"Implementing the Trai order won't be easy"

Q&A/ Jawahar Goel

In the last 10 days, the Telecom Regulatory Authority of India (Trai) has issued a couple of orders that will have a bearing on the Direct-to-Home (DTH) industry in the country. The Quality of Service (QoS) order pushes the DTH companies to pull up their socks and address consumer complaints with alacrity. The mandatory unbundling of TV channels offered to DTH platforms by the broadcasters, meanwhile, allows operators to pick and choose what they want from network bouquets. Jawahar Goel, the 52-year-old managing director of ASC Enterprises Limited which runs Dish TV, the Zee Group's DTH business, spoke to Shuchi Bansal on regulatory issues and the state of the DTH industry. Excerpts:

Trai has unbundled TV channels for DTH. What will be its impact on the industry.

I have not studied the impact of the order in any depth which, in any case, is applicable only from December. But I think it'll be difficult to implement the order for a variety of reasons. For one, while ESPN-Star has launched Star Cricket, its cricket content is spread over all its channels "" so I'll have to subscribe to all its channels to cover all the matches. I suspect that the existing channels will split into more channels "" broadcasters may resort to jugglery to push their bouquets. Regulation can't cover everything.

Secondly, there are serious technical and commercial issues in offering à la carte channels to consumers. Say, we are providing 170 channels today and tomorrow the number goes up to 400. If a consumer wants all the 400 channels as part of the à la carte menu, the load on the system will be unmanageable. You cannot do à la carte for millions of customers. That is why DTH operators do packaging.

But it is mandatory in CAS (conditional access system). If CAS had been successful among cable TV viewers throughout the country, it would have been difficult for Multi-System Operators (MSOs) to cope. Both in DTH and CAS, you have to send commands (both for showing and not showing channels) to the server and to individual set top boxes. And every 28 days the command is repeated with a different code. This is to prevent hacking. I think the technology was not understood before mandating à la carte channels for CAS. Only a few premium channels can be given à la carte because they will be expensive and find few takers.

Does the QoS order put pressure on DTH operators?

Overall, it is very good. It says DTH operators must have zonal officers to address customer complaints. However, Trai has suggested a rental model for set top boxes. The rental model is not tax-efficient and recovery is very long-term.

QoS reiterates interoperability, that is, the consumer should be able to change his service providers without changing the set top box.

Technically, interoperability is possible. However, commercially, it is unviable, at least, currently. A set top box costs $35 while the conditional access module (CAM) which is used to make the box interoperable costs an additional $30. Maybe the prices will drop in the next five years.

What are DTH's growth prospects?

Dish TV has 2.3 million registered subscribers and we are adding about 70,000 to 100,000 new ones every month. As far as the size of the market is concerned, India has about 220 million households. There are 120 million TV homes and about 70 million cable homes. Already, there are 7 million DTH homes. By 2015, the total TV homes will grow to 135 million. Our estimate is that there will be 65 million cable homes and 65 million DTH homes by then.

You mean cable homes will decline?

Yes. Cable will not grow. In fact many houses will switch to DTH from cable.

What could be the challenges in achieving this growth?

DTH is a capital-intensive business. The hardware has to be imported since local manufacturing is not commercially viable. The duty on components and the local conversion cost are very high. The biggest hurdle is the gap between what Trai recommends and what the government does. Radio and telecom operators pay a license fee of between 4 and 6 per cent of their adjusted gross revenue. We pay 10 per cent though Trai had recommended a reduction to 6 per cent which has not been accepted by the government.

We are also taxed by the Centre as a service industry and the state governments levy an entertainment tax of between 15 and 30 per cent.

Your customer acquisition cost is also high.

A duty paid set top box costs us around Rs 2,400 which is heavily subsidised for the consumer. The cost of customer acquisition is Rs 1,800 per subscriber. This cost may be higher for new players that will launch, such as Bharti, Reliance and Sun. The current DTH players, including Doordarshan, are on MPEG2 right now. Others are talking of MPEG4. While it's prudent for them to use MPEG4, their boxes will cost more "" approximately $55 while we are in the sub-$35 range. Add VAT to this, and the difference in costs works out to around Rs 1,200.

So how much money are the companies losing?

Whatever DD is losing is the taxpayers' money so let us not talk about that. But between the two private players, the losses are around Rs 70 crore a month. It is a very long haul. Few companies have the guts to lose that kind of money.

You have been a votary of the "must provide" clause. How do operators sell without exclusive content?

Who says exclusive content is the only differentiator? The differentiator can be the price, service or offering. Dish TV shows 172 channels whereas competition may be showing 100 channels. Is it not a differentiator?

Once the industry matures, Trai may consider some percentage of exclusivity. But at this stage when there are so many license holders and they have no experience in the business, it is not fair to ask Trai for exclusivity.

It took me two and a half years to get Star channels on the Dish TV platform. Even now it is an interim arrangement and Star has challenged the TDSAT order in the Supreme Court.

You claim to have 2.3 million subscribers but apparently nearly 50 per cent of the subscribers have not renewed their connections. Revenue collection is also an issue.

Not true. The world norm on DTH churn is 1.25 to 1.5 per cent a month. We have 30,000 dealers with a revenue collection mechanism. Ninety five per cent of the payment comes through scratch cards stocked by the dealers. You can also pay through money orders, drop boxes and credit cards. Of course, the cable operators collect money from your doorstep like your milkman. In DTH you have to make an effort to make the payment. It requires a change of habit.

Like carriage fee in cable, even Dish TV is now asking channels to pay up for being on the platform. Is that true?

Well, Doordarshan is charging Rs 1 crore a year from some channels. In the last two-three months we have asked some channels to pay Rs 25 lakh a month, that is, Rs 3 crore a year. Some channels are paying. We are talking to others.