DEN Networks Ltd
NSE:DEN
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DEN Networks Ltd
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Ladies and gentlemen, good day and welcome to the DEN Networks Limited Q1 FY '19 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantee of future performance and involve risk and uncertainty that are difficult to predict.[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. S.N. Sharma, CEO, DEN Networks Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. Thank you so much. Welcome to all the analysts on the call, and thanks for being part of Q1 FY '19 and Annual Results Earning Call for DEN Networks.Driven by strong broadband demand across our cable presence market and the excellent relationship we enjoy with the local business partners, coupled with speedy execution of project, the company was able to successfully roll out fixed-line broadband services in 28 cities by end of Q1 FY '19 as part of 100 cities planned.Telecom Regulatory Authority of India has notified tariff order with effect from 3rd of July, 2018 expected to be implemented by 30th December 2018. Content cost should become a pass through once the order gets implemented. In other words, the entire content cost of INR 150 crore per quarter will become variable cost. The implementation of order is expected to be a game-changer for the industry.The cable subscription collection efficiency for the quarter stood at 86% and it dropped predominantly due to ongoing issue with a major broadcaster which got resolved during the mid of the quarter. In the later months, the collections have improved to the benchmark levels and have further -- and further increases have been announced in the month of July '18 to offset the impact of increased content costs.Investing in high-definition boxes remain our key focus area, and along with the launch of new generation 4K Android boxes, these technology initiatives are going to be the next growth driver for the company coupled with subscription rate increase already announced. As a result, we are confident at winning back the profitability levels and further increasing the same in coming quarters.Cable subscription ARPU including taxes for dash 1, 2, 3, 4 markets stood at INR 144, INR 110, INR 80 and INR 64 per box vis-à-vis INR 129, INR 103, INR 67 and INR 40 per box, respectively, in Q1 of FY 2018. Please note that ARPUs are average of quarter inclusive of taxes on per box per month basis.Cable subscription revenue has increased to INR 170 crores for the quarter compared to INR 150 crores during Q1 of FY' 18. There is a growth of 11% in subscription revenue during the quarter compared to Q1 of FY '18. Phase 3 witnessed a growth -- robust growth of 19% during the quarter compared to Q1 of FY '18. Overall ARPU has improved by 15% year-on-year from INR 81 during Q1 FY '18 to INR 93 during the quarter.Broadband business continues to be stable despite drop in revenue due to competition in our core daily [ MCR ] market, EBITDA have marginally reduced from INR 1 crore profit during 2017 to INR 1 crore loss during Q1 FY '18.With this, I would like to hand over to Himanshu Jindal, our CFO, to walk us through some of the important financial numbers. Thank you. Over to Himanshu.
Thank you, sir. Good afternoon, ladies and gentlemen. We've already circulated the presentation for Q1 financial results for this year, this financial year 2018-'19. Consolidated revenues for the quarter was flattish at INR 314 crores, versus the INR 313 crores last quarter last year. Along with the associates which are now getting consolidated at the moment, the consolidated EBITDA for the quarter is INR 57 crores.If I exclude these associates, the consolidated EBITDA as per [indiscernible] stood at INR 47 crores for the quarter compared to INR 61 crores a year ago, and INR 59 crores in the last quarter. Profitability was a little lower as the content cost increased already while the ARPUs were a little flat across markets. The cable ARPUs net of taxes for the quarter stood at INR 122, INR 93, INR 67, and INR 54 per box respectively for the various phases.We've already announced price increases from July '18 onwards, and we should be able to come back strongly from the next quarter which is quarter 2 of the financial year of 2018-'19. The efforts to rationalize the costs, which is a continuous process, including the personnel cost during the past year have yielded positive results which has brought down the personnel cost by 25% which is a INR 8 crore reduction versus last year.With this, the totally stable EBITDA margin stands at 16%. Revenue for the broadband business stood at INR 16 crores during the quarter compared to INR 21 crores during the previous year. Drop in revenue have been primarily offset by the cost optimization initiatives. Broadband EBITDA for the quarter being a loss of INR 1 crore.The net debt for the company stood at INR 190 crores as of June 30, 2018. To summarize, we remain focused at restoring the normalcy in the profitability in the [ ensuring ] quarters.With that, I would like to open the floor for Q&A. Thanks a lot.
[Operator Instructions] The first question is from the line of Ishpreet Kaur from Karma Capital.
If you look at the numbers on a quarter-on-quarter basis, there seems to be quite a disappointment, a few parameters to maybe talk about. So the paying subscribers have come down from 7.4 million to 7.2 million. The ARPUs in phase 3 and phase 4 on a quarter-on-quarter basis have not seen any kind of an increment impact or in phase 2 or phase 3, there's probably a INR 1 or INR 2-INR 3 decrease that we've seen in this quarter. And also on the cost front, the bad debt provisioning that has increased about INR 4 crore from INR 7 crore to INR 11 crores, if you could just elaborate on these points?
