Sky, Home earmark billions for upgrade

Leading cable television operators Sky Cable and Home Cable will spend billions of pesos to upgrade to digital technology before the end of the year, practically eliminating the rampant problem of signal piracy which has been crippling the cable TV industry for years.

Officials said the bulk of about $25 million from the $30-million loan both entities received recently from ABS-CBN Broadcasting Corp. will be used to acquire addressable set-up boxes (also called decoder boxes), which would prevent unauthorized signal taps in the cable system.

Sky Cable president Eugenio Lopez III told The STAR that the boxes will be acquired for about $40 each. This means that if Sky and Home have a combined subscriber base of 200,000, then both will have to spend $8 million for the boxes alone, assuming that each household only has one TV set hooked on cable.

"Right now, we are looking for sources of these boxes abroad and making sure that the boxes cannot be tampered with," Lopez said.

He said that as planned, each Sky and Home subscriber will be provided with a decoder box for free while succeeding boxes will have to be leased from the cable operator. Without the set-up boxes, there will be no way a subscriber can receive a signal from the cable system.

At the same time, signal pirates who tap into the lines of legitimate cable TV subscribers will soon find themselves not getting any signal at all. It is estimated that for every legitimate subscriber, there is at least one unregistered cable TV user, resulting in revenue losses for cable TV operators.

Lopez said that aside from putting an end to signal piracy, the set-up boxes will also allow Sky and Home to go into premium channel offerings. Thus, aside from the basic programs that go with the usual monthly service fee, cable TV subscribers will now be able to get more programs they wanted for an additional charge.

He added that the addressable set-up boxes will also allow Sky and Home to finally offer prepaid subscription, at a cost of about P250 per prepaid card.

Industry sources told The STAR that the more important benefit of the addressable set-up boxes is that cable TV operators can now negotiate with the foreign program/content providers, which charges by the actual usage or viewing of the subscriber of the program concerned, since the boxes can now monitor the subscriber’s usage.

At present, foreign program providers charge local cable operators per subscriber, regardless of whether or not the subscriber actually watches the program. This has allegedly resulted in some operators reporting lower subscriber numbers to save on paying precious foreign exchange to the program providers.

Earlier, Sky and Home signed a debt restructuring agreement with their creditors involving about P2.5 billion in combined debts. As part of the agreement or as a condition precedent for the signing, Sky and Home will receive cash infusion from ABS-CBN initially in the form of a loan but convertible into equity later.

The Lopez-owned ABS-CBN secured from four banks a $120-million loan to refinance existing debts and expand its cable TV business under Sky Vision, the company that own Sky Cable.

About $90 million will be used to refinance ABS-CBN’s existing loans while the remaining $30 million will be lent out to Beyond Cable, the holding company for Sky and Home.

Beyond Cable will then use the money to partly pay Sky and Home creditors for past due interest and partly for new cable equipment.

The $30 million also represents the capital needed by Sky Vision in the next two years, of which $5 million will be used to update loan payments and $25 million for the acquisition of set-up boxes.

At present, Sky owns 66.67 percent of Beyond Cable while Home accounts for the remaining balance. The $30 million loan by ABS-CBN is convertible into equity and the PLDT group – which owns Home – has two years within which to pay back the Lopez group $10 million or one-third of the amount.

Under the proposed terms of the three-year loan, ABS-CBN would have the option to convert the loan into equity in Sky Vision after two years. The company had earlier sought to raise the funds through a bond float but this was scrapped due to political uncertainties.

"This means that if the PLDT group fails to give $10 million within two years, its shareholdings in Beyond will be diluted from the current 33.33 percent to only 10 percent with the Lopez group holding 90 percent," a STAR source said.

PLDT chairman Manuel Pangilinan, however, said they have no plans of infusing additional funds into their cable business as well as to buy back Home’s assets after their transfer to Sky.