All eyes are on WiMAX, but MSOs hold keys to India’s broadband future

By Tony Brown

With all eyes in India firmly focused on the looming 3G/WiMAX auctions in New Delhi, a consensus is emerging that the country’s broadband future will be dominated by wireless rather than fixed-line services.

Since only about ten million of the country’s 40 million fixed lines are capable of delivering broadband services, there is little doubt that wireless services –meaning WiMAX rather than 3G in India – will play a major role in the broadband market, probably a dominant one.

Nonetheless, there are limitations to what WiMAX – or any wireless service – can deliver, especially in highly populated urban areas, meaning that there are still substantial opportunities available for India’s fixed-broadband operators.

Given the abysmal job that state-owned BSNL and MTNL have done in deploying fixed-line broadband services over the past decade despite their virtual monopoly in the fixed-line-broadband market, it is reasonable to assume that neither operator will be leading a transformation in the market any time soon.

That leaves only the nation’s cable MSOs and the big three private operators, Bharti, Reliance and Tata Communications, to possibly salvage something from the fixed-line-broadband market. The question is: How can they do it?

Can’t go it alone

The first thing to note is that by themselves, neither the MSOs nor the big three private operators can hope to make a truly significant impact in the fixed-line broadband market. There needs to be some collaboration between the two groups.

The MSOs have a lot of subscribers – India has more than 70 million cable subscriptions – but are hampered by the fact that they control so few of their last-mile subscriptions.

Most MSOs control only about a fifth of their subscriptions’ last miles – the largest, Digicable, controls only 100,000 out of a 7.5 million-strong subs base – with the rest controlled only via franchise deals with independent local cable operators (LCOs).

The unwieldy structure of the industry makes it hard for MSOs to deploy cable-modem services on a significant scale.

This is because although they are steadily upgrading their own directly owned networks to offer cable-modem services, they are reluctant to fund the upgrades of their franchisees’ networks, because they have no guaranteed return on their investment.

As a result, it looks likely that MSOs will simply concentrate on upgrading their directly owned networks in the most commercially attractive areas to offer cable-modem services, which will mean that such services will be available to at most 20% of cable TV homes.

This still equates to a potential cable-modem market of about 14 million homes – which would give the MSOs a target market of a similar size to that available to BSNL/MTNL on their fixed-line networks.

But there are two problems with this scenario.

First, although the MSOs are backed by some extremely wealthy parties, they don’t have access to the rivers of cash available to the operators and are therefore forced to adopt a moderate approach to network upgrades to keep their capex manageable.

Second, the MSOs still see themselves as being primarily in the TV business rather than the telecoms business and are still not anywhere as content in broadband as they are in their traditional TV sector.

This is where the private operators come into the picture.

The operators have the cash

The likes of Bharti, Reliance and Tata have plenty of cash available but are severely restricted in where they can offer their fixed-line broadband services because of the Department of Telecommunications (DOT)’s refusal to end BSNL/MTNL’s monopoly on their last-mile DSL networks.

The private operators are already tied up in expensive rollouts of their mobile networks – especially with their 3G-network rollouts looming from 1Q10 onward – so will need any expansion in the fixed-line-broadband market to be as cost-effective as possible.

Since rolling out new fixed-line broadband networks on a mass-scale is not going to happen, and the DOT is not going to end the BSNL/MTNL last-mile monopoly any time soon, the cable market must be where the private operators’ fixed-line-broadband future lies.

Deploying WiMAX does give the private operators a major hook in the broadband market, but it really provides them only with a means of accessing the ISP market rather than the pay TV market via IPTV or even the fixed-line-voice market.

Therefore, it seems that the only way for the big three private operators to have a sustainable future in the broadband market is to find a way to work with the huge market power of the country’s cable operators. But working out a way to combine the market power of the MSOs with their own financial resources and greater knowledge of the telecoms market will by no means be easy.

For example, there would be little value for them in acquiring Digicable, which has a minuscule last-mile-subscription count, but they might seriously look at Hathway, which has more than 300,000 cable-modem subscribers and controls more last-mile subs than any other MSO.

But the likes of Hathway, backed by the Raheja family and Star, would not come cheap, so the operators might instead choose to bypass the MSOs themselves and go for a strategy of acquiring the best available LCOs and patching together the best network they can.

This plan would also be fraught with difficulties, given that there are about 60,000 LCOs in the market and that separating the wheat from the chaff and upgrading networks in the right areas would be a challenging proposition.

Perhaps the best option would be for the private operators to form joint ventures with the MSOs, whereby they help fund network upgrades that enable MSOs to extend their cable-modem services in return for the ability to offer their services on the upgraded networks.

This would require the MSOs and private operators to broker revenue-sharing deals – which might prove to be a stumbling block – but would enable them to focus on their core pay TV services and enable the private operators to concentrate on their strength in offering broadband services.

Finding an answer to this puzzle will certainly not be easy, but it is a task that will need to be tackled by the big three private operators if they are to secure themselves a seat at the fixed-broadband table.