Up to now, chaos has had its virtues. The land of the “licence raj” somehow forgot to regulate cable. Anybody could run wires to a few hundred houses, beam programmes and collect money. The result was a boom. Like most Indian statistics, measures of the cable industry’s size are disputed, but it is certainly big. The Cable Operators Federation claims to represent 60,000-70,000 firms; others say consolidation has cut that number to around 30,000. By some estimates, India has more cable connections (about 30m) than telephone lines (about 20m).
Now big firms are beginning to attach fibre-optic wires to this snarl, to give households and businesses broadband Internet connections. And India’s disparate cable operators are being pulled together into alliances which are more likely to have the money and organisation to equip the country with an up-to-date communications infrastructure. Credit Lyonnais Securities Asia reckons that the number of Internet users in India will rise 15-20-fold by 2004 to 30m, fewer than in China but many more than in any other mainland Asian country. And the key driver after 2001, the brokerage firm predicts, will be cable television.
The incentive will be the difficulty of making money from cable television as it is now structured. At present, the cable industry has the pile-’em-high, sell-’em-cheap approach of down-at-heel discount shops. Subscribers get as many as 75 channels, with new ones coming all the time (recently, HBO, an American movie channel). But, since India lacks set-top boxes that can direct programmes to subscribers who are willing to pay extra for them, most households pay a flat fee of only around 100-150 rupees ($2.30-3.40) a month for their televisual cornucopia.
In this cut-throat market, cable operators grumble that customers demand new channels but refuse to pay more for them. Broadcasters say the operators cheat by drastically understating their subscriber numbers. Multi-Systems Operators (MSOs), middlemen who take signals from broadcasters and pass them on to local operators, complain that neither pays them adequately. The local operators are probably the best off. They keep nearly 90% of the 40 billion-42 billion rupees of subscription revenue that they collect annually, reckons Bharat Parekh, an analyst at DSP Merrill Lynch in Mumbai. MSOs get 5-6%, which leaves 4-5% for broadcasters.
Not surprisingly, the MSOs are leading the drive to send more expensive services down the cable—and they want to claim a larger share for themselves. Two prerequisites are needed if they are to succeed: the communications infrastructure must improve, and the gaggle of local operators must be wielded into obedient alliances.
The need for better communications infrastructure, and not just for cable, was noted this month by the National Association of Software and Service Companies (NASSCOM), which launched “operation bandwidth”, a campaign to boost Internet bandwidth 80-fold by 2003, and to remove regulatory obstacles, such as a 49% cap on foreign ownership of telecoms ventures and a ban on Internet telephony. It has the backing of many large companies, foreign and domestic. Enron, an American energy firm, wants to install at least ten gigabits of bandwidth among seven cities within the next 18 months, by itself about a tenth of NASSCOM’s bandwidth target. Hughes Tele.com, a joint venture that is part-owned by General Motors, plans to spend $750m on a fibre-optic network for business communications in Maharashtra and Goa: it already offers basic telephone service there. Last week Reliance Industries, India’s biggest private industrial company, offered to raise its stake in BSES, a big power producer and distributor, from 15% to 35%: BSES’s fibre-optic network in Mumbai seems to be part of the attraction.
As for the local cable operators, since the mid-1990s, MSOs such as IN CableNet, owned by the Indo-European Hinduja family, and SitiCable, part of Zee Telefilms, India’s biggest private broadcaster, have been enlisting thousands, supplying them with equipment and signals and sharing their revenues. Now they are trying to turn these ramshackle federations into alliances bound together with new broadband cable that can carry two-way traffic and deliver sports, movies, online shopping and other luxuries to consumers who are willing to pay extra for them.
Thus the Hindujas’ IN CableNet plans to invest up to $500m of fresh money in upgrading cable networks in 75-100 cities, and buying content to take advantage of them. It has moved fastest in Mumbai, where it has laid 150 km of fibre-optic cable and is now offering speedy Internet access to the first of its 1.9m customers in the city. Intel, the biggest chip maker, is impressed enough to have invested $49m, valuing IN CableNet at $1.5 billion. SitiCable plans to offer Internet access over cable in a dozen cities within the next six months and is pondering ways to raise the money. It claims to be worth $3.5 billion.
Such lofty valuations are based in part on the assumption that the MSOs can whip local cable operators into line. They have had some success. Thus, in Mumbai, the Hindujas have an alliance of some 900 local operators who have become little more than agents, collecting the basic subscription fees and handling customers’ problems. Such practices as cable-cutting and amplifier stealing have “stopped completely”, says Dileep Gupte, who runs the company’s broadband services. To build such alliances, MSOs are carrying the cost of upgrading the networks, sometimes including the last mile, which the cable operators usually control.
But plenty of operators retain their wild ways. Earlier this month Bhopal, capital of the state of Madhya Pradesh, lost cable service for a week because of a dispute between an operator affiliated with Siticable and a local MSO. The police brokered a truce. Roop Sharma, president of the Cable Operators Federation, scoffs that an MSO is “just a signal provider”. She sees little reason for her constituents to upgrade their networks: “Why should cable operators spend when consumers only give 100 rupees a month?”
Sceptical operators are not the only risk that the MSOs face. They are pioneers in a market with low incomes, poor technology and excessive regulation. Interactive digital television has yet to arrive in India, so the first customers for the Internet over cable will be users of its 3m-4m computers. Although MSOs expect the cost of the service—1,500 rupees a month, or ten times what most subscribers pay for cable TV—to fall quickly, along with that of cable modems, for the moment it is out of reach of all but the rich.
The quality of the service that MSOs can offer depends in part on bits of the wires that they do not control. Most Internet traffic comes from outside India, and thus hits the bottleneck of India’s publicly owned telecoms companies, which have a monopoly of long-distance telephony and international data exchange. The data monopoly is about to end, and private operators will soon carry Internet traffic via satellite. But the state monopoly is keeping its grip over access to ultra-high capacity submarine cables.
Yet MSOs have one great advantage, which telcos cannot rival. They already have broadband connections with millions of homes, which they can now upgrade and use to promote their new services. If they succeed, India could yet be the country that proves the Internet can benefit the poor world, and not just the rich.
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