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The government's recent move to revive FDI cap in DTH distribution has divided the DTH industry.

While the proposal irked the market leader, Essel Group-owned Dish TV; interestingly other private operators- Airtel Digital TV, Reliance BIG TV, Sun DTH, Tata Sky, and Videocon D2H kept their cards close to their heart. Industry experts say that Tata Sky is the only player who wants the FDI cap to be increased.

It may be recalled that Department of Industrial Policy and Promotion has sent a draft cabinet note to the Department of Commerce, Department of Economic Affairs (Finance ministry), the Planning Commission, Department of Telecom, National Security Council Secretariat, besides Ministries of I&B and Home Affairs to revive FDI cap from the current level of 49% to 74%.

The Essel Group-owned Dish TV wrote a letter to the government; opposing the move on grounds of national security, international practice and potential, unfair competition from foreign media giants. Opposing the proposal to hike the foreign holdings limit, Dish TV draws attention- in a letter to the government-to a potential security threat emerging from foreign controlled telecast signal distribution. However, when contacted, Dish TV did not comment on the issue. An email sent to the company spokesperson remained unanswered.

Industry observers feel that increase in FDI cap will benefit the overall sector. It will allow more foreign players in the segment, which will increase competition, and give more choice to customer. Indian market will also learn from the experience of foreign players entering Indian soil.

"An increase in FDI limit in the DTH sector, is likely to lead to more number of players in the market. Gartner does not envisage any decrease in prices due to this, in the short or medium term. The industry is however expected to benefit from the experience of international players and technological advancements," says Neha Gupta, senior research analyst, Gartner.

Foreign Partners and FDI
India is a huge market for any of the foreign player eying the digital pay TV market. At present, there are around 135 mn TV households in India. Gartner says that there were 15.2 mn DTH subscribers by the end of June 2009. As penetration of DTH is just 11%, there is a huge untapped potential, especially in tier-1 and -2 cities. Of the total industry growth, 35% growth for DTH industry came from metropolitan cities, while rest came from cities and towns of tier-2 and below. Gartner expects DTH subscribers to grow at a CAGR of 20-25% in the next three years. The information and broadcasting sector, according to the Department of Industrial Policy and Promotion, has attracted Rs 3492.4 crore in FY 2008-09, which was 171% higher than FY 2007-08.

Two of the foreign players, including global media giant Star Group have 20% stakes with existing operators. Within the existing foreign investment ceiling of 49% for both cable and DTH, FDI is capped at 20%, with the balance left to FIIs. Countries like the UK, Canada, Australia, China permit FDI in media between 30-40%.

Sun Direct is a 80:20 joint venture between the Maran family and the Astro Group of Malaysia. The Sun DTH service was initially launched in Tamil Nadu in December 2007, while the pan-India rollout began in September 2008.

Tata Sky, DTH service of Tata Group, is an 80:20 joint venture between Tata Sons and Star Group. The company was incorporated in 2004, and offers a range of media and entertainment options to customers. Market insiders say that Tata Sky is one of the companies, which is comfortable with the increase in FDI cap. Star Group, which owns 20% stake in Tata Sky, is said to be looking for a controlling stake in Tata Sky; having 4 mn subscribers till August 2009.

Telecom vs DTH
DTH companies also stressed that the argument that media and telecom be treated at par with the advent of convergence, is flawed.

It may be recalled that in the year 2005, union cabinet hiked the ceiling of composite FDI in the telecom sector to 74% from 49%. This was subject to certain conditions and clauses, inserted by the Home Ministry to safeguard the nation's interest, by way of ensuring the 'Indian-ness' of the operating companies.

Jai Maroo, Director, Shemaroo Entertainment, says that telecom industry benefited due to the tap on FDI cap. "Tap on FDI cap was one of the reasons for evolution of an altogether different telecom business model in India, unlike the US and Europe. If FDI was allowed, in the early stage, we would have just followed global business model, rather than having our own, which is more localized; and helped mobile phones to reach every section of society," Maroo elaborates. "Now global telecom companies are learning from us," he quickly adds.

The Security Threat?
Another threat for DTH operators is that increase in foreign investment caps in DTH sector could result in businesses of Indian operators being eaten up by foreign players, by their sheer money power.

"In such a case, these foreign players with a monopoly in DTH sector, could demand a higher carriage fees from Indian broadcasters. This can also lead to higher monthly subscription prices for DTH consumers," says a senior official of a leading DTH operator, who is against the increase in FDI, pleading anonymity.

However, the argument doesn't hold much water. Neha Gupta, senior research analyst, Gartner says, "An increase in foreign direct investment limit, does lead to some concerns about the crowding of domestic industry. However, this generally holds true in case of credit constraints in an economy. India is going through no such constraints right now. In fact, an increase in foreign investment limits will not only increase the source of equity investment, it will also increase technology transfer and management know-how, which will prove beneficial for Indian operators."

The biggest threat, the industry experts believe is the provisions to send messages to their customers, and there are no technologies available to track it. This technological loophole could be misused by some foreign companies, if the Indian partner does not have management control over the DTH company.

One would wonder how sending messages, that too on TV, could raise concerns about national security.

India is becoming a strong global economy. We have opened up many segments for foreign investors. Most of the Indian telcos have investments from foreign players. DTH should not be left out. Let foreign companies enjoy majority stake in DTH, if they have the financial muscles.

Akhilesh Shukla
akhileshs@cybermedia.co.in