Yes, I'll touch base broadly on the whole issue. Please appreciate that our showdown with a major broadcaster lasted till 20th of May, that is practically 2/3 of the quarter was affected because of that. And thereafter we went in overdrive of our collections, overdrive of recovery of our dues because a major part of content was denied, so definitely there was some issues with the ground wherein ground was expecting some reduction which we refused to pass on, legitimately so, following the regulations whatsoever the reasons are there in the regulation, we substitute the content with some other content. And that is how we push for our revenues higher and higher. The result was there was excessive [ Denning ] done in the month of June due to which you have seen a hit on the count of the boxes, from 7.4 million it has dropped to 7.2 million. You are very right in knocking it out, but that is a temporary phenomenon. In our anxiety to ensure that we recover all the dues whatsoever, we have taken a hit of this kind and we have already seen the results coming in as we are in Q2, running Q2. The collections have started going up. All the dues, majority of it has started coming back. It will -- though it will take some time, it is a bit early to state that everything has been restored or everything has been brought back, but that trend is definitely there. And on top of it, I am here to tell you that in the month of July, we have passed on the content hike that has come and affected us. So the content hike, those started impacting us from April was delayed because of -- it was delayed in passing to the ground because of this issue with the broadcasters and our Denning processes that we aggressively pressed into action. That all got delayed, but in Q2 onward, the hike of 15% has been passed on to the ground legitimately and results on that front have also started coming in. I am already seeing that after all the push-pull, some areas of our territories have started in giving back the hiked prices to us. So I am confident of not only restoring the volumes back to where it was. Going forward, we will be increasing the numbers definitely very aggressively and going forward, the hike in revenue, the bps whatsoever you have seen will be restored. Not just that, let me also highlight that we have indicated a collection efficiency of 86%, that is just to clarify that since the money got stuck with the LCO, now it is our duty to bring it back. All the same, that extra provision of INR 4 crore, what you have highlighted is provided to counter that only on a safe side because we have strong auditing mechanism and whatsoever are the -- any gaps or issues, we definitely cover the investors by taking suitable measures. But all said and done, things are back on track, and as we progress in the financial year, I'm confident of giving back the same kind of revenues and results and performance as we have been giving for the last 2 years.
So could we see the ARPU increment happening from the Q2 itself in all the phases? Or would it again be only in the Phase 3, Phase 4?
No, in all the phases.
In all the phases, okay.
Though the amounts will vary. The quantum will vary, but overall ARPU increase, overall revenue increase will be by -- during the quarter will stand at 15% -- 12% to 15%, sorry.
Considering...
For the year, not for the quarter, for the year.
12% to 15% increase in the ARPU?
In the revenues definitely it relates to ARPU.
ARPU, because a volume increment is not going to be there. It's going to be at 7.4 million itself?
No, there will be some volume increment also.
And in terms of the new Android box that we are talking about, so what is the cost of this Android box and how -- what is the plan for -- in terms of distributing these boxes in terms of who is going to bear the cost of the new box?
See, the cost as of now is costing roughly around INR 4,000, INR 3,600 plus taxes. Earlier it was double the cost when we tested, and so the efforts has been continuously to bring down the cost and we are successfully and almost there. And these will be extended to the subscriber of broadband services and the cost has to be borne by the subscribers.
So would there -- for the existing subscribers, is there any plan for this Android box?
As of now, no special scheme, no special plan is there in existence. Depending upon the demand and depending upon the trend that we will see after seeding through hundreds and thousands of boxes, then we may decide on bringing out a appropriate plan.
We'll move on to the next question that is from the line of [ Avinash Kumar ] from Moon Capital.
Just to take the kind of vision further what you had with the previous caller, can you specify on the quantum of price hikes that you have taken across phases? That will be helpful to understand how much of price hike will come from phase 3, phase 4, vis-Ã -vis phase 1, phase 2? And secondly, how sustainable will the price hikes be given that we have already seen a lot of bloodbath in the MSO industry for the last 2, 3 years, so can we expect some sanity to return here, the sum-zero game amongst the top 2, 3 MSO players will stop going forward? So if we can throw some light would be helpful for us to understand that.
Yes, see as far as price hike is concerned, ARPU hike is concerned, if you look at the track record of Den over the last 2 years barring this Q1 and Q4 where we had a showdown with the broadcaster, I think our figures and performance will speak for the ARPUs and hike that we drove on this, steamrolling the cable industry and there one -- our peers also have started falling as -- so I am not afraid or jittery of any backlash on account of these ARPU since we could sustain that time when we took the initiative before others moved in, so I'm confident that this time also we will be able to sustain it and you will see it becoming part of the life, number 1. Number 2, over here I'm happy to share that even the peers discussed among themselves and broadly we would be -- you will see the same kind of indications coming from generally at large and the industry because content has increased overall with everybody. So this is my personal view. I can't speak for others, but definitely I'm confident of sustaining the price hikes that we are passing on. As far as your question of the quantum that we are in the process of passing on to the ground will be in the range of 12% to 15% across the phases. If we have like -- if you talk in terms of absolute terms, it will be in the range of INR 10 to INR 15 varying upon area, zone and phase that we are talking about. So I am confident of delivering these kind of hikes over the next 9 months.
So you think 12% to 15% blended ARPU increase is what my understanding is?
Yes.
And it will be throughout across all the 4 phases?
Yes.
And I mean can we -- I mean, going...
[ Avinash ]?
Yes?
