Reliance Communications Acquires Digicable In All-Stock Deal

[Arun 795]

Press Trust of India

July 1, 2010 (New Delhi)

Anil Ambani group firm Reliance Communications on Thursday announced acquisition of Digicable, the country's largest cable TV service provider, in an all-stock deal.

The board of RCOM approved the proposal for the acquisition in a meeting held today, the company said in a statement, but did not disclose the value of the deal.

The fresh acquisition of the company comes within days of it announcement to merge its telecom tower business with GTL infrastructure in a Rs 50,000 crore deal.

The new entity named "Reliance DigiCom" will integrate RCOM's DTH, IPTV and Retail broadband operations, with Digicable.

The deal would create Asia's largest and the world's fifth largest entity offering full-suite of Digital TV, ultra high-speed broadband and voice services.

Commenting on the acquisition, RCOM Chairman Anil Ambani said: "the Digital TV and Broadband space is poised for similar explosive growth in the years ahead.

"With this game changing move, we hope to lead the next revolution in digital home entertainment in India, by offering a world class TV experience and ultra high speed broadband capability to a billion people."

Established in August 2007, Digicable is one of the largest Cable TV service providers in the country. The company is promoted by Jagjit Singh Kohli along with Yogesh Shah.

Kohli has been a pioneer in Cable TV and Broadcasting industry with several path-breaking achievements to his credit.

Reliance Digicom will have combined subscriber base of 11 million homes, the company said.

[parin 857]

Thats great for Reliance

Hope customers get benefitted

[Arun 795]

Official announcement: http://www.rcom.co.in/Rcom/aboutus/ir/pdf/Acquires_Digicable.PDF

[Arun 795]

Reliance’s move for Digicable must be a first step

Informa Telecoms & Media

July 14, 2010

Reliance Communications’ purchase of a majority stake in leading cable operator Digicable has again proved that the Anil Ambani led company is capable of pulling a headline-grabbing deal out of the bag, but what does the acquisition really mean for the company’s ambitions in the Indian broadband market?

After seeing the much-anticipated Broadband Wireless Access (BWA) auctions dominated by Infotel Broadband Services – backed by Reliance Industries (RIL), the company owned by his brother and business rival Mukesh Ambani – Anil Ambani must have realized that the broadband ambitions of Reliance Communications (RCOM) had taken a hit.

Although RCOM had performed well in the country’s 3G auctions, winning spectrum in Delhi, Mumbai, Kolkata, Punjab, Rajasthan and Madhya Pradesh, the firm is expected to use the 3G spectrum mainly for voice rather than broadband services because of the shortage of capacity for voice services.

Infotel Broadband Services landed nationwide spectrum at the BWA auction – from which RCOM withdrew once the bidding got far hotter than it had originally expected – and it looked like the elder of brothers has positioned his firm better in the broadband marketplace.

However, the deal for Digicable – theoretically at least – swings the broadband pendulum back towards RCOM because it potentially gives the operator access to a genuine mass market of fixed-line broadband subscribers at whom it can target triple-play or even quad-play services.

In addition, although RIL’s swoop for Infotel has given it 20MHz of 2.3GHz spectrum in all of the country’s telecom operating circles, the firm’s preference to use TD-LTE rather than WiMAX for its network rollout means that it will not be able to deploy commercial broadband services for around two years.

The deal

Once the deal for Digicable, which has around 8.5 million cable TV subs across India, has been completed, the cable operator will be merged into a new firm, Reliance DigiCom, which will also house RCOM’s BigTV DTH services as well as its nascent IPTV offerings.

RCOM has yet to publicly confirm the details for the Digicable deal but local reports say that the all-stock deal will leave RCOM with a 60% stake in Reliance DigiCom with the remainder of the new firm owned by current Digicable shareholders, including the firm’s founder JS Kohli and UK private equity firm Ashmore.

However, although the deal unquestionably strengthens RCOM’s presence in the pay TV market by combining Digicable’s huge cable subs base with the BigTV DTH platform, the value of the deal in helping RCOM significantly improve its position in the broadband market is harder to ascertain.

Although Digicable’s headline numbers of fast-approaching 9 million cable TV subscribers are impressive at face value, it is the quality of those subscribers and the networks on which they offer services which is of paramount importance to RCOM’s broadband ambitions.

The masterful leadership of JS Kohli has helped Digicable become the largest MSO (multiple system operator) in the Indian market within by October 2009 – little more than two years after it launched services in June 2007 – with the rapid ascent being fuelled by a combination of acquisition deals – the firm had already bought around 70 independent MSOs or local cable operators (LCOs) by the end of 2009 – and franchise agreements LCOs.

