India Broadband Forum

yoursraman

MUMBAI: Profits are set to improve for DTH (direct-to-home) players due to reduction of Cenvat from 14% to 10%. The sops announced by the government on Sunday has provided a much needed boost to existing players, reeling under the high cost of imported set-top boxes (STBs) and multiple taxes by the Centre and states. However, the industry is not talking of passing on the benefits to consumers at this point.

DTH players were, in fact, debating a price hike last week, as the weakening rupee had substantially increased the import cost of set-top boxes. Currently, around three million STBs are imported by DTH operators per year.

According to estimates, a DTH player buys an MPEG2 STB at about Rs 1,568-2,450 and an MPEG4 STB (higher compression technology) for Rs2,500-3,038. However, it acquires a subscriber for around Rs 2,600-5,600 per STB. The subscriber acquisition cost of DTH operators include the STB cost, monthly content cost, advertising and promotion cost.

In the past couple of months, most DTH players had reduced the STB prices as well as subscription prices. The lowest monthly subscription fee hovered around Rs 99. The price war coincided with the entry of new players in the market--Reliance ADAG and Bharti Airtel.

Unable to keep prices in check, most players were contemplating a price hike. The government's move now seems to have come as a blessing. Jawahar Goel, MD of Dish TV, which has around 4.5 million subscribers, said the sops outlined would not just help contain the spiraling cost of set top boxes, but would also have an impact on the capital expansion plans of the sector and clearly, improve bottom lines.

"DTH players have been reeling under intense pressure and multiple taxes, at around 45%. Though subscribers watch it in the comfort of their home, they are charged entertainment tax. This needs to be corrected. Further rationalisation of taxes can help us pass on benefits to consumers,'' Goel added.

Added Vikram Kaushik, CEO of Tata Sky: "The DTH industry has been offering huge price discounts to consumers. The industry has been chronically saddled with a complex and burdensome tax structure. There is double taxation where despite the levy of service tax many states also impose entertainment tax. The latest initiative would mitigate the tax burden on the industry somewhat.''

Sources at Big TV, however said, "The current duty rationalisation would not provide any immediate benefit to DTH customers, as there has been nosignificant change in the dollar strength. The rupee has weakened by over 25% over the past few months. The current reduction in VAT will not provide immediate relief and the industry will take sometime to recover its investments.''

Sources pointed out that DTH services are subject to multiple levies--a licence fee (10%) on gross revenue to the I&B ministry, service tax (12.36%) on subscription fee revenue earned by the DTH service provider, entertainment tax (10-20%) collected by different states and another 12.5% VAT levied on the purchase of hardware by the consumer.

Article in Times of India, today