Thursday, 10 April 2014

TRAI to check MSO Dominance in States

In a move that may disturbed various political parties from the Akali Dal in Punjab to the DMK in Tamil Nadu the Information & Broadcasting (I&B) Ministry has decided to cap at 50 per cent the market share of multi-system operators (MSO) engaged in cable TV distribution. He said that we have received recommendations from TRAI. An inter-ministerial committee considered and accepted the recommendations. A policy architecture is now in the works.
The MSOs, having direct or indirect connections to political parties or leaders, have come to monopolise cable television distribution in several states. TRAI has observed that Tamil Nadu, Punjab, Orissa, Kerala, Uttar Pradesh and Andhra Pradesh are dominated by a single MSO. Such “monopolies in the TV channel distribution market are not in the best interest of consumers and may have serious implications in terms of competition, pricing, quality of service and growth of the TV channel distribution market”, it said. Fastway Transmissions, which has come to almost monopolise cable TV distribution in Punjab, has been known to be controlled by the Akalis. Sumangali Cable Vision, an MSO associated with the DMK, has done the same in Tamil Nadu.

Why he is speaking about MSOs monopoly and bringing guidelines to curb the monopoly of MSOs, we first need to understand, how the MSOs are working. It is estimated that there are around 6000 MSOs in the country. The Cable TV Act and the Cable TV Rules do not restrict the number of MSOs/LCOs operating in any particular area. There are MSOs which operate at the national level, while others operate either on regional level or in a smaller area. Some of the prominent national MSOs are DEN Netwo  rks Ltd., Digicable, Hathway Datacom, IndusInd Media and Communication Ltd. and Siti cable.
It has been observed that the level of competition in the MSOs’ business is not uniform throughout the country; certain States (e.g. Delhi, Karnataka, Rajasthan, West Bengal and Maharashtra) have a large number of MSOs providing their services. On the other hand certain markets like Tamil Nadu, Punjab, Orissa, Kerala, Uttar Pradesh and Andhra Pradesh are characterized by dominance of a single MSO. However, the same MSO is not dominant in all States. While it could be argued that because of larger size, an MSO is able to reap the benefit of economies of scale and pass on the benefits to the customers, in practice such dominance in certain markets can and has led to non-competitive practices. In case the loss in consumer welfare due to inadequate competition outweighs the gains from economies of scale, measures will obviously be required for promoting competition. It is in this backdrop that the question arises whether there is a need for any restrictions to be imposed on MSOs/LCOs to prevent monopolies/accumulation of interest so as to ensure fair competition. In a well-functioning competitive market, where firms are competing on fair terms and there are no artificially erected barriers of entry, there may not be any need to impose restrictions. However, if there is little or no competition in the market or in case where barriers to entry are erected by incumbents, there is the distinct possibility of the abuse of market dominance by the incumbent service provider(s).
The size of markets captured (across States, cities and even localities) by an MSO determines its market power and influence. One of the ways in which MSOs have tried to expand and increase their size (and influence) is by buying out LCOs and smaller MSOs. The joint venture/ subsidiary model has emerged as a result of mergers and acquisitions (M&A) of LCOs/MSOs by large MSOs. The MSOs have varying levels of ownership interest in these LCOs. Typically, MSOs provide more favorable terms and financial assistance to joint venture companies and subsidiaries. The point is that, by way of acquisition, joint venture or subsidiary, some MSOs have been increasing their presence and size leading to a situation of market dominance. 
There are instances where the dominant MSOs are misusing their market power to create barriers of entry for new players, providing unfair terms to other stakeholders in the value chain and distorting the competition. MSOs with significant reach (i.e. a large network and customer base) are leveraging their scale of operations to bargain with broadcasters for content at a lower price and also demand higher carriage and placement fees. Such MSOs are in a position to exercise market power in negotiations with the LCOs on the one hand, and with the broadcasters on the other. Large MSOs, by virtue of securing content at a lower price and charging higher carriage and placement fee from broadcasters, are in a position to offer better revenue share to LCOs. They, therefore, can incentivize LCOs to move away from smaller MSOs and align with them. Such MSOs use their 9 market power to provide unfavourable terms or make it difficult for the broadcasters to gain access to the distribution network for reaching the customers.
It is in this backdrop the Ministry of Information and Broadcasting (MIB) requested TRAI to provide its recommendations on restrictions to be imposed on MSOs/ LCOs to prevent monopolies/accumulation of interest in order to ensure fair competition, improved quality of service, and equity. TRAI issued a consultation paper on “Monopoly/ Market dominance in Cable TV services” on 3rd June 2013 seeking comments from the stakeholders on issues related to monopoly/ market dominance in the cable TV services. Open House Discussions were held at Bangalore on 16th July 2013. Taking into account the comments received during the consultation process and analysis of the issues, the Authority has finalised its recommendations and make it public on 26th November 2013. 
The salient features of the recommendations are:
(i) State to be the relevant market for assessing monopoly/ market dominance of Multi System Operators (MSOs) in the TV channel distribution market;
(ii) Market dominance to be determined on the basis of market share in terms of the number of active subscribers of MSOs in the relevant market;
(iii) Herfindahl– Hirschman Index (HHI) to be used for measuring the level of competition or market concentration in a relevant market;
(iv) A new definition of control is prescribed covering both de jure and de facto control;
(v) Prior approval of the regulator to be taken for any Merger & Acquisition (M&A) among MSO(s) or between an MSO and Local Cable Operator (LCO) in a relevant market and for any arrangement that results in ‘control’ of MSO(s)/ LCO(s) in a relevant market by an entity. The decision on the proposals to be conveyed by the regulator within 90 working days.
(vi) Rules for M&A and acquisition of control among MSO(s) or between an MSO and LCO in the relevant market have been prescribed.

The Rules provide as follows;
1. Post-M&A/acquisition of control, the contribution of resultant entity to the market HHI does not exceed 2500, and
2. Depending on the value of the post-M&A/acquisitions of control market HHI, any one of the following conditions are met:
i. either the post-M&A/acquisition of control HHI of that market is less than 2000, or
ii. in cases where the post-M&A/acquisition of control market HHI is between 2000 and 3300, the proposed M&A/acquisition of control does not result in an increase in market HHI (delta) by more than 250 points, or
iii.in cases where the post-M&A/acquisition of control market HHI is beyond 3300, the proposed M&A/acquisition of control does not result in an increase in market HHI (delta) by more than 100 points.
vii A time of 12 months is given to group(s), contributing more than 2500 to market HHI of a relevant market, to limit its ‘control’ in various MSO(s)/LCO(s) in such a way that the contribution to market HHI of that ‘group’ reduces to less than or equal to 2500;
viii An MSO, contributing to more than 2500 HHI by itself in a relevant market, not to be permitted to merge with or acquire the ‘control’ of any other MSO/ LCO in that relevant market.

Source:
http://cablequest.org/articles/digitization/item/4580-trai-to-check-mso-dominance-in-states.html
Source: http://cablequest.org/articles/digitization/item/4580-trai-to-check-mso-dominance-in-states.html

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