CNBC TV18, controlled by Reliance Industries, reported that the diversified company is likely to announce its acquisition of two of India’s top cable companies, Den Networks and Hathway Cable and Datacom, tomorrow.
The TV channel, controlled by Reliance via a trust, said the acquisition is likely to be announced along with RIL’s second-quarter results on Wednesday.
The deal will be done in two phases, and will result in the ‘full acquisition’ of these two companies by Reliance, including a stake of 70% in each of them.
The first phase will involve the acquisition of a “controlling majority stake” through the issue of fresh shares by Den and Hathway in favor of RIL.
This will be followed by an open offer to allow minority shareholders to tender their shares, resulting in a ‘full acquisition’, said the report that quoted sources in the know.
The report also said that the deal will give Reliance Jio, the company’s telecom arm, ready access to 20 mln (2 cr) wired subscribers, along with ‘right of way’. Right of way is granted by local administrative bodies such as municipal governments, and can often cost a lot due to the lack of standardization in such charges.
Jio already has a pan-India license to operate cable TV networks.
The CNBC report said that that initially, Jio will provide ‘video to home’ services, followed by full broadband services after the wires are upgraded from copper to fiber.
The deal is likely to face some regulatory scrutiny because of Reliance’s considerable presence in related industries such as media and telecom.
Reliance is already the biggest player in telecom services and carries over 50% of India’s wireless data.
It is also owns India’s biggest network of TV news channels, as well as one of the country’s top four entertainment TV chains.
Companies like Den and Hathway have been largely unable to tap into the lucrative market for wired broadband services as they have just completed a punishing upgrade cycle, involving the deployment of proprietary digital technologies on their networks to meet a regulatory deadline for switching off analogue services.
Jio, instead, is deployed the standard Internet Protocol (IP) technology on its network, allowing it to deliver its television channels as well as additional services like IPTV (with rewind and video-on-demand), broadband access, video conference and telephony.
While CNBC said Jio will upgrade the copper network of Den and Hathway to fiber, it remains to be seen how it will deal with demands from local partners and franchisees of these companies — called Local Cable Operators — for a share of the total revenue from a home.
Typically, the monthly subscription charge paid by the customer is routed through the franchisee, who also owns the last mile copper. Given that the ‘ownership’ of the last mile — and therefore the customer — is with the local partner, the LCO also keeps a share of the subscription fees and passes on the rest to feed providers like Den and Hathway.
One way that companies have tried to negotiate with the problem is by forcing subscribers to route all their payments for value-added services — like broadband — straight to them via online payments.
Reports about merger talks between these cable companies and Reliance first started surfacing a year ago, leading to a sharp run in the share prices of these companies, especially Den.
At the time, the companies had refused to comment specifically on the matter.
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