We strongly believe that as an industry we are best positioned to take the growth of Broadband at par with the cable penetration as we have the last mile access through our business partners, the LCOs, who are becoming “Convergent Service Provider” and with the Existing Skill Sets & Expertise of CATV Network’s Technicians, our industry is suitable enough to deploy Broadband Services across the length and breadth of the country. We also wish to propose a few measures and steps which will not only Transform Digital Experiences but cater to the Market Need as well as help in fulfilling the Plan of the Government of “Digital India Mission”

236, Okhla Industrial Estate, Phase – 3

New Delhi – 110020 INDIA +91 120 4526760 +91 99107 22552

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We express our sincere gratitude to Department of Telecommunications for consulting with industry

participants on the regulatory framework to enable explosive growth of cable broadband in India.

The cable industry shares the Government of India’s vision of reaching 175 million broadband

subscribers by 2017. We intend to deploy a large-scale cable broadband network that will provide

affordable broadband services across 500+ cities in India.

High Speed Internet Penetration in India is currently behind potential

Currently, India lags behind several emerging economies in Broadband penetration, particularly at

higher speeds. For instance, only 7% of the Broadband users get a speed of higher than 4 Mbps. The

high speed internet penetration in India is far behind potential because of limited last mile access

availability, constrained Right of Way (RoW) and unfavorable economics. As a result, very few

players have invested at scale for High Speed Broadband infrastructure to the home.

India vs Other Countries: Comparison of Broadband Speeds

Source: Akamai Technologies

Cable Industry – Uniquely Positioned for Growth in high speed Internet

Globally, cable industry has played an integral role in Broadband penetration especially in markets

with poor fixed line telecom penetration. In addition, fixed line telecom players have twisted pair

copper in the last mile which has its own limitations, whereas the Hybrid Fiber-Coaxial cable

infrastructure used by the cable industry is capable of delivering high speed broadband services. The

Cable industry has the following unique advantages to provide High Speed Internet to the home

Access to 100 million homes – Cable TV Multi System Operators (MSOs) in India have fixed

line coaxial connectivity to 100 million homes which can be upgraded to carry internet in a

short timeframe. More importantly, the outdoor infrastructure laid by the cable industry

provides a cable home-pass of an estimated 120 million+ homes, capable of delivering

broadband to about 500 Million users.

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Presence in 500+ cities – MSOs are present in 500+ cities, including several small towns and

villages

Local Partner Support – MSOs have more than 50,000 partner Local Cable Operators (LCOs)

who will provide a ready workforce of 0.2 million familiar with access networks

Technology Convergence through Digitization – With Digitization complete in Phase 1 and

Phase 2 towns, MSOs can carry high speed broadband internet using the same access cable

that goes to customer home with the enablement of return path over this infrastructure.

The above advantages make MSOs, probably the only entity to provide affordable high speed

broadband internet at scale across markets.

Understanding Broadband Economics for a Cable TV MSO

Indian cable TV MSOs are at the cusp of unleashing a high speed broadband internet revolution

enabled by cable TV digitization. Most leading MSOs have committed substantial investments

towards rollout of broadband services.

However, a MSO takes more than 8-10 years to get payback from Broadband as a business due to

(i) Operational delays in acquiring Right of Way (ii) Significant fixed costs irrespective of sales

conversion (iii) limited bargaining influence with equipment manufacturers (iv) significant revenue

sharing with LCOs/Distributors and (iv) non-contiguous areas for network rollout resulting in lower

subscriber penetration and higher network maintenance costs. This along with significant under

recovery of fixed costs during the initial years makes the overall broadband business economics

unattractive for a cable TV MSO. A brief calculation of the broadband business economics in a steady

state is presented in the table below:

Particluars

With license fees Without license fees

Revenues 100.0% 100.0%

Variable costs

Bandwidth and leased line charges 17.0% 17.0%

License fees 8.0% 0.0%

LCO/ Distributor commission 15.0% 15.0%

Total variable costs 40.0% 32.0%

Gross margin/ Contribution 60.0% 68.0%

Fixed costs

Employee costs 19.5% 19.5%

Network maintenance costs 11.5% 11.5%

Selling, marketing and business promotion expenses 11.0% 11.0%

Call center charges 8.0% 8.0%

General and administration costs 4.5% 4.5%

Total Fixed costs 54.5% 54.5%

EBITDA 5.5% 13.5%

Steady State Business Operations

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High capex requirement: High initial capex per home pass of over Rs 2,000. This becomes as

high as Rs 12,000-15,000 at a per subscriber level even at a reasonable conversion of 20%

High fixed operating costs: Post deployment, significant costs such network maintenance,

employee costs, call center charges and other fixed costs in order to give a good experience

to consumer irrespective of the sales conversion achieved. As a result, EBITDA (as high as -

50%) is significantly negative in the time period before achieving a 25% conversion, which is

approximately 3 years. MSOs also have to share part of the revenues with last mile

operators and distributors.

