Pay-TV applicants failed to research

By Damaria Senne, ITWeb senior journalist

Johannesburg, 08 Nov 2007

Some of the recent pay-TV licence applicants showed complete disregard for the value and importance of market research when developing their business plans, says the Independent Communications Authority of SA (ICASA).

This finding forms part of the 170-page document the regulator published this week to explain its decisions to grant or refuse commercial subscription applications.

In September, ICASA granted commercial subscription TV licences to five broadcasters out of 20 applicants. The licensed companies are Telkom Media, MultiChoice Africa, E-Sat, Walking on Water and On Digital Media.

ICASA explains that these five entities demonstrated there is a market for their services through primary research and, in the case of MultiChoice Africa, an ongoing, thriving business.

However, many of the applicants failed to do primary research, which shows there is a market for their offering, the regulator says. They relied on secondary research from information that is already in the marketplace and, in some cases, used old data that is no longer valid.

Some applicants also presented overly optimistic financial plans, which either projected unrealistic income in a short period of time, or did not take into account the high capital investment required to win and retain TV subscribers, ICASA says.

Applicants that lost out due to these reasons include Max TV, whose shareholding included Absa Capital and MTN; Khetha Media, whose board included former Telkom executive Nkenke Kekana; and Laegoma Digital, whose shareholding included Nehawu Investment Holdings.

ICASA says new entrants face significant barriers to entry, which include high capital investment, the skills shortage, the supply of suitable content, and equipment and advertising costs.

"It was, therefore, critical that the applicants applied their minds to these barriers and challenges and built sound strategies to deal with them."

ICASA`s decision document does not include input on the application by the SABC/Sentech partnership, which withdrew from the pay-TV race before the regulator announced the winning bidders.

Some explanations

ICASA also explains why it awarded as many as five licences. Some of the applicants, including E-Sat, argued that ICASA should only license two new operators, in addition to MultiChoice Africa.

The regulator explains: "When the authority issued an ITA [invitation to apply], it did not limit the number of licences to be applied for. Therefore, the authority is of the view that it would be against principles of fair administrative law to introduce the suggested limit after it had received applications and held public hearings."

ICASA also explains why it decided not to grant technology-neutral licences to the new broadcasters. Technology-neutral licences would enable inter-operable and inter-connected networks among all licensed broadcasters, making it easier for consumers to switch providers when they wish to do so.

ICASA says it had not developed a licensing framework based on the Electronic Communications Act at the time it looked at applications for subscription licences, which would have allowed technology-neutral licences to be issued. However, it is developing the framework and will align all licences with it.