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Mukesh Ambani-owned Reliance Industries Ltd (RIL) acquisition of majority stakes in two multiple system operators (MSOs) Hathway Cable & Datacom and DEN Networks is a win-win situation for all three players but will have a negative impact on broadcasters and direct-to-home (DTH) players, according to research firm India Ratings.
The acquisition will give RIL direct access to MSOs' vast broadband infrastructure and a large pool of pay cable TV subscribers, India Ratings said.
It said RIL can use this last mile connectivity to accelerate Reliance Jio Infocomm Limited's to foray into the fiber-to-the-home market.
On the other hand, the deal will resolve four big challenges facing MSOs, namely high leverage, large capex requirements for broadband roll-out, lack of a wide spectrum of content and competition threat from RJio.
India Ratings also said that the key rationale for RJio for the deal is to shorten the time horizon for its fiber-to-the-home foray as either competing or partnering with the highly fragmented local cable operators (LCOs) universe would be a time-consuming process.
The deal gives RJio direct access to around 6.5 million broadband households (home-pass), which represents about 36 percent of India's total fixed broadband subscriber base of about 18 million. More importantly, RJio will also get access to close to 12.5 million cable TV subscribers (nearly 7 percent of total TV households), who may not have broadband connectivity yet.
Ind-Ra also believes that RJio's target to reach 50 million households over the next three to four years looks achievable through the acquired subscribers of MSOs, higher penetration in existing markets and possible aggressive tariffs for other geographies.
The subscriber base of 50 million households, at the current monthly broadband tariff of Rs. 500-600 per household, represents an Rs. 300 billion-360 billion markets for RJio.
Furthermore, the firm pointed out that through the acquisition, RJio will be able to get access to Hathway and Den Network's subscriber base. Hathway has a major presence in Maharashtra, Karnataka and Madhya Pradesh and GTPL Hathway have a strong presence in Gujarat and West Bengal.
Furthermore, Den Networks has a significant presence in northern India. The acquisition enables RJio to gain a significant foothold across western, central and northern India.
However, it also believes that this consolidation in the MSO space is negative for broadcasters as their bargaining power to command higher subscription revenue may be impacted.
While RJio's strategy to enter into the pay cable TV market is yet not clear, it is highly likely that R-Jio would offer bundled plan to include both the broadband and pay cable TV markets, which would negatively impact DTH players.