Long Payback: Given the economics described above, the payback to recover the investment

can stretch as long as 7-8 years. The long gestation period combined with operational delays

in acquiring Right of Way may push the payback beyond 8-10 years, making it unattractive

for investors.

Recommendations

We request Government to remove the 8% AGR applicable for MSO offering broadband services

Telecom Regulatory Authority of India (TRAI) in its Recommendations Paper dated 6th January’15 and

titled “Definition of Revenue Base (AGR) for the Reckoning of License Fee and Spectrum Usage

Charges” has recommended that Applicable Gross Revenue (ApGR) would be equal to total Gross

Revenue of the license as REDUCED by revenue from operations other than telecom activities/

operations as well as revenue from activities under a license/ permission issued by Ministry of

Information and Broadcasting.

As a body of MSOs, we request the Government to accept TRAIs recommendations as the License

Fee of 8% of the AGR is a large levy on the MSOs, especially when MSOs are investing in acquiring

Right of Way costs as well. The removal of 8% tax of the AGR, improves the payback period to 6-7

years thereby making the sector attractive for investors and bringing in the huge investments

needed for high speed internet to take off.

Unlike Telcos, the Cable eco-system is completely different where the MSOs generate their revenues

from Cable TV services such as Subscription. Advertisements, Carriage etc. and if the same MSO is to

provide Broadband services, the MSO will be in a negative territory as they will have to pay 8% tax

on the combined cable + broadband revenues. Secondly, the MSO/ LCO pays in addition the service

tax (which even the Telcos pays), Entertainment Tax (which the Telcos do not pay) and to pay AGR

in addition to Entertainment Tax will put us in a great disadvantage when compared to Telcos.

Thirdly, in the Cable TV ecosystem, the Subscription revenue has to be shared between the three

stakeholders, whereas the Telcos does not do any such sharing. It is therefore proposed that as per

TRAIs recommendation, this 8% license fee of the AGR should be totally removed for the MSOs.

We request the Government to support us for Right of Way for the Multi System Operators

(MSO’S) and protection of infrastructure laid on the ground.

Legitimize and a five year moratorium on Right of Way for aerial network through centrally issued

guidelines applicable across the country

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Declaring Cable Broadband infrastructure as National property in same line of Telecom

Infrastructure and making sabotage of cable infrastructure a non bailable offence.

We request the Government to rationalize import duties on network equipments

Import duty on network equipment (including fiber-optic network equipment) is a substantial cost

for the cable broadband industry in India. While we welcome the end-goal of promoting the

domestic network equipment manufacturing industry and fully support the “Make in India”

initiative, import duty on certain equipment specifically CMTS, transceiver & OLT for GPON network

should be minimal till there are viable alternatives of locally manufactured equipment.

We request Government to provide infrastructure status for cable broadband network

Extending the current cable broadband financing regulations to cover cable broadband will reduce

need for direct government funding for cable broadband deployment. While telecommunications

(fixed) including optical fiber/cable network which provide cable broadband is included in the

Harmonized Master List of Infrastructure Sub-Sectors, the cable industry is classified as service

sector which restrict access to financing and result in higher taxation in the form of sales tax and

entertainment tax on cable MSOs. Giving the cable industry infrastructure status would allow MSOs

to finance cable broadband infrastructure development through priority lending from banks,

external commercial borrowings, as well as financing from lenders such as IL&FS and IIFCL. This

would allow for faster deployment of affordable cable broadband services by cable MSOs.

We request the Government to allow the use of USO funds for wireline broadband network

rollout for cites Phase 3 cites/towns

Phase 4 towns/villages are scarcely populated and have negligible PC penetration making it unviable

for deploying broadband network even at subsidised cost. Including Phase 3 towns ( primarily towns

less than 5Lac population) in USO fund will accelerate the rollout of broadband in these towns

which otherwise are unviable.

The Cable industry is committed to the cause of a Digital India with a target of 175

million Broadband subscribers in India. We are uniquely positioned to deliver high

speed broadband if we can make the economics sustainable. Telecom Regulatory

Authority of India (TRAI) it its Recommendations Paper dated 6th January’15 and titled

“Definition of Revenue Base (AGR) for the Reckoning of License Fee and Spectrum

Usage Charges” has recommended that Applicable Gross Revenue (ApGR) would be

equal to total Gross Revenue of the license as REDUCED by revenue from operations

other than telecom activities/ operations as well as revenue from activities under a

license/ permission issued by Ministry of Information and Broadcasting. We request

the Government to create a Level Playing Field for companies not owning international

highways in terms of Bandwidth as the Bandwidth cost is a substantial cost for Non-

Telecom Players who are working as Internet Service Providers.

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