Maharashtra along with them, if and when we get the right opportunities. Our focus will be on digitisation and other value-added services like on-demand and TV-commerce.

    And for Bangalore?
    We acquired a 50 per cent stake in Digital Infotainment, a small-sized local cable network, and our investments in this venture so far has been Rs 500 million (out of a total investment of Rs 5.5 billion). We will expand in Bangalore and other areas in Karnataka through this joint venture.

    Will acquisition be the only growth route for you?
    Yes, that is how we will grow. We are planning to offer stock in lieu of last mile acquisition. This is how Cisco grew from a $2 billion to a $22 billion company – by offering stock. Pragmatic cable companies, after all, have to start a trend. But for this listing is important.

    Having taken the position of a niche player, how important is it for you to launch premium products to drive in higher ARPUs (average revenue per user) as a strategy?
    The market today is not matured for premium products. The content cost is exorbitant and pricing is a big issue. The MSO that could have monetised on value-added services is Hathway Cable & Datacom as it has a million digital subscribers. But as this has not been a focus area for them, there must be compelling reasons for this.

    What will the focus area for MSOs this year?
    MSOs will have to make sure that they have enough capital with them.

  • ‘Cable companies should start thinking like DTH operators’ : EVS Chakravarthy – You Telecom CEO

    ‘Cable companies should start thinking like DTH operators’ : EVS Chakravarthy – You Telecom CEO

    Having acquired a broadband company in 2006, Citigroup Venture Capital International has set its eyes on the cable TV business. You Telecom has floated a subsidiary to meet the FDI (foreign direct investment) guidelines for cable and acquired Bangalore-based Digital Infotainment, a small-sized cable network.

     

    You Telecom intends to invest Rs 7 billion over four years as it takes steps to enter the digital convergence space. Banking on building a Headend-In-The-Sky (HITS) platform, the company plans to invest Rs 1.2 billion in the first phase of infrastructure.

     

    In an interview with Indiantelevision.com’s Sibabrata Das, You Telecom CEO EVS Chakravarthy talks about the onslaught from direct-to-home (DTH) players to grab the digital space and the need for cable TV operators to up their services and invest in brand building.

     

    Excerpts:

    Since Citigroup Venture International holds 85 per cent in You Telecom India, how are you restructuring the foreign holding to stay within the regulatory cap of 49 per cent so as to kick start cable TV operations in India?
    We have set up a company called Digital Outsourcing where Citigroup holds 49 per cent. The balance 51 per cent is being held by high net worth individuals. We have done the capital restructuring in the cable TV company to meet the FDI guidelines.

    Did Citigroup buy out the Mumbai-based broadband company from British Gas in 2006 because it saw opportunity in expanding the footprint to cable TV?
    We will probably be the only pure broadband player to get into cable TV. Unlike Sify and the other ISP operators, we have built a cable-based infrastructure. So it is a logical extension for us.

    Are you looking at acquisition of cable networks as the entry route in different markets?
    Digital Outsourcing has bought 50 per cent stake in Bangalore-based Digital Infotainment. This is our entry into cable TV operations. We will be rolling out digital services in the next couple of weeks. In other markets, we are also looking at people who could partner with us through joint ventures where we will be offering multiple services.

    Why have you set up a headend in Delhi but not yet rolled out services? Is it that you don’t have a content tie-up with broadcasters?
    Though we have set up a headend in Delhi, we haven’t started operations. We are looking at opportunities like a JV or a 100 per cent buy out. We are also looking at an outsourced service model for digital solutions to cable operators as one option.

    You are banking heavily on the HITS model. How much are you going to invest in the venture?
    We will be investing Rs 1.2 billion in the first phase for setting up the HITS infrastructure. We are waiting for the government to come out with the regulations before we go ahead. We expect the Telecom Regulatory Authority of India (Trai) to come out with its recommendations on HITS in the next 2-3 weeks. For the digital solutions including set-top boxes, we will be using Scientific Atlanta. And for HITS, we will also be looking at Motorola.

    How much are you going to invest in the overall business?
    We plan to invest Rs 7 billion over four years. This will be in addition to Rs 4 billion that we have already put in for laying out the infrastructure for broadband. We will be doubling our footprint to 24 cities.

    Why are you so bullish on digital cable when there is a very low STB penetration in the Cas (conditional access system) belt?
    2008 will be the defining year for digital. After Reliance launches its DTH service, expect fireworks on the ground to start. The cable industry is not fully prepared to combat the DTH onslaught. Cable operators will have to figure out who is going to provide them with the right ammunition to fight DTH tomorrow.
    ‘MSOs should have a one-million digital box seeding plan. Then everything will fall in place’

    What will you offer that will make cable operators come to you?
    It’s high time cable companies started thinking like DTH operators. Cable TV has to match DTH service standards – be it brand building, billing, marketing and services. Multi-system operators (MSOs) today are not concentrating on that. They will have to support the last mile operators with all these things. Otherwise, how are the operators going to fight DTH on behalf of the MSOs. The old mindset has to change. There has to be a complete revolution in digital cable and related services like broadband. If the old MSOs don’t do it, new players like us will show the way.

    Cable operators are willing to part with equity to those MSOs who are offering them more. Isn’t that the deciding factor?
    In the initial land grab situation, it is capital. But in the medium term, it will be quality of management and the systems and processes they work with. The valuations operators are asking for has gone up dramatically with new MSOs entering the field. But it is like the sensex; it will not last forever. We are not willing to pay exorbitantly just because we want to expand our size. In cable, it is important to remember that there is no case of first mover in the consumer’s mind. The future battle in cable will be for grabbing attention in the consumer space through brand building and quality of service. The MSOs have never thought of this as a strategy. And don’t forget that HITS will open up the smaller towns and networks. So the opportunities down close down for any new entrant.

    What brand building exercise you have put in place?
    We have an equity capital reserved for brand building. Bennett & Coleman Company Ltd (BCCL), the holding company of the Times of India, has a five per cent stake in You Telecom. We are looking at doing more such media deals. We are setting in a discipline by allocating equity for brand building.

     

    We have also invested in technology. We have introduced the Oracle-based billing system which we are willing to outsource to others. We have 170,000 broadband subscribers, spread across 12 cities including Mumbai, Bangalore, Chennai, Hyderabad, Gurgaon, Surat, Baroda, Ahmedabad, Rajkot and Pune. Our broadband ARPU (average revenue per user) is Rs 460. Our revenues will be Rs 1.10 billion this fiscal with just broadband in our business mix at this stage.

    Won’t the cable business require huge doses of capital?
    We realise that growth needs capital. Citigroup is committed to infusing capital to grow the business. We have a plan in place.

    But for a venture capital fund, isn’t analogue cable a matter of concern for its revenue leakages across the last mile?
    When Citigroup bought out the company from British Gas, they looked at the convergence space. We are uniquely positioned in that we already have a good broadband play. When we are in cable, we are only extending our laid out infrastructure to a new area of business. It is important to remember that a single service play is like an analogue video play. We see alliances emerging with broadcasters and cable networks across the value chain.
    What is the challenge for MSOs in digital cable?
    MSOs should have a one-million digital box seeding plan. It is possible with a well-evolved cable eco system. Once an MSO has such a deployment, then everything will fall in place. It will be like building a long lasting real estate value – with multiple services including broadband, cable TV, gaming and VoIP. Later we will see bigger cable companies converting carriage fee into equity in broadcasting networks.

     

    What are your views on Trai’s regulation for non-Cas areas?
    The regulator has given it some shape. If the MSOs had implemented Cas more successfully and effectively, then Trai perhaps would have been confident of extending it to other areas.