[ Avinash ], see what Mr. Sharma also mentioned even in the past, that, yes, there was a content cost increase which would not be passed on for the reasons that he mentioned earlier. Now very clearly the content has increased for everyone, so there would be a price increase which is happening in Q2, so July we've already seen a price increase and the collections have also come in. So we've done already a good collection this month, 91%. I'm sure we'll be able to do better. The monitors, the price increase that Sharmaji said is for the full year. So we'll be able to obviously neutralize the content cost increases which have come in and already become a part of our universe.
Right, I'm getting your point. I'm certainly getting your point. So I mean this is a very happy point that Sharmaji mentioned that I mean we can expect some sanity to come into the MSO industry and that will be very good for the overall health of the industry. So I mean that's a very happy news coming from him. Moving on to my second question, I mean how -– some views from the management on the tariff order. I mean we understand that Star has moved to Supreme Court and they have filed SLP. So if you can just -- management help us what's their view on the tariff order, will it see the light by January '19? And how well prepared is Den at the backend to implement this [indiscernible] order?
See, I am a very positive person and as far as today's general update from the environment is we are on the right track. We have started taking actions. There are actionables defined to hit that goal post wherein one of the actionable was scheduled for 3rd of August, wherein MSOs were to give the target market details. The next schedule is 3rd of September wherein majority -- majority I mean the -- all the content providers, broadcasters are supposed to list their prices and give the bouquet details and whatsoever they want to declare as MRP. So to best of my knowledge already parlays are on and even amongst MSOs we have started discussing the strategies how to handle this. Generally the trade is working together. There have been continuous meetings and consultations how we collectively move and step into this new era. Now when it comes to court case and other things, one of the date on which the initial hearing and obstacle was expected by all, that has already gone by. The next date definitely is 28th of August, but let's see. I won't like to make any statement as far as the subsidized matter is concerned, but as of now the clock is ticking and everybody is supposed to follow the -- there is no obstruction or roadblock on the walk on the path on which we are working.
So I mean Den as a company is ready at the backend to implement the order from day 1?
Yes.
The next question is from the line of Sanjay Chawla from JM Financial.
My first question relates to the subscription revenue trend that we have seen in this quarter. Now you mentioned that you could not pass on the content cost increase effective April for some reasons, but what we've actually seen, we have seen a decline in the monetization level in phase 2 and phase 4. So why exactly did the monetization dip in this quarter? And even though we had some dispute with the broadcaster, why it did not reflect in lower content cost? That's the first question.
Yes, Mr. Chawla, see, the -- what you are referring to as dipped in the realization in phase 2 or phase 4 is actually hardly of a INR 1 or INR 1 or INR 2 in terms of statistics, but the fact of the matter is as I elaborated earlier the revenues of the subscription got stuck with the LCOs due to that prolonging issue with the broadcaster. And as the excessive Dening happened we had to switch off the boxes. That boxes are now in the process of being reactivated since we follow very strict discipline in reporting the numbers in terms of cutoff date and all that. So reports are tabled as of schedule that we are supposed to follow in reporting the numbers. Otherwise things are quite coming back to normal and the -- I absolutely can assure everybody there is no dips as far as ARPUs level that we have been achieving over the quarters. It's flat definitely. And costs hike that has happened in our life couldn't be passed on, but it has been forcefully effectively being passed on. It was effective July and results have started coming in. Rest I will leave it for closure of Q2 when I meet you all together. In between also we can keep on sharing whatsoever details are worth sharing. But trend as of now is quite positive.
Is the -- so that's helpful on the monetization side. On the content cost side, do you think the cost is lower because of the dispute and maybe we'll see content costs coming back in the second quarter in a much more stronger way?
No, the content cost is going to be same. Whatsoever you are seeing, there is not going to be any change in...
So on a full year basis, you are sticking to the 15% hike for the fiscal year?
Sanjay, INR 150 crores for this quarter has been reported, INR 150 crores as content cost. You can actually keep it constant for the next few quarters. There's not going to be any change.
But on the -- for the full year we are sticking to the...
January again there's going to be certain -- one contract hasn't come up for renewal, we'll have to see, but you may see that barring that particular contract, everything else is in track.
[Indiscernible].
Till December end for sure.
Second question, just a housekeeping question, what were the number of set-top box seeded as of June end, both including the associate companies and without the associate companies?
In all, Sanjay, we seeded roughly around 80,000 to 100,000 boxes, but these are more like build-in scheme boxes the revenue of which is going to flow only in quarter 2, quarter 3. So you will find that effect coming in in the next quarters.
What is the total set-top box number in the sense that you have seeded overall level, total cumulative number?
So roughly 100,000 boxes.
No, but total from the end of period set-top box base.
Sanjay, your voice is breaking. Can you repeat that question please?
Yes, sure. The end of period June end set-top box base, total base?
Yes, it is not part of the build boxes that we are showing in the presentation, so it's not part of the 7.2 million.
7.2 million is without --
Without these scheme boxes.
Moves ahead of the other expense...
These are only Indian in that number without the free associates.
With associates.
Moving ahead on the operating cost, your other expenses obviously have gone up because of the bad debt increase, provisioning increase, but we did not see any impact of the broadband rollout that has progressed to 28 towns as you mentioned in your operating cost or is it being capitalized?
Yes.
