Here's a quiz: What's the government ruling that has sparked off a race amongst companies like Videocon, Thomson, Philips and hi-tech giant Motorola?
A hint: it revolves around a small black box that will be placed on top of television sets starting later this year. Another hint: the market could be worth about Rs 1,000 crore (Rs 10 billion) in the first year itself.
The answer is, of course, the government's decision to introduce Conditional Access Systems for cable television. Starting on July 15 anyone in the four metropolitan cities who wants to watch cable or satellite programmes will have to own a set-top box that will control access to all those stations we've got accustomed to viewing.
There's a small problem about the set-top boxes that are the key element in the conditional access regime. There aren't any in India at the moment. And, we'll need anywhere between 1.5 million and 5 million boxes by July.
The hardware manufacturers, who see this as a golden opportunity, are raring to start making the boxes. Videocon, which is planning to manufacture 2 million set-top boxes, says it has already started trial runs in Aurangabad. The company has already invested Rs 10 crore (Rs 100 million) on its assembly line.
Says a confident Venugopal Dhoot, chairman, Videocon Group: "We expect to sell our product at Rs 4,000 and have already started production with 50 per cent indigenisation. We are importing the chipset from Taiwan."
Dhoot certainly won't have the market to himself. Motorola is already pushing its digital boxes in India and is actively looking at a manufacturing plant if volumes permit.
Says A K Sekhar, country sales manager, Motorola India: "If we are able to get 1 million to 1.5 million set-top boxes in the next three or four years then we will surely put up a unit in India."
Not to be left behind US major Thomson expects India to be a key market for set-top boxes. The company makes around 3.5 million boxes all over the world and hopes to grab a large market share by offering digital boxes for between $80 and $120 a piece. It is already scouting around for a factory. Other companies like Philips are also readying for a giant battle later this year.
The international players won't have the field to themselves. Cable equipment manufacturer Catvision has tied-up with British manufacturer Dalvi and hopes to grab over 30 per cent of the analog set-top box market by keeping prices at between Rs 3,500 and Rs 4,000. Catvision has teamed up with local manufacturer Deltron, part of the Continental Devices group.
Says Athar Abbas, director, Catvision: "Deltron will manufacture for us. The chip set will be imported from Dalvi and we will market and service the product."
At a slightly different level, HFCL has already developed an indigenous chip for the analog set-top box, that will increase security and prevent hacking, key concerns with these boxes.
So what is the big rush all about? The answer is simple: it is the lure of a gigantic market. The government has ruled that in the first stage CAS will be implemented in the four metros by July 15.
According to current figures, there are 6 million cable homes in the metros. Most estimates are that at least 1.25 million to 2 million homes will need set-top boxes immediately.
So, it is conservatively reckoned that the market size could immediately leap to anywhere between Rs 300 crore (Rs 3 billion) to Rs 1,000 crore. The large variation is because it isn't clear whether customers will be using the cheaper analog or the costlier digital set-top boxes.
What's more, world production of set-top boxes is currently around 20 million. And, as demand in India climbs it is reckoned that in the next six to 12 months India could well form 20 per cent to 25 per cent of the world market.
Nobody quite knows how many customers will switch to the costlier set-top boxes. Initially, there will be price resistance but it is reckoned that most will buy the boxes eventually.
Says Sanjiv Kainth, general manager, digital products, Thomson Multimedia: "In metros we expect eventually 60 per cent to 70 per cent of the consumers to convert towards pay channel in the next one year. So that means 36 lakh (3.6 million) to 42 lakh (4.2 million) homes. That is a huge market."
And that's only the tip of the proverbial iceberg. CAS will quickly be extended around the country. There are 4 crore (40 million) cable homes in India. That's double the number of set-top boxes produced worldwide. So if CAS had been implemented across India at once it would have triggered a global shortage of set-top boxes.
But the government ruling has left a huge number of grey areas, which has left would-be manufacturers in a quandary. One key problem is whether customers should use digital or analog set-top boxes.
The digital boxes are reckoned to be tougher to hack and the large companies like Thomson, Motorola, and Videocon are pushing strongly for them and so are the giant cable operators who will be selling the boxes to customers.
Some manufacturers argue that analog production is falling worldwide and that digital boxes will soon become cheaper. Sekhar predicts that prices will drop by at least $10 in coming months. His view is backed by Dhoot.
"We realised that the difference in making a basic digital and analog box is only Rs 200. So what is the point of going for analog at all," says Dhoot.
The operators favour digital because analog can only beam a limited number of channels. Also, the digital boxes can offer a number of extra services.
Says a Siticable executive: "Most of our networks cannot take more than 67 channels on the analog box. So I have no choice but to go for digital to accommodate the growing number of channels."
