It’s a bonanza for the six private DTH operators this time as Telecom Regulatory Authority of India (TRAI) has acted like a wish fairy for them giving them almost whatever they had wished in its recommendations on issues regarding DTH license.
In its recommendation the authority has reduced their license fee to 8 per cent from the 10 per cent and levied on average gross revenue (AGR) basis rather than gross reven ue (GR) basis. Once the government accepts these recommendations, DTH operators will fee save up to 2.5 per cent to 3.5 per cent in license fee.
The authority in its recommendation has also suggested that AGR will be calculated by excluding various taxes like sales tax, entertainment tax, service tax and value added tax from the gross revenue.
At present DTH operators to pay 10 per cent of GR as license fee, against which DTH operators are opposing since long time and were demanding the same to be changed on the basis of AGR. The, authority has also recommended that the DTH licensee shall pay DTH license fee on quarterly basis rather than annual basis.
The authority has recommended this in the backdrop of multiple system of tax paid by DTH operators to Union government and state government. According to TRAI DTH service providers presently have to pay sales tax, service tax, and the entertainment tax on the goods and services provided by them to their subscriber, apart from the license fee.
The revenue on which the licence fee is levied should not include the revenue which actually goes towards payment of other forms of taxes. Therefore, the licence fee should not be charged on the GR; rather, it should be charged on AGR, computed by deducting the amount of the above-mentioned taxes from the GR,” TRAI said in the recommendations paper.
TRAI on 23rd July has its letter of recommendations to I&B Ministry clarifying the future, renewals and issuance of new DTH Licences and stating cross-media restrictions in DTH licensing regime as well. The letter is based on the request from Ministry of Information and Broadcasting (MIB) made in August 2013.
The MIB had sought TRAI’ recommendations on the following issues:
- Whether the entry fee of Rs 100 million is required to be paid again by the DTH Company for the extension of the validity period o f the DTH licence? If not, then whether no entry fee is required or a modified entry fee is required to be levied. In case of requirement of modified entry fee, what should be the amount of entry fee?
- Whether the period of extension of validity of DTH licence should be for another period of 10 years?
- Whether the bank guarantee of Rs 400 million is to be renewed for the entire period of the licence again on extension of validity period of licence?
TRAI in its recommendation paper has advised the MIB to re-evaluate the existing DTH Guidelines and put forward a new DTH licensing regime for issue of new licenses and migration of existing DTH licensees to new regime under the circumstances where none of the existing DTH operators could reach the breakeven mark and the industry faced huge losses.
Earlier on 14th November 2013 TRAI had come out with a supplementary consultation paper on the issues related to New DTH Guidelines.
In response to this consultation paper, 25 comments/views were received from stakeholders. Subsequently, an Open House Discussion (OHD) was also held in Delhi on 10th December 2013, wherein 36 stakeholders participated. Based on the views/comments of the stakeholders and discussion with industry stakeholders, the issues have been analysed and these recommendations have been formulated.
The Authority recommends that the existing DTH Guidelines be reviewed and a new DTH licensing regime be put in place for issue of new licenses and migration of existing DTH licensees.
License Period: While recommending on review of License Period Under the new licensing regime for DTH, TRAI letter states that "Licenses should be issued for a period of 20 years. Upon request of the Licensee, the period of License may be renewed by 10 years at a time, on the terms and conditions specified by the Licensor in consultation with the Authority".
Entry Fee: "A one-time entry fee of Rs. 10 Cr should be charged in the new DTH licensing regime also. The renewal shall be on the terms and conditions, including renewal fee, specified by the Licensor.
License Fee: The licen se fee in the new DTH licensing regime should be charged as 8% of Adjusted Gross Revenue (AGR) subjected to a minimum of 10% of the entry fee and can be paid on a quarterly basis. Here AGR is calculated by excluding, Service Tax, Entertainment Tax and Sales Tax /VAT actually paid to the Government, from the Gross Revenue (GR).
The DTH licensees shall be required to pay licence fee on a quarterly basis, the quantum thereof shall be equal to the actual licence fee payable for the preceding quarter. The annual settlement of the licence fee shall be done at the end of the financial year.
The licence should include a provision that prescribes that the Licensor reserves the right to modify the licence Fee as a percentage of AGR any time during the currency of the agreement. The schedule of payment of Licence Fee should be amended accordingly.
Bank Guarantee: TRAI also recommended changes in mandate for furnishing Bank Guarantee stating "DTH licensees shall be required to furnish a Bank Guarantee (BG) for an amount equivalent to the estimated sum payable, equivalent to License fee for two quarters and for new entrants, a BG for a fixed amount of Rs. 5 Cr shall be taken for the first two quarters, and thereafter, for an amount equivalent to the estimated sum payable, equivalent to License fee for two quarters”.