So it's in some of the rollout costs are being capitalized?
Capitalized for sure, Sanjay. Those cities have just been entered into. So we've just opened the box. We are just [indiscernible] customers there, so very little amount has been actually spent on these markets till now.
What are the CapEx in this quarter?
The CapEx for the quarter was INR 19 crores, Sanjay.
And on a full year basis what kind of CapEx do you expect?
See, there are no longer any capital subsidies being given out. So on a net basis excluding the -- whatever we will be doing in terms of seeding boxes, I don't think we'll be doing more than INR 50 crores in all. Excluding the boxes I'm saying where -- in which there is no subsidies.
So this is the net CapEx, net of activation you're saying?
Net of activation, what you've got net of the activation, whatever we receive.
So this is primarily broadband in that case, right?
Broadband and the [indiscernible] on the cable front also, but some units of the CapEx which we have to incur which doesn't come back from the customer.
Just the last question from my side, the average data consumption has fallen quite dramatically in this quarter sequential basis now down to 64 GB whereas this kind of a trend we are seeing is exactly the opposite for other MSOs. So what exactly explains this?
This is basically for the 28 cities, Sanjay. This is not for the existing markets of Delhi. Delhi we are seeing in line with whatever you have been witnessing or hearing from other markets also. These are primarily tier 3, tier 4 cities where the consumption is not yet in line with the metros.
So this mid thing -- I'm sorry, this mid thing you are sharing now for ex Delhi?
Only ex Delhi for the project of 100 cities.
The next question is from the line of Vivekanand Subbaraman from AMBIT Capital.
I have 2 questions, 1 on the content side. So this quarter when we look at the net content cost -- content cost minus the placement fee that you received, that seems to have increased at a very sharp pace on a year-on-year basis although on a Q-o-Q basis it is not very much higher. So your guidance in the past has been consistent that you will see a 14%, 15% in content cost, but on a net basis content cost is inflating at a very high pace. So how should we think about the FY '19 net content cost for you? And as a percentage of subscription revenue, where do you see this number going? And then could you extend this to your discussion on the regulatory change and the discussions that you are having with the broadcast industry? That's question one. Second, the broadcast industry body of audience measurement, they are talking about set-top boxes having return paths data so -- and I believe that you are also a partner or a party to that, so any update to share on that front?
On the content and the placement, I think Vivek, what we need to look at both of these line items separately, and the reason why I say so, there are broadcasters what are doing this on a net basis, and there are broadcasters who are doing this on gross -- on gross and take them separately. And then there are FTAs where we get only carriage or placement. So we can't really look at both the figures combined. I think you should look at it separately. Contents, like we explained, also has gone up by certain percentage, like I said INR 150 crores is the run-rate that we've seen in this quarter and we should presume the same number to continue for the next 2 quarters for sure. Okay. The other piece is placement. Basically we reported INR 345 crores in the last year and we reported INR 85 crores now in this quarter, so plus or minus a little bit here or there, this should be broadly the picture. So I'm not giving you any guidances, but broadly this is where the story is. In terms of TRAI coming in and in terms of the tariff order getting implemented, content will definitely become a pass-through, so it will become a variable cost. Today with the volumes slowing down, if I have only 7.2 million customers, this cost is a fixed cost which is still hurting me. Had it been variable, my cost would have been lower. So this is a very clear upside which will come in the moment tariff order comes in. Yes, apart from the other pieces in the TRAI order which are obviously advantage to the MSOs and the cable industry. Maybe on the return path data, I would pass it on to Sharma.
Yes, as far as return path is concerned, that very much we are party to be able to plan and initial trials have been successfully done and run and the agency is quite happy with that and they are now -- asked us to increase the availability of the boxes, which in any case have already been seeded and they will be doing pick and choose and they will be starting on a bigger base post-trial runs whatsoever they wanted to do. So things are quite positive and is working effectively as far as the agency is concerned on this data related to viewing spectrums and box statistics they want together. That is I'm happy to say this much and not more than that, I won't be able to say because of the contractual obligations we have and then you need to check with the agency, they would be in a better position to elaborate further on that.
Just a couple of follow-ups. So this happy situation that you outlined on the TV viewership improving which is evidenced by the BARC survey, is that not having any bearing on your placement income because if you are able to offer a greater reach, I mean as a platform, should you not be able to get more carriage from the FTA broadcasters while your content cost goes up, how should we think about that?
We need to speak about that, it's very early days. Let's not broach the topic, let's not speculate something out of hunch or anything like that. It's a long way to go, let's see. I mean why we limit our thoughts to carriage and placement fees, there are lot of avenues that get opened up in terms of once you will have the viewership in place, then you have our own in-house channels and a lot of revenues which are yet to be exploited as far as VAS is concerned, as far as advertisements on our local channels are concerned, all these are yet to be exploited. So all that will come up to bring in more moolah to the whole setup, but let's not pre-gauge or make any sort of commitment or any sort of forecast on that.
And if I may slip in 1 last question, you also outlined that you are taking a lot of cost initiatives, scaling down on unnecessary expenditure, but if I look at the cable business overheads, I mean they seem to be moving back up now. What is the thinking on the cost structure needed to service the 7.2 million customers and how much cost optimization can we bring in, in FY '19?
