A shift in the billing model to fixed billing by multiple system operators (MSO) is likely to resolve the collection inefficiencies faced by them, which is leading to rising write-offs, believes India Ratings and Research (Ind-Ra). The fixed billing model will mean MSOs will collect a fixed fee from the local cable operators (LCOs), immaterial of the amount collected from the subscriber. This will help address the issue of delays in payments and non-payments by subscribers and lead to a business to business (B2B) billing rather than the business to customer (B2C) billing.
Ind-Ra believes that a fixed billing may also lead to reduction in the receivable days, write-offs and provision for doubtful debts which has widened in the last three years. The three listed players namely Hathway Cable and Datacom Ltd's ('IND A-'/Stable), Den Networks Limited and Siti Cable Network Limited have seen an average increase in the cumulative receivable days to 123 days in FY15 from 88 days in FY12. While, the cumulative write-offs and provision for doubtful debts for all three is around INR6.2 billion indicating collection inefficiencies.
The MSO industry nationwide has been struggling to reach common ground with LCOs regarding revenue share. The issue is on two counts; one regarding the proportion of revenue share and the other regarding actual collection of the same. This is largely on account of LCOs unwilling to let go of historical revenue share enjoyed during the analogue regime. Even in the digitised markets, the current net revenue collection is far from the original Telecom Regulatory Authority of India recommended revenue share of 65:35 (MSO: LCO).
Digitisation was expected to improve the profitability of MSOs, however, slower-than-expected rise in net realization from LCOs has hurt profitability. With the help of digitisation MSOs were supposed to shift their business model to B2C, in which LCOs were supposed to be deemed agents of MSOs. However, paying and non-paying subscribers still cannot be determined in the digitised regime and resistance from LCOs for revenue sharing remains. The ownership of customers continues to remain with LCO's. Hence, MSOs' collections continue to remain lower than anticipated. In the digitised phase 1& 2 markets, the transparency levels however have improved and identification of subscribers can be ascertained.
A way forward could be to agree on a certain fixed amount with the LCOs (B2B billing- based on the number of subscribers connected on the MSOs' digital network under the respective LCOs) irrespective of the actual money collected by the LCOs from their respective subscribers. This would ensure that cash collections are de-linked from the amount recovered or declared to have been recovered by LCOs from the subscribers. Further, if these amounts are fixed; the collections can be made upfront on a pre-paid basis. Though this may be lower than the original expected amount; this would at least ensure stable and timely cash collections. Technology support in terms of closed loop wallets and other supporting technology platforms can facilitate the collection mechanism.
Ind-Ra notes that some of the national MSOs have started working toward this model and could be a positive for the overall business profile of MSOs.
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