DTH service provider Tata Sky's MD and CEO Harit Nagpal's career started as an export manager in erstwhile Lakme, and later at Pepsi. He was group marketing director at Vodafone Essar before joining Tata Sky. In the past ten years, he has seen the exponential growth of mobile subscribers backed by a continuous drop in call charges, before he moved to the DTH space in Aug 2010. In over a year, he revamped the operator's customer service infrastructure and repackaged its products to make them more customer-friendly. In an interview to FE's Sohini Mitter, Nagpal sheds light on synergies between telecom and DTH, the need for outsourcing operations, challenges in penetrating semi-urban markets, shortage of bandwidth and high level of taxation that cripples the sector. Excerpts:
How was the transition from mobile telephony to DTH? Did synergies between the businesses come in handy?
DTH is now at a stage where the telecom industry was eight years ago. Both business are similar in terms of operations. We are not selling packaged goods which the customer buys from a retailer, without getting in touch with us. These are businesses where the customer's hands have to be held at different stages of his life cycle. And you need to have a strong service infrastructure for that.
Infrastructure must be the biggest challenge to scale up. How did you manage to do this?
Scaling up is always a challenge in high growth phase. The back end and distribution networks have to be strengthened. To service 10 million customers, you need skilled people. Hence, it is important to outsource parts of operation, while keeping process and quality control to yourself. It also helps the operator to focus on his product and services.
What is your outsourcing strategy?
Anything that requires scale is outsourced. Distribution and logistics are outsourced. There are separate distribution partners in every geography. Customer service management, field repairs and installations are completely outsourced. This is an efficient way of customer retention and acquisition. But, design and quality control is handled internally. It helps us to keep tabs on customer demands and re-package our products accordingly.
When you entered the market, you positioned yourself as a premium DTH player. With your recent changes in pack prices, are you trying to become mass?
It isn't re-pricing, but customising the product. We realised that customers were not at ease with packs called ‘Gold and Silver’. That was the starting point of our genre-based packages like English Movies or Hindi News etc. Customisation happens in every category. When you enter the market, you aim for the creamy layer. To increase penetration, you have to re-package. The challenge lies in catering to the top-end customer who you picked up five years ago and the new one in a non-metro market, who's looking for affordable entertainment.
Is penetration in the semi-urban/rural market challenging?
The biggest challenge in these markets is the presence of DD Direct whose subscriber base is anything between 7-27 million. If somebody's charging half my price, I can create a low-cost package with lesser content. But if somebody is selling for free, I can't compete against that. If entertainment and news is such staple diet that the government is forced to provide it free of cost, then why is entertainment tax levied when DTH platforms provide it? How is addressing the addressable digitisation agenda? This is a dichotomy we haven't understood. Despite this, there's always a discerning customer who opts for a full bouquet of channels and pays for it.
DTH broadcasters cry hoarse over high taxes. How does it hurt you?
It is too high a tax for a nascent industry which is yet to break-even. It is going through the investment phase and a 30% tax is crippling operators. In certain states, it is close to 40%. Despite DTH, occupying only 20-25% of the total pay TV market, we contribute by way of taxes and revenue share, equal to what cable TV does. That speaks for itself.
Has Trai made any recommendations regarding the tax structure?
We are in touch with the government. Trai has recommended a brief tax holiday for DTH operators. We don't want taxes to be abolished, but seek respite. It will allow us to plough the money back into the system and deliver addressable digitisation much faster. We are hoping that the issue of taxation will be addressed in the 11th Five-Year Plan and entertainment tax will get subsumed in GST too.
The government has given the nod for 700 new channels. Is there enough bandwidth to support it?
Bandwidth is a challenge in every tech-based sector. The need is stronger for the government and the broadcasters to move from analogue to digital, than it is for the customer. Isro is working with operators to help resolve the shortage. Tata Sky has exhausted its satellite capacity. As soon as we get more bandwidth, we will carry more channels that the customer wants.
Does the presence of a global partner like Sky help you in operations?
Technology and content management are the two key areas, where Sky's expertise and experience comes into play. They understand the operation in and out, while we understand the geography and demands of the local customer. It is a heady mix of both.
How will 74% FDI change the DTH landscape?
The market is still growing. With every new entrant the activity increases for the entire category and benefits everybody. But the high level of taxation will act as a deterrent for foreign players. In such a competitive space, where there's very little scope for increasing prices, making money is difficult. Foreign investors will put money in businesses that give more returns in quick time.