So for that we need to understand there are 2 things involved. One the base itself which is moving up with inflation, inflation is also high in our country unfortunately because whatever initiatives we are taking are getting neutralized in a way by the inflation which is also impacting. So that is one. This time the OpEx was a little higher like Sharmaji also mentioned earlier, the collection efficiency dropped for which we took an additional provision in terms of doubtful debts, so we increased the provision by INR 4 crores. So these are primarily the points that I wanted to highlight, so whatever -- see, cost improvement is a continuous process and this is something that we continue to do. The major line items being very clearly manpower, bandwidth cost, content in a limited way, yes. So all these things are being carried on [ parallelly ]. Last 2 years, there have been a lot of initiatives that we have been able to take where in all these particular line items, including power supply, including synergies between cable and broadband, so all of this is available, this is what I can say.
Statistics of the last 2 years will further solidify these words that Himanshu just now spelled out.
The next questions is from the line of Rohit Dokania from IDFC Securities.
Just 2 questions from my side. One is can you talk about if there is any clarity on the 15% cap issued that was mentioned the tariff order, but the sort of Madras High Court called it arbitrary?
Yes. As far as this 15% thing is concerned, this -- according to the understanding that we have got from TRAI, it doesn't impact us at all. At the most the impacted party would be the consumer on the downside. Otherwise, as business partners, the broadcaster is supposed to declare the MRP. Then whatsoever is the discounted price that he decides to offer, he is supposed to make it transparently open to everybody and is supposed to give the details to TRAI. So that makes our lives simple and easy, supposing a particular broadcaster wants to offer 1 bouquet discount of 40% or 50%, then he is supposed to make it very open publicly and is supposed to let it be known to all the MSOs. And of course there will be some reasons and logics behind that. So as far as business is concerned, as far as MSOs are concerned, we don't get impacted because of this doing away of 15% capping.
So just to sort of summarize what you said, basically the 15% discount cap has been done away with, but whatever the discount broadcaster applies, that has to be nondiscriminatory?
Yes.
So in this scenario, I mean would it be like that bulk of the subscribers would rather go for bouquets than a la carte choosing of channels? What would be your sense given your experience in this case?
It all depends on the prices that these broadcasters declare and we are also eagerly waiting for the D-Day when they are supposed to make the formal announcements. And we are in process of even creating a special bouquet wherein if a consumer is given an option of pick and choose and he clearly decides to go on the a la carte basis, that facility is definitely available in our setup already. In any case, when there was a showdown with the broadcaster at that period that was quite a long period. Subscribers and LCOs were given an option of selecting a particular channel on a la carte basis. So let's not speculate on what kind of trend are in store, or what really is going to happen. Let this broadcaster make their mind public, let them declare the MRP, then we debate it out, then we discuss it out and deliberate. That would be a better situation.
The other questions that I had, sir, and your comments would be very helpful, is that if I'm not wrong, Jio in its analyst meet mentioned that they would be working with LCOs as well in terms of sort of launching the broadband operation. So are you sort of hearing anything on the ground in terms of Jio's discussion with LCOs and are LCOs coming back to you and sort of are their stance changing as far as business partners with Jio is concerned?
Rohit, see as far as -- however as you see it, partners, distributors, cable partners, LCOs, last-line controllers, I am yet to hear anything of that kind. All this is speculative news, so -- but definitely I appreciate a big giant telco has stepped into this kind of business. That speaks for the strength and potential that this business holds. That has also shaken up all of us, and everybody has started moving out. That in fact has helped us in this rollout plan of ours of 100 cities that we already -- before these announcements we had already started sharing with you, we already declared. In fact I'm happy to tell you that as of now, these 28 towns that we have rolled out caters to roughly 1 million set-top boxes universe that I'm talking of. So each town practically is now enabled for me and you can easily say that I have enabled broadband services in 1 million subscriber base of set-top boxes. Now it is for the LCO to register the demand from the subscriber. Once the demand comes, he is supposed to connect them and start providing the services based on the guidelines that we have given to them. And over a period of time, the numbers are likely to build up on this. When we are talking to you about 28 cities, already we have signed up the agreement with 48 cities. That is when I'm talking to you at this stage already we have signed up with 48 cities and other -- for rest of the 100 cities, the discussions are already in place and things are happening, and our cable partners are investing equally well with the same kind of enthusiasm and there is hardly any impact that I see on them. But announcement of the telco has further brought in standards you see that has helped us in regularizing the standards and qualities to be followed by the gentlemen that is our cable partners and that is helping the entire business environment per se. So in fact the same telco is responsible for data, building up the data where if we see the last 3 years' environment, all of a sudden data consumption patterns have gone up. So that all helps -- played out well in growth of the business. So as I said, India is a huge market and hardly 6% of penetration level has been achieved, so as of now there are no negative undercurrents as far as cable operators are concerned.
Just one related question, so in terms of your new model of this broadband sort of launch, so are you sort of facing any difficulty in terms of the LCOs probably sort of not being very eager to invest given the fact that they would also be aware that Jio is talking of a 1,100 city kind of a plan in terms of launching broadband. Obviously over a period of time I understand that, but is there a nervousness from their side that if they do the CapEx today, at the last [indiscernible] in terms of connecting the home and then over the next 2-3 years a Jio wave might come and sort of strike them or something of that sort?