But analog supporters say there will be huge price differences -- always a key factor for Indian customers.
Says Arvind Kharabanda, executive director, HFCL: "We expect the majority to shift to analog especially in B class and C class cities because of low cost both to customers as well as cable operators."
For cable operators too the digital systems could be costlier. It is believed that cable operators will have to spend extra per channel for digital. The Hindujas, for instance, say they will be forced to spend an extra Rs 30 crore (Rs 300 million) to make their network ready for CAS.
Additionally, they have to upgrade cable lines into the customer's house, which will cost roughly another Rs 1,200 per subscriber.
Says Abbas: "The existing cable network is not robust enough for digital boxes. The picture quality will suffer."
But while manufacturers slug it out, the key question is whether customers will fork out cash for the boxes? In fact, many believe the government has created an amazing situation by enforcing the CAS regime.
Says an industry insider: "The government is asking 40 million cable customers to pay over Rs 20,000 crore (Rs 200 billion) so that it can regulate the cable industry which is worth Rs 5,000 crore (Rs 50 billion) and where the revenue from pay channels is Rs 1,000 crore (Rs 10 billion). I think no customers will buy this bait."
Or, look at the whole issue another way. As Dhoot points out: "The crucial test will be whether customers are ready to fork out the equivalent of buying a small colour TV to see pay channels."
Are there ways to cut the costs of the entire exercise? Even the big players like Motorola are trying to introduce a no-frills box for India.
Also, the Chinese and Taiwanese are ready to offer analog boxes for as little as Rs 1,500. However, such boxes can probably be hacked easily and will not have service backing.
And HFCL hopes its indigenously developed chip set will enable it to cut analog box prices to under Rs 3,500. Similarly, Catvision expects to slash prices by at least Rs 500 to Rs 1,000 once its starts manufacturing here.
At another level, manufacturers are lobbying for duty cuts on imported boxes and components. CETMA -- the consumer electronics association has petitioned for customs duty on imported boxes to be cut from 30 per cent to 10 per cent.
Says Suresh Khanna, secretary-general Cetma: "This will help to bring down analog box prices to Rs 2,500 and digital boxes to below Rs 6,000."
The manufacturers say that cable operators should initially subsidise the boxes as is done internationally. The operators (who will finally sell the boxes to their subscribers) however, are hoping that finance companies will offer financing for set-top boxes.
However, the finance companies say the sums involved are too low. Says Ashok Mansukhani, executive vice president, corporate services, Hinduja TMT: "We are looking at a combination of models -- rentals, financing from banks, tie-ups with consumer finance companies."
Adds Jangi Pandya, an Orissa cable operator: "We are planning to tie up with consumer finance companies. In return, we will guarantee to buy the boxes in case of default."
The fact is that CAS is only five months away and nobody is quite sure how it will work. But the manufacturers are convinced that there's a bonanza coming up in the next few months and they are positioning themselves to seize the opportunity.
Getting into the box
Will it be a revolution on the small screen? Or, will there be chaos behind the screens on July 15 when the four metros switch to CAS? Subscribers fear that satellite and cable TV is going to cost more. The cable operators are worried that the boxes may not be available and that they'll have to spend huge amounts.
But, it's the broadcasters who are panicking about the new regime. They are scared that people will refuse to pay for channels. That would mean a fall in viewership and consequently advertising.
Says a leading broadcaster: "Customers may refuse to take pay channnels. And if viewership falls so will ad revenues."
That's why the broadcasters are playing a waiting game. They've shied away from fixing subscription rates for their channels.
They want the Government to first fix the monthly rental for the free-to-air channel bouquet. Once that is clear then the broadcasters will also be able to figure out what customers can afford.
The broadcasters have other fears. There's hacking which could seriously jeapordise revenues. And that's one key reason that most brodcasters are pushing for digital set-top boxes instead of analog.
Says a senior Star TV spokesperson: "The main concerns are basically piracy, hacking and the audit. As of now, we are not thinking of going free-to-air for any of our channels."
But large cable operators are also worried about which way to jump. They have to spend large amounts on upgrading networks without a clear picture of what the future will look like.
Says a cable operator: "What is the assurance that broadcasters won't move their pay channels to free-to-air channels in fear of losing revenue? Then we will go down under."
They accuse the broadcasters of dilly-dallying over subscription rates and the details of how the money will be shared. They insist that they can't place orders for set-top boxes until this is clear.
From a customer's point of view too there are several complications. People who shift houses may find that their box doesn't work with a new cable operator.
Says Abbas: "Yes, it is a crucial issue and cable operators have to provide exit options like buying the box back if they want customers to come in."
