Digital terrestrial TV tender: So what’s up, really?

JAN 14 — Some of the headlines announcing Puncak Semangat Sdn Bhd winning the tender to build and operate the infrastructure for Malaysia’s Digital Terrestrial Television Broadcast (DTTB) service have gushed about how lucrative and coveted the deal is.

Part of this could be due to the fact that anything tycoon Syed Mokhtar al-Bukhary touches seems to turn to gold. Puncak Semangat is just the latest in his stable of companies to win a government tender.

Yet the fact is that Puncak Semangat will have to invest its own money to build the network that it has no experience in. Industry players estimate it will have to invest between RM800 million and RM1 billion to build the network, with the likelihood that it will hire foreign experts from Europe to help it where digital TV rollouts are quite mature.

It will also have to appoint a CEO to head this project; indications are that it has not done so yet.

At the same time, it has committed to making available set-top boxes that will convert users’ TV sets into digital TV sets. Since Malaysia did not commit to a firm deadline to switch from analogue to digital, there has been no real rollout of digital-ready TV or iDTV sets in the country.

It will be a public relation disaster for the Malaysian Government if citizens, especially those from the lower-income brackets, do not have new iDTV sets or set-top boxes when the time comes to switch off the current analogue terrestrial TV services.

[More so when the lower-income group and even the middle-class are already feeling the pain of the Government rolling back subsidies, and with toll and utilities set to rise. – ED]

This switchover from analogue to digital is called ASO or Analogue Switch Over in industry lingo, which is when analogue broadcast signals stop being transmitted and non-digital TV sets will have no reception.

In preparation for this, Puncak Semangat will make available two million set-top boxes. Current indications are that each box will cost around RM100 to RM150.

The boxes will not be subsidised by the Government, with industry regulator the Malaysian Communication and Multimedia Commission (MCMC) telling Digital News Asia (DNA) that is will not use the Universal Service Provision (USP) Fund to subsidise the set-top boxes.

Meanwhile, one of the companies that made a bid for the DTTB tender tells DNA that it projected a ROI (return on investment) in the single digits over the duration of the 15-year contract.

“In 2003 when the plan was first presented to the Malaysian Cabinet, perhaps it was potentially lucrative, but in 2013, I think the business model for DTTB does not stack up,” says a broadcast industry player who was involved in preparing a submission for the DTTB tender. The executive declined to be quoted as he is not authorised to speak to the media.

One of the key reasons is the delay in pushing out DTTB in Malaysia. The MCMC presented the first briefing paper to the Malaysian Cabinet in 2003, with the rollout planned for 2010, but the rollout kept getting deferred, especially due to lack of enthusiasm from broadcasters.

While this was happening, Astro Malaysia Holdings Bhd was going about connecting more and more households to its satellite TV service. As a result, today almost 54% of Malaysian homes are connected to Astro.

Furthermore, a report issued by RHB Research Institute in June 2013 projected Astro would penetrate 80% of Malaysian households by its 2018 fiscal year, with 20% coming from its free service NJOI.

Furthermore, since 2010, Telekom Malaysia Bhd (TM), through its HyppTV service, has been rolling out IPTV (Internet Protocol Television) to over 500,000 Malaysian homes, bundled in as part of its UniFi broadband service.

Tenants required

Why should this impact Puncak Semangat? Because it limits the broadcasters that would want to rent the DTTB network that it will build.

As the media statement from MCMC stated, the initial migration to digital will see TV1, TV2, TV3, ntv7, 8TV, TV9, TV Alhijrah and Bernama TV migrating.

Beyond this, it is difficult to see who else is going to come onto the scene to take up the channels available from Puncak Semangat.

The reality is that that the Malaysian market is relatively small, even when radio stations are thrown in the mix as being potential users for its digital infrastructure.

As it is, Media Prima Bhd produced 5,500 hours of content in 2013. “How much more can they produce to take up more channels from Puncak Semangat?” asks the broadcast industry player.

Changing consumer behaviour is yet another headwind. “The reality is that many consumers are today consuming traditional TV content ‘off TV’,” says a veteran content player. All the broadcasters are well aware of this trend and are moving into offering multi-platform content.

“The question is, how does this impact Puncak Semangat a few years down the road when its network is ready?” poses the veteran content player, who nonetheless hails the move of appointing a single operator for the digital TV infrastructure.

“This further democratises the TV space in Malaysia as anyone can become a TV operator if you have the rights to any channel that you can show in Malaysia,” he says, admitting to working on this himself.

Puncak Semangat gets more time

Meanwhile, the MCMC is giving Puncak Semangat some breathing space. While in the tender submissions, Dec 31 2015 was mentioned as the ASO date, MCMC’s press release from Jan 8 2014 made no mention of this deadline.

When DNA requested for clarification here on the ASO, the MCMC said, “The ASO date is subject to the progress development of DTTB. We will study the ASO date.”

However, it is unclear how giving Puncak Semangat more time will help it prepare a better business case.

DNA also asked MCMC if it imposed any conditions on Puncak Semangat in awarding it the Common Integrated Infrastructure Provider (CIIP) contract.

The MCMC highlighted eight conditions, including a financial one involving RM12,500,000 per multiplexer or MUX, with Puncak Semangat required to build at least three.

An MUX is essentially a hub that takes all the feeds from different broadcasters and transmits them via the single DTTB network.

The eight conditions imposed on Puncak Semangat are:

  • The Apparatus Assignment (AAs) to be issued for the implementation of DTTB service will be in the same spectrum band currently occupied by the analogue TV Content Application Service Providers (CASPs) and other services. The said AA(s) will only be issued upon successful technical analysis;
  • The requirement to build up to three national MUXs (multiplexers);
  • Adherence to current or future coordination agreements with neighbouring countries, frequency repacking or rearrangements;
  • The first five-year period of the DBP (detailed business plan) shall form a binding commitment of the successful applicant to the MCMC upon issuance of the AA(s), and any deviation there from may attract penalties as stipulated. The remaining period of the DBP shall be implemented as best to reflect the intent of the applicant for implementation of DTTB services at the point of submission. The successful applicant may be permitted to modify the subsequent ten years of the period of the DBP, upon prior written approval by the MCMC;
  • Compliance to the rollout plan and other commitments made pursuant to the DBP;
  • The successful applicant shall provide an Irrevocable Bank Guarantee (IBG) from a licensed financial institution in Malaysia, for the amount of RM12.5 million per MUX in form and substance to be agreed by the MCMC. The IBG shall be valid and maintained at the prescribed amount for the duration of 15 years from the date of successful application to guarantee performance of the DBP, payable on demand, either in part or in full;
  • The successful applicant shall apply for an AA(s) for each apparatus in the geographic areas (SFN regions) and pay the application and assignment fees as prescribed in the Spectrum Regulations; and
  • The successful applicant is to strictly comply with the relevant provisions in the CMA 98 (Communications and Multimedia Act 1998), the Spectrum Regulations, the Mandatory Standard for Free to Air Transmission of Digital Terrestrial Television and any other legislations or instruments issued or may be issued by the Minister and/or the MCMC from time to time.

That being said, while the MCMC is stressing that it will hold Puncak Semangat to the conditions of the DTTB contract, there are some major sceptics out there.

This is especially true among the telco players which feel that the real prize the company is after is the 700MHz spectrum that will become available when the migration of broadcast services from analogue to digital is completed, and a large chunk of the so-called Digital Dividend is freed up for more productive use. — Digital News Asia

* The original article was first published here.