How RIL's acquisition of Hathway Cable, DEN Networks hurts rivals

Mukesh Ambani-led Reliance Industries' acquisition of majority stakes in Hathway Cable and DEN Networks Ltd will impact broadcasters and direct-to-home (DTH) players negatively, India Ratings and Research (Ind-Ra) said on Friday. After disrupting the mobile data market with Jio, RIL is on its way to roll-out fibre-to-the-home broadband service called Jio GigaFiber.

India Ratings (Ind-Ra) said the consolidation in the multiple system operators (MSO) space will hurt broadcasters as their bargaining power to command higher subscription revenue may be impacted. It also said that possibility of Reliance Jio (RJio) to offer bundled plan, which will include both the broadband and pay cable TV markets, would negatively impact DTH players.

Reliance through its network of subsidiaries has acquired 58.92 per cent in Den networks and 51.34 per cent in Hathway Cable and Datacom Limited. Hathway enjoys over 52 per cent share of the total multiple system operators (MSOs) cable broadband market in India with 7.7 lakh subscribers, and has the ability to reach 5.5 million homes.

The acquisition enables RJio to gain a significant foothold across western, central and northern India, according to the rating agency.

Hathway has a major presence in Maharashtra, Karnataka and Madhya Pradesh and RIL will also acquire a minority stake in GTPL Hathway, which has a strong presence in Gujarat and West Bengal. Den Networks has a significant presence in northern India, it explained.

The acquisition will give RIL direct access to MSOs' vast broadband infrastructure and large pool of pay cable TV subscribers, it said, adding the company can use this last mile connectivity to accelerate Reliance Jio Infocomm's foray into the fibre-to-the-home market.

"On the other hand, the deal will resolve four big challenges facing MSOs - high leverage, large capex requirements for broadband roll-out, lack of a wide spectrum of content and competition threat from RJio," it said.

According to India Ratings, the rationale for the deal is to shorten the time horizon for RJio's fibre-to-the-home foray as either competing or partnering with the highly fragmented local cable operator (LCO) universe would be a time-consuming process.

The rating agency further said that RJio's aggressive marketing could lead to an expansion in the broadband market, somewhat similar to the one that took place in the wireless mobile data market.

The deal gives RJio direct access to around 6.5 million broadband households (home-pass), which represents about 36 per cent of the country's total fixed broadband subscriber base of about 18 million, according to the agency.

It will also get access to close to 12.5 million cable TV subscribers (nearly 7 per cent of total TV households), who may not have broadband connectivity yet, it added.

India Ratings believes that that RJio's target to reach 50 million household 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 household, at the current monthly broadband tariff of Rs 500-600 per household, represents a Rs 30,000-36,000 crore market for RJio, it estimated.