No, as of now there are no negative indication. As I elaborated rather people are coming forward. I am also surprised the kind of enthusiasm that I am coming across and very soon we will be signing up with another 40-50 odd partners and then followed by LCOs, and in Q2 we are supposed to deliver another 20 cities. And I'm quite confident that my team will even overdo whatsoever has been assigned to them, but that will be -- it's better that we talk at the end of Q2. As of now, I am happy to share that there are no negative thoughts, there are no negative impact as far as investments by our partners on the ground are concerned.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Just continuing on the broadband part, can you help us understand about your progress made on these 28 cities? Initially it seems subscriber base is low, but if you can help us understand how you expect that trajectory of growth to be there in these 28 cities which will help us to understand how the trajectory of growth would be once we let's say 800 cities kind of milestone? So if you can help us understand how you expect [ Edison ] to play out?
Yes, you see that when I mentioned just now and gave a broad elaboration, please note down that the penetration level today is still 6% as far as wired-line broadband is concerned. And to the best of the best people whosoever is the operator today in wired-line broadband even if it is in existence for 15 years or so, the penetration level is not more than 17% to 18%, that too when we pick up the top 5 or 10 cosmopolitan towns. So when a town is open, the LCO becomes partner and they start approaching the subscribers. Subscriber shows the interest and he is wired up. This whole is quite a lengthy process. It takes time for subscriber to get registered with his requirement and accordingly the LCO extends the wire to that fellow. So it is a gradual build up. In our initial forecast, we had said that by March '19 we'll keep delivering close to 40,000 to 50,000 subscribers and in Q1 of next year -- by the end of Q1 of next year we will be touching close to 70,000 subscriber. However, when it comes to year 2 when the build-up has happened, when all these towns have been enabled, when close to a subscriber-base of roughly 5 million subscriber base of set-top boxes has been enabled, at that time you will see the penetration level picking up. I won't like to make any forward-looking statement, but we'll see the ramp-up happening at year 2 and year 3.
So broadly what you're indicating is our pace of Edison because right now we are roughly around 1 lakh kind of subscriber base. So even if let's say one take 2 year [indiscernible], broadly we are expecting it to be relatively lower kind of subscriber-base number for us because 0.2 million in overall scheme of thing is not that [indiscernible] year kind of number?
No, no, sir, you didn't get me properly. I said that in financial year '19 we will be adding net roughly in the range of 50k subscribers, 50,000 subscribers, including whatsoever we have done as far as these 100 cities is concerned. Year 2 will be a rampant growth, that is financial year '20 there will be a rampant growth. I won't -- it won't be in the range and region that the numbers that we are talking. That will be in the range of 10% penetration level of those towns, so that will grow very fast. And year 3 will be still faster than what you see in year 2. So year 1 is no indicative because all these towns there was hardly any -- there was hardly -- the people were starved out, they are very keen and eager, that is helping the whole process because explosion in data space has happened, the awareness has already come in their life by using wireless devices. Now the beauty and utility of wired-line devices are now being seen and felt and experienced by the subscriber. That is going to spread very fast in year 2. So year 1 -- numbers of year 1 are no indicate percent for year 2. Himanshu also wants to add something.
See Dipesh, what we need to understand like what Sharmaji also mentioned, see, 1 is a ramp-up period, so this is a ramp-up period, this is a rollout period that we have defined for ourselves this particular financial year. So we've already added 28 cities, we are adding 20 more. What does this mean? So we are doing contracts with the channel partners -- with the trade partners, let me say that way, distributors and MSOs. We are opening up the box. Today we are happy to share, like what Sharmaji also mentioned, with the box existing in these 28 cities, I can actually tap 1 million customers which are already there with us on the cable front. So we are already reaching there, yes. But how many of those would actually get converted would depend on the interest level. The moment the interest level comes in, we obviously hook them up. We've already hooked up 8,500 customers till now. So we should be able to ramp it up in the way that Sharmaji projected, 45,000-50,000 by this -- by the end of this financial. So this is a ramp-up period and then once everything is in, then you'll see the exponential start picking up. So this is where you would see certain volumes in year 2, year 3, yes.
Can you help in 100 cities which we have identified, what would be our set-top box installed base?
So roughly 5 million.
5 million. And in year 3, you expect that penetration to be at least double-digit kind of thing? Post rollout?
Yes. See, this is a -- this system actually works like I said, we enabled the homes already, yes, the site is already there. It's just about connecting to a particular point, wherever the customers who intends or -- are so -- is interested. So as based on the interest level we connect the customer.
And please appreciate that when we are talking about the set-top box universe, to be honest with you the universe involved is bigger than the set-top box universe because all the subscriber that are hooked up to competition or to DTH are also of level to be hooked and wired up for broadband if they want. So the game will be different when it comes to year 2 and year 3, after opening up of all the 100 cities.
Can you help us understand about the paying subscriber-base of 7.2 million what we have across basis?
We normally give our details of the total base that we have. We don't provide this phase-wise box count. If you really want to have it, you can contact us offline.
The next question is from the line of Bhaskar Chaudhry from Entrust.
Mr. Sharma, what do you anticipate about tariffs will look like post the entry of a very large player like Jio in the home broadband space?
