The Telecom Regulatory Authority of India (TRAI) released a consultation paper on 3rd March 08 for reviewing the foreign-direct-investment (FDI) limits imposed on all sectors of the broadcasting industry, a move that could result in major liberalization of foreign-ownership regulations.
TRAI has asked for suggestions from the industry which include raising FDI limits to 74% for Headend in the Sky (HITS) and DTH operators, up from just 20% in the case of the latter, but keeping the limit for cable TV operators at 49%. Cable TV operators say they are unhappy that the TRAI has recommended that they be granted a substantially lower FDI limit that their DTH rivals, which they say will significantly limit their appeal to foreign investors.
But the TRAI has responded by saying that it just raised the FDI limit in cable operators a couple of years ago, from 26% to 49%, and that investors have shown little interest since then. It added that, in any case, the government would probably not allow foreigners to take a majority stake in a national asset, such as a cable operator.
Mrs Asha Swarup substantiated this statement in her address in the recently concluded FICCI Frames event in Mumbai. She said, “There are 75000 cable operators in the country and we do not want a big inflow into the country....”
Although TRAI considers Cable TV Network a national asset, it has done next to nothing for the sector. Even the restructuring recommendations are being considered now after four year when all other technologies like DTH, IPTV, Mobile TV and HITS have been pushed in the market.
Cable operators also say the TRAI's recommendation of a 74% FDI limit in HITS operation which uplink signals and downlink them via satellite to cable operators - does not make sense, since such businesses are so closely tied to the cable market. They have said that they need foreign investment more than DTH operators do, because of the huge amount of capex still required to digitize cable networks, especially outside the big four metropolitan areas of Mumbai, Delhi, Kolkata and Chennai.
The TRAI is also seeking industry views on how it should deal with the growing convergence of services, to prevent telcos from providing broadcast-type services that resemble IPTV and to keep mobile TV from being allowed more FDI than similar broadcast services.
The TRAI says that the disorganized nature of the cable market is the principal reason there has been a lack of investment in the MSOs.
In particular, the TRAI has said that it is too easy to receive a cable-TV-network-operating license and has recommended that the requirements be tightened to improve the quality of services and reduce the number of licenses being issued.
It has also recommended that cable-network operators not be allowed monopoly status in any service area, to promote competition and improve quality of service.
Foreign investments have an important role in the economic development as an important source of funding. Foreign investments have other benefits also such as bringing in new technology, international best practices, and access to export markets. However, the extent of foreign investment is also conditioned by considerations such as national security, preserving socio-cultural fabric of the country, protection of domestic industry etc. Presently the policy regarding Foreign Investment (FI) is not uniform across different segments of broadcasting sector. In view of the divergence in FI limits for different segments, the need to undertake a review of the FI policy for the broadcasting sector has been highlighted time and again by the Authority through its recommendations. This is necessary for consistency in policy and a level playing field among competing technologies in view of convergence.
Earlier, while sending its comprehensive recommendations separately for HITS, mobile TV and FM radio, the Authority had also recommended that FI caps should be fixed at 74% for HITS and mobile TV, and 26% for News FM radio service and 49% for non-News FM radio service.
This consultation paper covers the need for foreign investments, current status of limits on foreign investments and need for review of existing foreign investment limits in different segments of broadcasting sector. The consultation paper seeks views from stakeholders on various policy issues, some of which are -
Need for revision of foreign investment limits
Quantum of foreign investment limits and sub limits for FDI and FII within this limit.
Permission for foreign investment through the automatic route or need for a sub limit beyond which FIPB approval be required.
Classification of different segments of broadcasting sector into carriage services and content services for the purposes of laying down foreign investment limits.
With the convergence of telecom and broadcasting sectors, the need for alignment of foreign investment limits in broadcasting sector with the foreign investment limits in Telecom sector.
Standardization of methodology for calculation of foreign investment limits in different segments of broadcasting sector.
The Authority has invited all stakeholders to respond to the issues raised in this consultation paper by 28th March, 2008. The comments received will be posted on TRAI’s website. The full text of the consultation paper is available on TRAI’s website.