For Tata Sky, TTSL broadband may be a good deal

Why should Tata Sky, the Tata group’s direct-to-home (DTH) business, buy out the fixed-line and broadband business of Tata Teleservices (TTSL)? After all, it is doing well — with a 23 per cent share of the 62.65-million DTH market, Tata Sky is closing in on arch rival Dish TV (24 per cent).

It’s a question that has been baffling analysts who do not see any synergy in the two businesses.

Last week, TTSL had announced it was selling its consumer mobile business to Bharti Airtel. TTSL also said it was considering selling its broadband and fixed-line business to Tata Sky, a joint venture in which Tata Sons owns over 51 per cent with Rupert Murdoch’s Twenty First Century Fox (with around 30 per cent) and a few other stakeholders like Temasek Holdings, some Tata companies and funds.

Based on the data from the Telecom Regulatory Authority of India, the Tatas have around 1.8 million fixed-line customers, but are not even among the top-five broadband players. That is why, an analyst report by Kotak points out that while merging the home broadband business with Tata Sky would be an interesting move, there are no obvious synergy benefits.

But for Tata Sky, there is method in madness. The DTH firm has been looking at the viability of offering broadband services to its customers. That is because among them there is a niche base of customers who also watch shows on over-the-top (OTT) platforms such as Netflix, Amazon Prime, YouTube or Eros. Tata Sky wants to offer them a comprehensive choice — DTH as well as broadband to access channels, video-ondemand, and only-net entertainment channels, amongst others — so that they do not have to go elsewhere.

Such customers, of course, are limited at present, but are a growing tribe. According to estimates, Amazon Prime has over 2 million subscribers. However, it is not possible to gauge actually how many are watching shows on TVs and how many are watching them on mobile phones.

With data speeds increasing and their prices falling by over 90 per cent in a year, the number of OTT platforms with exclusive content is bound to increase. And, the number of overall subscribers is also hitting new highs. Hotstar already has over 100 million subscribers.

Those in the know say that apart from TTSL, many other local and regional players have also approached Tata Sky to sell their broadband network.

But the DTH operator is still debating the viability of getting into this new area. They are still unclear whether they want to expand their business and foray into broadband, or stick to DTH and grow organically.

After all, the market is very small at present, especially for subscribers using the TV to see broadband-supported OTT platforms. In contrast, there are 160 million customers who are hooked to TV through cable or DTH.

Also, OTT channels are expensive. For Netflix, one has to fork out ~500 a month, and for regular viewing add in another ~1,000 a month to pay for broadband. In comparison, a consumer pays an average of ~200 a month to see DTH with a large choice of channels.

Those in the know say that TTSL would not bring in a large number of captive customers to Tata Sky. Most of these customers may also not be interested in subscribing to OTT platforms, as a majority of them could be using TTSL services for fixed-line calls or basic broadband services. But that is not what Tata Sky is interested in offering.