As far as telco and a large telco entering in the home space, we are yet to hear about the pricing model and we are yet to hear about the schemes that they have to offer. So it won't be appropriate for me to make any comment on that front. As far as DEN is concerned on these 100 cities, our model clearly is based on INR 550 -- INR 500 to INR 550 ARPU as of now while we have opened up 28 cities, we are capturing a ARPU of INR 562 from these towns. So going forward, let's see how it unfolds. Our business model is quite strengthened and we can phase it till INR 500 very easily. And in any case, whatsoever are the indications from the market that so far the telecom player has done the -- whatsoever wired-line connections have been provided are falling in the range that I am talking about, the pricing that we've seen is in the range that I'm talking about.
Sir, but I mean given that the company is already at INR 550-odd ARPU and you said the business model seems to defensive till INR 500 ARPU, so there isn't a lot of wriggle room there then in that case. And I mean just going by the experience of Jio in the telecom space, ARPUs dropped quite dramatically, so how are you internally preparing for this?
Yes. See please bear with me to understand that there are 2 parts of our business. One is our existing business that has been in place, wherein the ARPU was -- just 2 years back, the ARPU was in the range of INR 500 and it has been falling, falling, falling because of wireless business tariff wars among the telcos and various other factors that you are also seeing happening in the business environment. Now our 100-city model clearly is based INR 500 ARPU range only. And whatsoever LCOs are investing, they are quite confident of ensuring that the subscriber is happy. Today the scene is wherein the subscriber is deprived of the broadband services at all, there was hunger, there was desire, but there was no service provided. Imagine a situation, we in city of Delhi, Bombay, we are already experiencing 100 Mb speed, there the speed being demanded is 5 Mb, 20 Mb, 50 Mb and that is what is also not available to them. And they are happy to pay the price for it. So I don't see any implication as far as ARPU of INR 500 or INR 550 is concerned. So now let's wait for them to announce their schemes, let's wait for them to do the proper announcement of what all they do. Let them also clearly spell out in these areas which area, what price, what kind of services they are to offer. Let's not correlate it with what happened in telecom. Telecom also if you see, if we go into allocation of telecom today, every telecom player is giving you 1 GB data consumption a day for a speed of 5 Mb to 10 Mb. That's what the speed range you people are -- all the subscriber across India. Maybe some cities might not be getting even that speed, depending on the infra of that particular telco in that particular zone. But generally overall you are getting INR 150 [Foreign Language] -- and speed of 5 Mb. So in any case the ARPU of INR 500 where you are delivering 50 Mb speed and unlimited data, is not a very conservative figure. I would say it's a very aggressive ARPU that we have put across. And we should be able to justify it as things unfold, as times come in front of us, we will handle the situation. In any case, the LCO partner is quite confident and they are coming forward and investing too, that also has the positivity with us.
And so this -- you said the growth rate will increase substantially in year 2 and year 3 of the rollout. So what kind of CapEx plan do you have for those years? Year 1, again the call you mentioned INR 50 crores for both businesses, excluding the amounts which will not be charged back to the customer; so year 2, year 3, what would be the CapEx plans for broadband?
The year 2 for these 100 cities there is hardly any CapEx. Year 1 we'll be deploying in for these 100 cities close to INR 30 crore of CapEx. That will be current year I'm talking about. The business model, if you have heard me earlier when I made the announcement of 100 cities plan, I clearly said that our plan is very low CapEx-based plan and all the money will be ensured through internal approvals only and I am seeing now that I have opened up 28 cities, that whatsoever we are doing is in line with the statement that I am repeating today again that the overall CapEx requirement would be in the range of INR 30 crores in year 1. For these 100 cities, there won't be any extra CapEx needed unless we visualize more than expected rush of the subscriber base, then here and there some minor changes in the network to strengthen the further delivery of higher requirements, that can always be enabled, that won't be much of a headache and nuisance. And if all goes well, if we are started opening another 100 cities, 200 cities, equivalent amount of CapEx would be needed extra over and above what I have just now outlined.
The next question is from the line of [ Mahima Maheshwari ] in [indiscernible] Limited.
My questions are around the television business only. So firstly with the new tariff order, we see DTH players benefiting. So with improved margin profiles, do you expect these guys to be more aggressive going forward especially in phase 3 and 4? And my next question is that over the longer term, what are the growth avenues that we see in the television business for -- especially for MSOs? Then sort of ARPU stabilize in phase 1 and phase 2, what would be the growth avenues once the penetration levels are high, the ARPUs have stabilized, so over the longer term, say, 5 to 8 years? And the last one is sort of bookkeeping question, the 7.2 million subscribers that you mentioned are all digital, is it?
Yes. Rather the exact base is 8.2 million, since because of index we are reporting 7.2 million; 1 million base is not being reported. The 3 associates of ours are not taken in books that we -- for the contractual reasons and other things for confirmatory reason. Yes. But all these are built on the ARPUs that we are declaring, otherwise I have an extra base -- extra box seeded, but those are under different schemes which we don't announce yet because 3 calls -- 3 quarters back there were some questions about how this reverse number is not matching, so we took a deliberate attempt to ensure that everything is crystal clear, whatsoever numbers we report match up with all the figures. So as far as your first 2 questions, first one was on this
DTH.
