[Nettime-bold] Economist on cable in India

The Economist
BUSINESS

The wiring of India
D E L H I A N D M U M B A I

India's cable-television industry has thrived on chaos. Now it needs order
if it is to become that country's main link to the Internet

CABLE television is a rough business in India. Earlier this month, the news
that a gang in the southern state of Kerala had set fire to the office of a
cable operator, immolating two of its employees, rated a one-sentence item
in the national press. That sort of thing sits ill with India's vision of
itself as a knowledge-industry superpower, which expects cable to deliver
much of the data and entertainment needed to justify that ambition. When
international investors, such as Intel, are putting money behind the vision,
the murder, piracy and cable-cutting that characterise the industry have
become positive embarrassments.

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.

Order from chaos

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.