Star India is reassessing its decision to acquire a 26 per cent stake in RPG Netcom, the Calcutta-based cable network. The company has asked RPG Netcom to work out the investments that would be required by the multiple system operator (MSO) if conditional access systems (CAS) is introduced in the country. Star had done a due diligence of the cable network through Arthur Andersen before the controversy over CAS started. The valuation was done internally by Star.
According industry sources, STAR believes the economics of the cable TV business would change dramatically under the CAS regime, which would make set-top box mandatory for viewing of pay channels. MSOs need to make substantial investments towards head-end equipment and software for subscriber management system (SMS). Besides, investments may be required towards set-top boxes, though the industry wants the consumers to bear the costs.
MSOs will have to invest a minimum of Rs 50,000 on a single encoder. Every pay channel would need a separate encoder. The SMS software would cost Rs 10-20 lakh, according to industry estimates. For fibre optic cabling, the expenses could be Rs 15 lakh per km.
According to sources, Star wants clarity on several issues before it makes an investment in RPG Netcom. What will be the revenue sharing ratio between the MSO and the line operator on the free-to-air channels? The government has proposed to fix a flat price on the basic tier of free-to-air channels. The pricing of that also is not decided.
A stake in RPG would provide Star a cable TV presence in the eastern region. Through Hathway Cable & Datacom, it already has a presence in the western, southern and northern regions.
Star and RPG had agreed upon the acquisition price for a 26 per cent stake, before CAS became a raging issue. Neither side would confirm on the figure, but the market speculation put it at Rs 52 crore. RPG Netcom enjoys above 70 per cent share of the cable TV market in Calcutta.