Friday, 21 August 2009

Waiting for Godot

Roop Sharma enlightens the readers on the continued exploitation of the cable industry. The industry still awaits its due. 
Holy war of cable operators continues, but, on some false promises and never die optimism. The present attitude of TRAI (Telecom Regulatory Authority of India), tilts towards four large broadcasters, who own more than eighty channels. Both the broadcasters and TRAI are taking 60,000 cable operators and 80 Million consumers for a ride. 

The cable industry felt exploited on two occasions. Firstly, in 2002, when the I &B ministry, reduced the subscription rates from Rs 180, to a meager sum of Rs 72 only for the basic FTA package. The cable operators kept silent, as they trusted that the ministry might bring some respite in the near future. But, the exploitation continued and in 2004, TRAI, in the name of regulating the cable and the satellite industry, froze the cable rates. Cable operators trusted that exploitation by the broadcasters would end and relief would be theirs. Also, they hoped that CAS would soon get implemented and they would get a share of the pay TV revenue. But, the relief had a sour taste. Their share was cut down and broadcasters increased the number of pay channels and also kept hiking their rates. CAS was never implemented except in a few areas of the four metros and that too, on the orders of the High Court. 
TRAI completely overlooked the Cable Television Industry. In stead of organizing it to become a powerful broadband infrastructure, it concentrated on how to accommodate more number of TV channels to satisfy the broadcasters. Rather than making this industry self reliant in carrying broadband signals and enabling it to become an integral part of the NGN infrastructure of the country, the regulator recommended introduction of technologies like HITS, DTH and IPTV. Its aim of digitalization of cable networks is also in the same direction. 
With DTH and IPTV, as the compe-titors and no increase in the revenue from the past seven years, the cable industry is expected to invest in digital headends and also compete with giants like, Tata Sky, Airtel, Reliance, Essel Group, MTNL and BSNL. 
Presently TRAI is working on the directions of the Supreme Court to resolve the issues of tariff in non-CAS areas and carriage fee; cable operators are hopeful that it does not prove to be mere eyewash. A shift in attitude seems to be the need of the hour. The cable industry should be at par with the Telecom industry, and it should be given the status of a national resource. Its infrastructure should be taken care of. Billions of rupees are spent every year by the government for the telecom infrastructure, as subsidies, tax cuts and concessions to the operators. Whereas, the cable industry has been left on the mercy of small entrepreneurs, thus, creating unhealthy competition. 
TRAI and the government are oblivious to the fact that cable TV networks, world over are the major carriers of broadband to the masses. It has a wider bandwidth capacity than satellite or telecom networks. In India this infrastructure already connects more than 85 Million households with the broadband signals. 
The fastest networks are based on fibre optic cables and the future technology is fibre to the home (FTTH). The cable industry is the pioneer in bringing fibre closest to the home. At present most of the operators including in the rural areas use fibre optic cables and their nodes are 100-500 metres close to the homes. Making these 85 Million homes get FTTH will not take long if support of right policies and incentives are given by the government. 
The failure of the telecom giants to achieve expected results in broadband penetration or IPTV is mainly due to poor quality last mile or time taken in laying the last mile. HFC networks of cable operators lead here instead of telecom operators in extending high bandwidth to the consumers. 
Certain facts- today we have: 
Wired telecom reach- 38 million connections and going down. 
DTH reach-13 million connections (pay TV at 50%, Tax exemptions) 
Cable TV - 85 million HH (No help from govt. or financial Institutes) 
Broadband 256 kbps (wireline by telcos) - 6.5 million 
TRAI in one of its consultation papers to promote HITS, stated that cable operators can not upgrade to Digital because they are incapable of investing Rs 15,000 crores, but it failed to realize that the infrastructure of cable TV with 85 million Households connected was built by the cable operators with their own money and is worth Rs. 30,000 crores. It serves more households than all wireline telecom companies together. More over, price of digital headend taken by TRAI in the above figure in 2007 was 2-8 crores which has come down to 0.6-1.5 crores. TRAI needs to re-think that three to four HITS companies can not connect all 85 million households in a year to make India digital? What strategy will TRAI apply to persuade the 60,000 last mile operators to join the HITS platform immediately to achieve their goal? Minimum five years will be needed for these companies to create their niche for themselves as was done by DTH operators. 