However, as with all of the country’s MSOs, the vast majority of Digicable’s subscribers are not owned directly by the firm but are instead controlled via franchise deals with LCOs. This type of deal has been one of the traditional barriers to the growth of cable modem services in India. Although the MSOs are happy to find the capital to fund their own network upgrades in order to offer cable modem services, they are very nervous about funding network upgrades for LCOs that might easily switch their allegiance to another MSO once their current franchise agreement expires.

The execution

RCOM has traditionally been hamstrung in India’s fixed-line broadband market by a lack of last-mile connectivity – principally because of the Department of Telecommunications’ continuing refusal to unbundle the last-mile networks of state-owned BSNL and MTNL – forcing RCOM and other private players to deploy their own last-mile copper networks.

RCOM has already rolled out an Ethernet-based network, which it has connected to around 1 million buildings in 44 cities and which it hopes to extend to 1.5 million buildings by the end of 2010 – although this network is targeted at the corporate rather than the residential market.

As a result, RCOM is faced with two choices if it wants to have significant presence in India’s residential fixed-line broadband market – either roll out very expensive FTTH/HFC/DSL networks or buy operators that already own network infrastructure.

This is where the Digicable deal really comes into play because it potentially gives RCOM a fixed-line connection to a huge residential subscriber base – although RCOM will now have to invest a great deal more capital to bring this link to full fruition.

At present, Digicable’s cable modem business is run through its sister company Broadband Pacenet which has rolled out cable modem services to corporate and residential subscribers in several cities including Mumbai – and the firm does hold a nationwide ISP license.

The task now for RCOM will be two-fold. The first will be to invest in upgrading the last-mile networks of the LCOs which are directly owned by the new Reliance DigiCom in order to allow them to offer cable modem services, which will allow RCOM to seriously attack the fixed-line residential broadband market.

The second will be to work through the huge list of LCO franchisees and figure out which of these has real value in potentially offering cable modem services and then try and strike acquisition deals with those operators with a view to then upgrading networks to offer cable modem services.

The deal to buy Digicable is potentially a game-changing move by RCOM in India’s broadband market but the devil will really be in the detail of the execution as the firm tries to transition Digicable from a plain old MSO to a next-generation triple-play operator.

[Arun 795]

Reliance Digicom to start operations by December

Wednesday, Oct 20, 2010 at 0130 hrs IST

Reliance Digicom, the standalone entity planned by the Reliance Anil Dhirubhai Ambani Group (ADAG) for offering direct-to-home, IPTV, broadband and cable TV services under one roof, is expected to become operational by the year end, sources in the cable TV industry said.

Reliance Communications had announced the formation of Reliance Digicom in July after it acquired Digicable in an all-stock deal. Big TV (DTH arm of ADAG), IPTV and retail broadband along with the existing cable TV business of Digicable will be part of Reliance Digicom.

According to cable TV industry sources, Reliance Digicom is facing impediments due to differences over shareholding pattern in the entity, post merger. Also, there are diffferences among the stakeholders over the actual subscriber base and the number of cable operators who should come under the merged entity, sources familiar with the matter said.

According to sources in RCom, Digicable’s holding in Reliance Digicom may stand at less than 15%.

However, Digicable wants a bigger share as it will bring 10 million out of 14 million subscribers of the merged entity, a source familiar with the matter said. Big TV DTH with 3.5 million and, Reliance IPTV and retail broadband with 0.5 million would complete the subscriber base.

While Digicable denied any trouble between the two parties over the proposed merger, Reliance Communications did not respond to email queries sent by FE on the formation of Reliance Digicom and its alliance with Digicable for over four days.

When contacted, JS Kohli, CEO of Digicable, strongly refuted any problem in Digicable's merger with RComm.

“We are happy to place on record that Digicable’s merger with DTH, IPTV, broadband businesses of Reliance Communications is proceeding very smoothly as per plan and in fact a high level of integration has already been achieved between the two organisations to the extent that we have now started operating from common premises,” Kohli told FE.

Industry analysts said the formation of Reliance Digicom will make ADAG the biggest media conglomerate as it is already present in film production and distribution (Big Pictures), FM radio and broadcasting (RBNL), film exhibition (Big Cinemas), animation (Big Animation), movie rental (Bigflix.com), and social networking (Big Adda) among others.

Reliance Digicom, once operational, will be the largest operator in DTH, cable, IPTV and broadband space.

However, experts said the challenges of mergers including synergy in human resources, information technology and billing.