Like its sister company Maxis Bhd, dominant pay-TV provider Astro All Asia Networks plc will soon unveil plans to move beyond its traditional role of an entertainment provider, with the launch of its next generation set-up box that will bring high-definition television (HDTV) to Malaysian homes.

Dubbed Astro 2.0, the HD-ready set-up box could be launched as early as this Friday (Dec 11), after the company releases its 3Q results for the nine months ended Oct 31, 2009, a day earlier, a fortnight ahead of its year-end launch target.

At a media briefing last Wednesday, Henry Tan, Astro’s chief operating officer, said the company estimates that some 20% of its 2.78 million residential subscribers (as at end-July) already have HD-ready TV sets. This is given 7% to 10% of Malaysian homes already have HD-ready TV sets, with prices of entry-level flat screen units falling below RM1,500. Some 47% households already have Astro’s satellite direct-to-home (DTH) pay-TV service as at end-July.

Tan would only say that Astro subscribers would be “pleasantly surprised” at how affordable the new set-up box would be. The earliest HD content, he adds, would be from the three popular genres — sports, documentaries and movies.

Interestingly, the new set-up box, which has a built-in network port, is IPTV-ready, says its chief technology officer Paul Dale. This means that Astro’s content can be delivered via high speed broadband (HSBB) connection, when the latter becomes an option in future. Astro’s current DTH satellite broadcast service is susceptible to rain attenuation (broadcast is disrupted by heavy rain fall), an issue IPTV does not face.

It is likely that Astro’s aim is to get as many Astro 2.0 boxes to its subscribers to cement its position, ahead of incumbent fixed line and broadband provider Telekom Malaysia Bhd’s HSBB “triple play” (IPTV, broadband and fixed line voice) commercial retail service launch, slated for end-March next year in four key areas in the Klang Valley. It is uncertain how many homes TM will be covering upon its service launch. The HSBB network is to cover 1.3 million premises in key high-impact areas by 2012.

Investors and analysts who have been following Astro would remember that it announced in September that it had accelerated spending on HDTV, bringing forward RM200 million in investments to be ready for service launch by year-end.

Astro’s Dale told reporters last week that the group had made itself HD-ready in record time — it has only been eight months since Astro 2.0 was presented to the company’s board and key management on April 21 this year. Astro received its prototype HD set-up box on July 21 and made its first HD transmission on Sept 28, just three months after the Measat-3a satellite was launched on June 22. “Typically it takes 12 months [to prepare for HD transmission],” Dale said.

The urgency is understandable. TM’s HSBB triple-play services will kick off in the Klang Valley, where some one million of Astro’s 2.78 million household subscribers are located.

Then there is Maxis’ 11.74 million mobile phone subscriber base, some 40% of whom are in the Klang Valley. And that’s not all. Maxis is known for its strength in Malaysia’s main urban and likely more affluent areas — a key factor behind the company’s envied Ebitda margins of above 50%. These areas would likely be among the earlier places TM’s HSBB service would cover.

The leading mobile operator has this year alone spent over RM1 billion to swap its entire 3G network to prepare itself for mobile broadband and it will spend another RM1.3 billion next year.

Its group CEO Sandip Das told The Edge last month that Maxis is transforming itself into an “integrated communications player”, moving beyond the role of the leading mobile operator that it is currently known for. It has also wired up some 280 to 300 commercial buildings in Kuala Lumpur to better serve its corporate and SME customers by offering converged propositions.

Maxis, which is currently negotiating to lease capacity from TM’s HSBB network, also see itself building some “last mile” (lines that run directly into homes and offices). The household segment is “a natural next step” for Maxis.

Maxis is also open to investments that would enhance its position in Malaysia, be it in terms of spectrum or media platform. Here, market watchers, who remember rumours of the possibility of Maxis being merged with Astro, may draw parallels with the fact that  Astro’s board of directors had on July 20 this year said they were “considering various options to restructure the company with a view of achieving a more efficient capital and corporate structure”. There have been no updates since then.

Still, Astro and Maxis need not be under one roof to collaborate on offering bundled services. There had also been rumours of Maxis’ Malaysian operation being floated via a merger with Astro, which did not come to pass.

What’s certain is Maxis and Astro both need to transform to defend their dominant position as well as cash-cow Malaysian operations.

It is likely Astro will choose to subsidise at least part of the cost of the set-up boxes to retain customers. UK’s Sky is giving away its Sky+HD set-up boxes for free to new and existing customers who take up HD with Sky Movies package, which starts from £36 (RM201) a month, for a year. Customers with Sky or British Telecom fixed lines would also be given free broadband with Sky Talk (fixed line voice), according to information on its website.

Assuming a RM500 subsidy per box, getting 20% of Astro’s subscriber base, or some 556,000 homes, to take up Astro 2.0 could rack up customer acquisition and retention costs by some RM278 million.

While subsidies do not guarantee take-up, anecdotal evidence shows that a lot of resources have been poured into making Astro 2.0 a success. Dale, who joined Astro a year ago from UK’s BSkyB, says the new set-up box is “much more than HD”. Even the new remote control unit is “designed for future use” in mind.

For instance, the remote control will also come with additional buttons which would allow users to type short messages when Astro introduces Internet-based services, such as social networking features that allow viewers to chat with other viewers while watching TV, Dale says.

It would also “in a couple of months” be turned into a personal video recorder (PVR) for legal content downloads by plugging a slim external hard disk to the USB port at the back of the new set-up box. Astro has already reached an agreement with major international content providers on the sticky issue of legality of content downloads.

The download function will not be available at launch, but the set-up box in customers’ homes “will update itself” as soon as a new function is ready for commercial launch. “At launch there will be HDTV, which is Stage 1 of Astro 2.0,” Dale says.

Astro’s roadmap is not unlike Australian Telstra’s satellite and cable pay-TV provider, Foxtel, which launched HDTV with five channels in June 2008, but only last month launched the  Foxtel iQ2 service that allows subscribers to download 30 hours worth of HD content or 90 hours of standard definition (SD) content.

TM had previously indicated that it might offer video-on-demand as well Internet-surfing capabilities as part of its IPTV offering.

For now, what’s clear is both Astro and Maxis are seeking equitable passage on TM’s HSBB network. It will be interesting to watch TM’s next move. TM, which recently agreed to allow YTL Communications Sdn Bhd to ride on its network to roll out the latter’s 4G WiMAX service, has said it will keep its promise of open access to all who wish to use its network. If TM decides to offer its own IPTV services, it will need to buy and also subsidise its own brand of set-up boxes as well as source for alternative content. Its cost structure could vary depending on whether a win-win deal can be struck with would-be rivals Astro and Maxis.

This article appeared in Corporate page of The Edge Malaysia, Issue 784,Dec 7 – 13, 2009.