Issues concerning the cable industry. 
It faces unjustified competition from various platforms delivering Television/ Video signals that comprises of markets including Cable TV (both with CAS and without CAS), DTH, IPTV, Broadband (Internet) TV, and Mobile TV. 
The rivals have an edge over cable industry, as they use addressable system and their markets are well quantified. Whereas, cable networks in non-CAS areas are at a great disadvantage as they don’t have a level playing field. 
For Non-CAS areas we need to introduce Level Playing Field by making them addressable through Digitalization and CAS without any further delay. 
Government should have opened up the whole country for an addressable market with CAS for the cable industry. As other competitors including DTH, IPTV and Mobile TV are already digital and addressable, they are guarded by appropriate regulations and have a level playing field to grow. Majority of the Cable networks are still continuing with analog signals providing only TV channels. In India satellite channels were made for cable TV and not vice versa. 
Broadcasters, on the other hand favour their own partners/distributors as MSOs to carry their services. A new MSO/Cable Operator doesn’t get the support of the broadcasters unless he/she assures a minimum guarantee payment even if the network is new. 
Broadcasters further block the prospects of the MSO/LCO, by raising dummy operators in that area and providing them channels at cheaper rates as well as on low connectivity, but increasing the same for other MSO/LCO making their business unviable. 
DTH operators in Non-CAS areas pay 50% of the cost of channels/bouquets of broadcasters. They also can get a-la-carte channels from broadcasters but do not provide the same to their subscribers. Also, there is no cap on what they charge from the consumers. However, Cable Operators are forced to take the bouquets of channels and pay for them whether there is a demand for them or not. End consumer price has been fixed for consumers of cable operators/ MSOs but not for DTH consumers. 
Cable Operators pay hundred percent to the broadcasters for the negotiated connectivity, even for the channels which are not viewed by their subscribers. TRAI has fixed a consumer price for cable subscribers which is less than 25% of the total cost of pay channels which the operators pay to the broadcaster. There is no price cap on pay channel rates in non-CAS areas. 
DTH and IPTV operators operate in a nation wide market while, Cable operators/ MSOs work in small localities. 
MSOs/cable operators are forced to pay multiple taxes including Service Tax and Entertainment Tax. Many states are yet to charge entertainment tax from DTH subscribers. Countrywide, cable operators pay Rs 500 every year (Rs. 3 crores a year, amounting to 30 crores in 10 years) as registration fee where as DTH operators pay 10 crores for ten years for coverage of the whole country (130 million TV households). 
Even the networks in the Non-CAS areas that have migrated to digital are facing similar problems as there is no policy support from the government. This further discourages the cable operators to go digital. Regarding the price paid by them to the pay channel broadcasters, there are no regulations that extend the CAS area policies to these networks in non-CAS areas who have become addressable. 

Revenue Source of cable networks 
Cable operators earn only from monthly subscriptions. Some 20% of subscribers like politicians, local goons, police etc. do not even pay that. Local advertisements are another source but restricted only to the MSOs and independent operators. Even carriage fee is given only to the MSOs and independent operators in TRP towns. The last mile operators does not even get any share. 

Revenue Sources of Broadcasters 
Broadcasters in India earn from multiple sources like subscriptions from MSOs/Cable/DTH/IPTV/Mobile/HITS operators, distribution in international market, SMSs, both nationally as well as internationally. 
Advertisement revenue from national and international markets is earned selling spots, sponsorships, scrolls / pop ups etc. The content made once is sold to diffe-rent delivery platforms like DTH, Cable, IPTV, Mobile and Internet in the form of dubbed channels, time shifted, repeats etc. 
Broadcasters have been overcharging subscribers through cable operators for channels they don’t even watch. They still blame cable operators for under-declaration making it a big issue to divert the minds of the regulator, Government and Judiciary from their excessive earnings misusing their political clout and media power. Infact, they have been opposing CAS till now only to maintain their earnings from inflated connectivity. 

Interconnection rules need to be defined for all service providers including broadcasters, Cable Operators, MSOs, DTH, IPTV and Mobile TV keeping in mind level playing field. 
A consumer must get the same content at the same cost from any of the platforms. As there is no addressability, an interconnect agreement between a Broadcaster and Cable Operator/MSO is still done on negotiated connectivity between the two which is increased at the whims of the broadcaster, some times twice in a year. The Broadcaster always has an upper edge as he can switch off the channel signals to the cable operators to arm twist him to pay more. What should be done? 
Solutions Till all networks in non-CAS areas become digital, negotiated connectivity mentioned in the interconnect agreements can be taken as actual connectivity in calculating the pay channel viewership of the most popular channels. Connectivity of other pay channels can be reduced according to the TAM rating in that particular city/state. 
Considering the shortage of available frequencies to carry all TV channels on analogue networks, the cable operators should also be permitted to get a-la-carte channels from broadcasters rather than bouquets of channels. This would give subscribers more choice of channels at lowest subscription rates. TRAI should fix the wholesale rates of channels and let the distribution companies like MSO’S\Cable operators and DTH make their own bouquets for their subscribers as per the region, language and culture of the area at competitive rates. 
Rates fixed for the services should be affordable by the Indian masses. People already availing the service should not be deprived as far as possible, because of its cost. 
Revenue share has already been defined for all addressable services. It should be defined for non-CAS areas too. In non-CAS areas Cable Operators always face a set back when compared to DTH operators and cable operators in CAS notified areas because of presumed under-declaration. The increased 5% duty on STB further creates exploitation as till now there is hardly any manufacturing being done in India. One or two companies who are engaged in it are only assembling the STBs imported from China or Korea. This duty must be exempted till the government does not introduce addressability in the whole market so that enough demand is created to support the local manufacturers. 
The present attitude of TRAI in favoring HITS, DTH and IPTV in order to introduce competition for cable TV without giving a level playing field is highly unfair. It gives undue advantage to the broadcasters who own the HITS and DTH Platforms as they get more direct revenue streams. 
Today we need regulations that enable cable TV networks to become robust to carry the broadband so that this industry can contribute more for the growth of national economy. The cable industry is not against other technologies or the broadcasters but against the present regulatory system which restricts their growth and needs to change soon.


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