Yes. DTH -- how the DTH business would gain over cable, ma'am please appreciate if you are covering cable business, the ARPUs of cable have been lower than DTH since day 1. And the bigger DTH player has increased its ARPU to the highest level because of business reasons. At lower level of ARPU, it is -- otherwise it becomes difficult for DTH player to manage the show, the kind of overheads that they have. The beauty of cable business is the pipe, the capacity of the pipe and the quantum of traffic it can carry. There you are talking of transponders and the limitation fixed with the transponder in terms of capacity. There you are talking of the price which has unlimited spectrum, unlimited capacity to carry unlimited number of channels, irrespective of format, be it 4K format, the HD, Ultra HD, [ SuperHD ], you define any format in the world, the cable pipe is capable of taking it. Let's not speculate anything, let the broadcaster define out their MRP, let them declare their bouquet, let the process start rolling out. I am confident as video player, as cable line player that our business is going to gain a lot and you will see a reverse trend that we will be bringing back subscribers from DTH players also. That is part 1. Part 2 of what are the potentials that are yet to exploited, hidden potential, the foremost is cable is yet to explore as far as HD is concerned. So immediate 1 to 2 years the immediate gain for the cable come from HD exclusive. Then as we move the path on HD, where we have to explored or even to start on cable platform. Lot of value-added services, even if we have started giving gaming for last 1 to 2 years, there is not much of monetization that has happened on that front at all. So all these revenues plus many other kind of channels being brought in to subscriber in a niche category and the kind of format I spelled out, that all will bring in gains over the next 3 to 5 years times very easily. On top of it, as we talk of HD, SuperHD, 4K or on top of it wired, then the other platform which we have been discussing in our call also a lot of questions I have answered on broadband front, that broadband itself is a huge, huge upside that DTH cannot enable. DTH is one-way traffic. So here you have the two-way traffic through the fiber optic network that we have already in place across the country. So that is the topmost benefit that all the MSOs are going to have as far as business -- cable business is concerned. I hope I have summed up the question systematically.
Yes, sir.
The next question is from the line of [indiscernible] Raju from [ Equity Analyst Private Limited ].
My question is on the fiber-to-the-home of broadband. Off late, we are seeing some alternate technology in place of fiber like you have this lower satellite orbits and so on and they all claim that it's as good as fiber performance, a speed of 500 Mbps and so on with very low latency. My question is have we talked about it and instead of thinking about it, if we keep investing in the fiber asset, will it be a risk, any detailed color on that?
Sir, the question that you just now mentioned, if you go back 3 years in the history, that time also broadband business was being talked, was being elaborated. The other telco players, apart from the Jio, there have been 2-3 other telco players across the country, still they couldn't do wired-line broadband business because of -- despite the fact they also had fiber optic grid across the country laid and supporting their telecom, they were into data business also, but there was no explosion because of the reasons of the costs involved in the last mile because of reasons related to FTTH kind of hardware that was -- and electronics. So technology cannot be stopped, technology is over evolving, it keeps on evolving even if we are talking today, tomorrow there may be new technology, so all said and done, as far as penetration level of the broadband facility is concerned, in India it's quite low. I'm talking -- imagine I'm talking of the towns where you don't get 2 Mb speed where people are at 6% penetration level, they are literally practically deprived of wired-line business with data explosion courtesy telecom players through wireless business, now the demands have started picking up, we are seeing the smaller cities, can you imagine now Bareli, Muzaffarpur, all these towns are coming forward and looking for a speed of 10 Mb and 20 Mb. The subscriber over there is happy to pay you INR 700 for 10 Mb kind of speeds. So all this is going to take quite a bit of time. As the ARPU level stabilized, as the ARPU level gets fixed up with the subscriber in the general business environment, suitable hardware will be brought in. [Foreign Language] if I enable a subscriber and in one year time, when I haven't even brought back the money invested to him, there is a technical upgrade, it doesn't make sense for me to invest INR 10,000 today. I'd rather make INR 1,000 investment, bring back this INR 1,000 and then think of investing another INR 2,000 on the same subscriber for a upgradation of the service and part of the investment will be borne by the subscriber itself. So all these questions definitely are being valued, cost value benefits are taken into account when we unfold and select the technology to deliver the services. And we are -- please appreciate that cable MSOs, video MSOs over a period of time has fiberized their network nationwide. So we are leveraging the investments. Then a investment of INR 2,500 crore in digital infrastructure. So all that is all fiberized. Now that is done better then. Now my cable partner at their end, they have also fiberized 50%, 60% of their network. So we are talking to service provider who is already fiberized. It's only the question of last 100 meter, 50 meter, depending upon the payback from the consumer, the suitable technology is used making some business sense to the business. That is what we are working upon. That is the business model we are following, nothing more, nothing less.
Ladies and gentlemen, that is the last question. I now hand the conference over to the management for closing comments.
Thank you very much. Thanks, everybody, for joining us. And it was really very exciting to hear such a series of questions that were quite thought-provoking, and I really appreciate the interest taken by all the people involved. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, on behalf of DEN Networks, that concludes this conference. Thank you for joining us. And you may now disconnect your lines. Thank you.