In a big move, Reliance Industries Limited (RIL) has acquired a majority stake in DEN Networks Limited and in Hathway Cable and Datacom Limited. It has picked up a 58.92 per cent stake in DEN Networks for Rs 22.9 billion and a 51.34 per cent stake in Hathway for Rs 29.4 billion. This move will help Reliance Jio Infocomm Limited (RJIL), RIL’s telecom venture, replicate its wireless broadband success in the fibre broadband space too. In July 2018, the company announced its plans to launch the Jio GigaFiber service to provide fibre-based broadband connectivity solutions to homes, merchants, and small, medium and large enterprises. The initial target is to reach 50 million home customers, and 30 million small merchants and shopkeepers across 1,100 cities.
The recent stake acquisitions will go a long way in fulfilling these targets in an expeditious manner. The idea is to leverage the strong foothold these multisystem operators (MSOs) have in specific regions to aid the proliferation of JioGigaFiber services in the market. The strategic partnerships will significantly reduce the time-to-market for Jio GigaFiber, which would otherwise be very protracted given the highly fragmented nature of the local cable market. RIL is reportedly also in talks to acquire a majority stake in GTPL Hathway.
A look at how these investments will benefit RJIL and impact the larger cable and broadband ecosystem in India…
Leveraging a strong regional presence
Given their strong presence in specific regions, Hathway and DEN have an edge over other players in terms of market share and customer loyalty. The acquisition of controlling stakes in these companies will enable RJIL to gain a strong foothold across western, central and northern India. Hathway holds a 52 per cent share in the total MSO cable broadband market in India with 770,000 subscribers covering 5.5 million homes. Hathway has a significant presence in Maharashtra, Karnataka and Madhya Pradesh. Likewise, DEN Networks has a broadband subscriber base of around 106,000, covering 970,000 homes. It has a significant presence in northern India.
Favourable cost metrics
Apart from the benefit of expansion across geographies and demographics, these deals will bring significant monetary benefit to Jio due to a reduction in customer acquisition costs. According to industry analysts, the deals could bring down Jio’s fibre-to-the-home capex, which is currently at $130-$140 per subscriber. As for MSOs, the deals would help them meet their network capex requirements.
Improved last-mile connectivity
Jio will be able to leverage the last-mile connectivity of these MSOs, an area where the operator could not make significant headway due to significant opposition from local cable operators.
The broader impact
With its aggressive growth strategy, RJIL is expected to disrupt the broadband market, just like it disrupted the wireless data market. While RJIL has not announced the price of its Jio GigaFiber service, it is expected to follow the low-tariff trend it has set in the telecom space. This will significantly bring down the service cost, which would be good news for customers, but will be a big blow to the revenues of the existing operators in the broadband segment. According to India Ratings and Research, Jio’s entry into the cable space is likely to start a wave of consolidation in the MSO segment, which will negatively affect the bargaining power of the broadcasters to command higher subscription revenue. In addition, Jio is likely to introduce bundled plans to serve both broadband and pay cable TV markets. This will also impact the business of cable and direct-to-home players in the market.
That said, there exists a silver lining to these deals. MSOs find it extremely challenging to set up infrastructure for providing fixed line broadband internet services owing to its high costs. Also, the MSO industry has been facing cash flow issues due to the dwindling pay TV business. Their association with operators with deeper pockets can provide them capex for large-scale roll-outs.
Conclusion
The lack of last-mile connectivity has been one of the biggest impediments in achieving ubiquitous broadband coverage for wireless operators venturing into the fixed line broadband segment. In such a scenario, it makes good business sense to enter into partnerships with MSOs that have established wireline infrastructure to deliver broadband services, particularly in remote areas of the country. Going forward, this trend set by Jio may soon be adopted by other service providers looking to venture into the broadband and cable TV segment.
