According to newspaper reports, Zee Telefilms Limited (ZTL) is planning to invest Rs 4 bn in its internet service provider project. Its cable services arm, Siti Cable, is to be transformed into Sitinet, which will offer services including internet access, audio and video and telephony solutions.
ZTL (FY99 Total Income: Rs 2.3 bn) is India’‘s first and most successful private TV channel operator.
The surge in the number of internet service providers (ISPs) is reflective of the potential strength of the Indian market. Zee is one among the many companies wanting to grab a chunk of this lucrative market. However, Zee’‘s plans differ from other ISPs.
Zee plans to offer a wider gamut of internet related services. Moreover, it plans to offer these services via its own cable network (broadband) in various cities including Mumbai and Delhi. This would give the company a definitive edge as it already has a wide customer base.
However, globally, broadband services are not as popular as they were expected to become. This is mainly due to the steep costs in setting up the network and then connecting each subscriber to the network.
In India, the subscriber is expected to invest approximately Rs 20,000 – 25,000 in purchasing a special modem that will permit him to access the network. Thus, the company may face initial resistance to such a service. From the company’‘s point of view, a large amount of money would have to be invested to upgrade the existing network to make it internet enabled. This could percolate down in terms of higher access charges.
The economic success of broadband ventures has as yet to be established globally. ZTL’‘s foray into this sector could expose it to risks of low user base and higher network set up and maintenance costs. This would adversely affect the company’‘s bottomline.
The analysts have taken a mixed view of the company. While some continue to rate the stock as a ‘‘SELL’‘ in view of the higher valuation, others continue to put out a ‘‘BUY’‘ in view of the strong brand name and the growth opportunities.
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