The big challenge, though, is how to scale up revenue from subscription, cable ISP and channel operations. Sources say the company‘s consolidated turnover (including subsidiaries Win Cable and Hathway Bhawani) increased to Rs 2.18 billion in 2004-05, up from Rs 1.94 billion a year ago. But it is still in a net loss situation and continues to face the threat of declining margins in all its revenue streams.

In the cable TV business, margins are as low as five per cent and falling further. Hathway, which had a payout of Rs 1.07 billion to broadcasters in 2003-04, has been trying to improve this by negotiating hard with broadcasters. But there is pressure this year to service the second pay channel bouquet as Hathway feels subscribers are not willing to bear the extra cost.

The tussle with broadcasters has already begun. On Tuesday, Star India served a one-month notice threatening to discontinue its channels if the contracted dues were not cleared. Incidentally, this is the first public face off between the two joint venture partners after Star had acquired a 26 per cent stake in Hathway.

Hathway‘s ability to protect margins in the subscription business will depend on the extent to which it is able to bargain with the broadcasters.

A way to grow in size is to acquire networks. Jayaraman, however, rules out the acquisition route as a feasible model for Hathway at this stage. The focus, instead, will be on organic growth. The multi system operator (MSO) reaches close to 2.5 million households, with around 44 headends across 11 cities where it provides cable services.

Though there has been a surge in the cable and satellite (C&S) households, Jayaraman says Hathway has not enjoyed any major growth from this. The last mile operators have pocketed most of this rise in subscriber base without declaring it to the MSOs.

There have been a few cases where the company has expressed its intent to expand though. Hathway Bhawani Cabletel & Datacom, a subsidiary company of Hathway which operates in central and eastern suburbs of Mumbai, has expanded its cable operations to Jawaharlal Nehru Port Trust (JNPT) township in Navi Mumbai.

But it has lost the contract to service Bhaba Atomic Research Centre (BARC) which has gone to Abhay Vision, a local operator. "We see a lot of construction activity in that area. We may expand to Karjat through secondary connections," says Hathway Bhawani director Kulbhushan Puri.

With no major increase in subscribers, Hathway has been trying hard to increase the average revenue per user (ARPU). The regulation on subscription rates by the Telecom Regulatory Authority of India (Trai) makes this almost impossible. The way out is to push digital cable TV which will not only offer better quality image but also accommodate a heavy load of channels, currently impossible on the analogue system.

Hathway has rolled out digital services in four cities - Chennai, Mumbai, Delhi and Pune. The next destination is Bangalore, scheduled for launch later this month.

Hathway plans to expand to Punjab, Hyderabad and Nashik in the second phase for which it will use the Motorola DWDM (Dense Wave Division Multiplexers) technology as the transport carrier solution. It has already used this technology for offering digital services in Pune, by having an underground fibre linkup from Mumbai. For the northern market, the digital headend will be in Delhi while Bangalore will service the southern language states and the western region will be connected from Mumbai as the hub.

The DWDM technology will enable digital television channels to be carried with Internet Protocol (IP) interface. It will also enable Hathway to carry data and voice, whenever it is ready to offer these services. "We clearly realise that digital is the way forward. We have already invested Rs 1 billion towards this and have the set-top boxes (STBs) with us. The expansion to the cities requires minor additional investments towards fibre links and transport equipment," says Jayaraman.

Hathway is also planning to increase its channel offerings for its digital subscribers from 115 to 140 soon. The STBs cost Rs 4,000 but two instalment schemes are also available. Even with this, Hathway has managed to push just over 15,000 STBs in the market.

Revenue from cable channel operations has remained almost flat this year. The channels earned around Rs 180 million in 2004-05, a source says. CCC, the cable movie channel with a presence in 56 cities, is the top earner. Hathway also has ITV Music and local cable channels for the different cities where it provides cable service.

"We earn a small profit from the cable channels after amortisation. CCC faces competition from the satellite and other cable movie channels. It is a very competitive arena but we have our own space. We do not have ambitious expansion plans as there is a bandwidth constraint and distribution is expensive. Spreading it on new networks is an issue," says Jayaraman. CCC is offered to non-Hathway networks as well so that the reach of the channel expands.

The big focus area is to scale up the broadband business where Hathway enjoys margins as high as 20 per cent. The service is available in nine out of the 11 cities where Hathway has a cable TV presence. The plan is to launch next in Jalandhar, leaving out only Vijaywada from the ambit.

Hathway has an ambitious plan to double its broadband subscribers. "We want to expand our broadband Internet subscriber base to 100,000 by 2006. We have a market-related pricing and have already introduced a download based scheme. Our broadband packages give the user access to various download limits and applications," says Jayaraman.

Though Hathway has corporate clients, the focus is on the retail segment. The broadband business is growing at 30-40 per cent, adds Jayaraman.

Margins, however, are expected to decline due to pressure on prices with competition emerging from several players. Revenues, though, will increase as the subscriber base expands and the ARPU goes up.

Carriage or positioning fee has become an important revenue source as broadcasters battle for prime space on cable networks. Market estimates project Hathway to earn around Rs 150 million from this in the current fiscal. Jayaraman, however, refused to comment on this. But, as he says, placement fees are not something upon which the company can base its revenue plans.

Hathway‘s future growth will depend on how many digital and broadband subscribers it will be able to rope in. Says Jayaraman, "The current business model is not feasible. With the alternative delivery platforms coming in, we will have to compete on the digital space."