See Rs 60 avg revenue/user from phase III cities: Siti Cable

Siti Cable's activation revenue grew to Rs 130 crore from the usual Rs 30 crore on the back of Digital India campaign and this trend is likely to continue for the next two quarters, says VD Wadhwa, CEO and Executive Director of the company. Speaking to CNBC-TV18, Wadhwa says the company is targeting Rs 60 average revenue per user (ARPU) from phase III cities and full year benefit will be realised by FY17."Subscription has risen 5-6 percent as opposed to the analog era," he says, adding, "as and when the business becomes fully digitized, the company’s ARPU will grow at least 5 times".Below is the transcript of VD Wadhwa’s interview with Mangalam Maloo and Reema Tendulkar on CNBC-TV18.Mangalam: First up, the activation revenue bump-up that we have seen could be alluded to the Phase-III digitisation, so do you see this sustaining, considering your normal quarterly run-rate has been around Rs 18-19 crore and this quarter, it has jumped to Rs 105 crore? Is that sustainable going forward? What is the run-rate we can expect?A: Normal quarter has not been less than Rs 30 crore or so and this quarter also has been close to that figure. And there is an incremental amount of about Rs 100 crore odd activation. So, at least for the next two quarters, this trend is going to continue and in fact, we shall be better than this, even the current quarter numbers itself. And once the digitisation Phase-III is complete, thereafter, this activation revenue will be substituted by the subscription revenue on a regular basis. So, the nomenclature will change but I think the overall trend should continue. And the next year, obviously, when the subscription revenue will start coming in, there will be some cost pressure also, because there is an incremental cost base and the incremental subscriber base. So, the numbers will stabilise more or less, but this is spot, which is for the next two quarters will definitely continue.Reema: Coming to your subscriber revenues. That has been stable at around 7 percent this quarter, even in the prior quarter. Once this Phase-III digitisation kicks in, this activation revenue gets translated into subscriber revenues, what could be the income we should expect for FY17? And secondly, what could be the extent of margin pressure?A: For the Phase-III, you have to understand, currently we have roughly 3 million set top boxes on a voluntary digitalisation basis, and December 31 was the deadline which unfortunately got extended by a couple of states for two months. So, the monetisation will start happening only when we are out from all these stay orders and other things which hopefully should happen from April 1. And in some of the markets, we have already started collecting money from the current month itself.So, full year benefit, you will see in the FY17 and we are expecting on a weighted average, we should be realising at least Rs 60 per month per subscriber in the Phase-III market itself. In addition, Phase-I and Phase-II yes, there has been a marginal growth, as you rightly said, 7 percent or so, but we expect this between 7-10 percent, there will be growth in the subscription revenue in the existing phases also, Phase-I and II itself. But the major spurts will happen in Phase-III.Reema: So, on a blended basis?A: On a blended basis, more than the percentage, if I say that currently I am realising less than Rs 10 per subscriber in the Phase-III market, my Phase-III subscriber base is about 6 million and I have seeded about half of that and balance half I shall be seeding now. So, the subscription is going up by 5-6 times as compared to what I used to realise in the analogue era. So, it will not be a percentage. It will be dealt out 2x, 3x kind of subscription revenue which we can witness in the coming year.Mangalam: Could you also give us some colour on your average revenue per user (ARPU) as far as your digital and your analogue business is concerned in the existing Phase-I and Phase-II cities?A: Phase-I, we are realising about Rs 103 per customer ARPU which is Delhi, Mumbai, Kolkata. In the Phase-II market, our realisation per customer is about Rs 76 on net of tax basis. And Phase-III as I said that currently on a six million base, we are generally realising about Rs 6.5 crore analogue revenue currently. As and when this business becomes fully digitised, this should go up by at least five times; the Phase-III ARPU. So, in the first year, we are targeting that somewhere, it should be between 50-60 per subscriber per month on a full-year basis and obviously, within a gap of two years or so, the ARPU then, in all the three phases should be at par with each other.Reema: You said that the cost associated with Phase-III digitisation would be higher. So, in FY17, how much would the cost associated with the subscriber revenues go up?A: I said there will incremental cost of adding the digital subscribers, but the incremental revenue will be significantly higher than the cost, because most of the broadcast, the biggest cost is the content cost and we have already signed the content cost deal with the Star, Zee and IndiaCast bouquet which is on a fixed fee basis. So, we have frozen our cost. I can say that for the next two years, at least, we have a clear visibility in terms of our content cost and it is not going to go up significantly. So, the incremental margin will be flowing into the bottomline. So, whatever you are seeing in the current year because of the activation revenue, a large portion of that will get substituted with the subscription income coming into this.So, the real cost factor will come in only after two years and the cost will be moving into cost per subscriber. This is in the Phase-III market.More to follow