Jio GigaFiber 'Wired-in' with Key Broadband Investments

Reliance Industries Ltd (RIL) acquired majority stakes in two of India's largest cable TV and broadband companies - Hathway Cable & Datacom, and DEN Networks for a combined sum of INR5,230 crore. With RIL's Jio metaphorically "wired in" to gain traction on its own broadband service named Jio GigaFiber, these investments make the right noise.

 

Last week, Reliance Industries Ltd (RIL) made two strategic investments in India's two largest cable TV and broadband companies or MSOs - Den Networks, and Hathway Cable & Datacom. RIL invested INR2,290 crore for 66% stake in Den and INR2,940 crore for 51.3% stake in Hathway, resulting in a combined INR5,230 crore of investment spend. 

These MSO investments are largely directed to steer RIL towards ramping up Jio's push into high-speed broadband network, by leveraging Den and Hathway's fairly robust Local Cable Operator (LCO) network. Access to LCO network is pivotal for Jio to accelerate its "last mile connectivity" build-out. Consequently, these investments can be viewed as key facilitating anchors for Jio to achieve its target of reaching 50mn homes across 1,100 cities. Recall that Jio introduced plans around its broadband service Jio GigaFiber recently, and it is widely expected to deploy a similar pricing strategy to the aggressive tactics employed for Jio's swashbuckling 4G rise. Jio's 4G was seen as an 'aggressive new entrant' and by the looks of it, Jio's GigaFiber appears to be borrowing a page from the same playbook. In that context, an accelerated go-to-market strategy allowing quicker realization of scale benefits to offset margin pressure is perhaps central to Jio's near term strategic outlook.  

 

Den and Hathway's existing relationships with LCO's is a key underlying strategic rationale for RIL's investments. There are about 27,000 LCO's that are aligned with Den and Hathway and as such these offer important touch points for Jio GigaFiber's broadband penetration. 

These LCO's provide RIL with direct access to about 24mn homes, across 750 cities where Den and Hathway already offer broadband services. By bringing Den, Hathway, and the related LCO's within the larger RIL ecosystem, Jio can speed up the upgrade of its existing infrastructure to Jio GigaFiber, while harnessing tremendous capex and revenue synergies between Cable and Broadband and perhaps venture into triple-play (Wireless, Broadband and Cable) offerings. LCO's remain a largely unorganized and fragmented sector but play a key role in last-mile connectivity due to their direct relationships with Internet service providers. In that context, these relationships are key for RIL. As a side note, LCO's themselves have been under market pressure owing to competition from DTH operators like Airtel and Tata Sky and as such RIL's investment in MSO's should strengthen their positioning as well.

 

At an estimated 18mn broadband subscribers, Fixed Line Broadband (FLBB) in India is still in in its nascence, offering meaningful growth runway. 

As per TRAI, Fixed Line Broadband (FLBB), in India has about 18m broadband subscribers, with the following market shares - BSNL: 58.8%, MTNL: 4.1%, Airtel: 10.3%, ACT: 6.2%, Hathway: 3.7%, and Others: 16.9%. Furthermore, India's FLBB as a % of Total Households (THH) in mid-high-single digit on a % basis, is one of the lowest in APAC. While a gloomy statistic, it paints an optically positive picture when viewed in terms of growth runway.

 

Notwithstanding meaningful presence in Cable, Hathway and Den have fairly modest footprint in Broadband, indicating meaningful upside especially with RIL on board.

 As per most recent company presentations, Hathway has 0.77mn broadband subscribers while Den has 106,000 broadband subscribers - both fairly modest numbers. Despite that, Hathway is India’s largest cable broadband services provider, with 5.5mn homes-passed and 0.77mn subscribers with a 52% market share of the total MSO cable broadband market in India. On the Cable Front, with 7.2mn subscribers each, Hathway and Den have a more meaningful presence with majority of these cable subscribers being managed through LCO's. Hathway's presence in 350 cities and Den's presence in 200 cities bodes well for the several touch points that Jio can manage to leverage. Furthermore, their geographic presence is somewhat non-overlapping with Hathway (more prominent in Central and Western India) and Den (more prominent in the Northern belt) allowing a wider geographic gamut for Jio to explore.  

 

Capital infusion from RIL should help Den and Hathway improve their balance sheets, while providing funding resources for growth and maintenance capex.

RIL's capital infusion should help both Hathway and Den in de-leveraging their balance sheets while also supporting incremental capex towards upgrading existing infrastructure and also laying out new cable lines. While, Hathway and Den are both seeing fairly meaningful EBITDA growth led largely by the Cable business, with RIL on board, one could possibly envision acceleration in EBITDA growth and margin expansion via economies of scale. As both the companies try to penetrate deeper into existing markets and possibly venture into newer ones, access to RIL's deep coffers in addition to back-end technology and infrastructure are perhaps meaningful positives. With cable broadband still in its early innings, it would be worthwhile to see how independent MSO's and RIL's Jio GigaFiber evolve over time.

 

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