Migration Scheme and Migration Fee
A provision for Existing DTH Operators to Migrate to the New DTH Licence was also recommended upon payment of Migration Fee as stipulated by the Regulator. According to the recommendation, a DTH operator shall be allowed to migrate to the new regime at any time during the currency of its existing licence. Before obtaining a licence under the new regime, the DTH operator shall clear all the dues and fulfill all obligations under the existing licence terms and conditions as well as those arising out of legal cases pending before various courts of law. For the DTH operator whose licence period under the existing DTH licensing regime has already expired on 30th September 2013, the effective date of new DTH licence shall be 1st October 2013.
A "migration fee" should be charged from existing DTH operators who wish to migrate to the new DTH licensing regime. The quantum of "migration fee" should be arrived at as per the following formula:
Migration fee = [Entry fee in the new DTH licensing regime - (Entry fee under existing licence/existing licence period i.e. 10 years) x (No. Of years remaining in the existing regime at the time of migration)] In this formulation part of a year is not to be counted.
Interoperability of STBs
The licence condition prescribed at clause 7.1 of the existing DTH Guidelines should be replaced with the following clause: “The Set Top Box offered by a DTH service provider shall have such specifications as laid down by the BIS from time to time.”
BIS should come out with updated specifications for STBs from time to time and while doing so, BIS shall consult TRAI. The licence conditions should mandate the licensee to comply with the tariff order/scheme prescribed by TRAI for commercial interoperability.
The letter also covered and extensively elaborated on details in areas related to Restructuring of cross-holding with definition for Control, Relevant Market, Legality of Broadcasters and DPOs, Restrictions on Vertically and Horizontally Integrated entities with a Compliance period of one year.
Business entities such as Subhash Chandra’s Essel Group and Maran’s Sun Group will not be able to have a presence in both Telecom Regulatory Authority of India’s proposals on new DTH licensing regime.
direct-to-home and cable sectors if the Government accepts the Telecom Regulatory Authority of India’s proposals on new DTH licensing regime.
In its recommendations released the TRAI has suggested that vertically integrated broadcasters (entities which run TV channels as well as distribution platforms) be subjected to additional regulation and be permitted to control only one distribution platform.
According to TRAI to ensure orderly growth of the broadcasting and distribution sectors (DPO), and to avoid compromises or limitations on competition, certain cross-holding restrictions may be required to be put in place.
TRAI in its recommendation has suggested that vertically integrated broadcasters (entities which run TV channels as well as distribution platforms) be subjected to additional regulation and be permitted to control only one distribution platform.
The broadcaster is also restricted to have “control” of only one DPO of any category, meaning that it can exercise “control” in either a direct-to-home (DTH) or a cable TV company.
Restructuring of cross-holding: Authority recommends uniformity in the policy on cross-holding between broadcasters and DPOs, and amongst DPOs, in the broadcasting and distribution sectors
However, the Authority in its recommendation has not clarified about quantum of cross-media holding restriction. In the existing DTH licence guidelines, the authority has imposed a restriction of 20 per cent on cross-media holdings.
Definition of control: The Authority recommends the following definition of „control: An entity (E1) is said to „Control another entity (E2) and the business decisions thereby taken, if E1, directly or indirectly through associate companies, subsidiaries and/or relatives owns at least twenty per cent of total share capital of E2.
In case of indirect shareholding by E1 in E2, the extent of ownership would be calculated using the multiplicative rule. For example, an entity who owns, say, 30% equity in Company A, which in turn owns 20% equity in Company B, then the entity‟s indirect holding in Company B is calculated as 30% * 20%, which is 6%.
An entity exercises de jure control by means of: (i) having not less than 50 per cent of voting rights in E2; or (ii) appointing more than 50 per cent of the members of the board of directors in E2; or (iii) controlling the management or affairs through decision-making in strategic affairs of E2 and appointment of key managerial personnel. An entity also exercises de facto control by means of being a party to agreements, contracts and/or understandings, overtly or covertly drafted, whether legally binding or not, that enable the entity to control the business decisions taken in E2.
Restrictions on vertically integrated DPOs: TRAI has imposed restrictions on vertically integrated entities.
i. The entity that controls a broadcaster or the broadcaster itself, shall be permitted to „control‟ only one DPO (of any category i.e. either an MSO/HITS operator or DTH operator) in a relevant market and vice-versa.
ii. The entity that controls a vertically integrated DPO or the vertically integrated DPO itself, shall not be allowed to „control‟ any other DPO of other category.
iii. If a vertically integrated DPO, while growing organically or inorganically, acquires a market share of more than 33% in a relevant market, then the vertically integrated entities will have to restructure in such a manner that the DPO and the broadcaster no longer remain vertically integrated.
Restrictions on vertically integrated broadcasters
i. A vertically integrated broadcaster can have only charge-per-subscriber (CPS) agreements with various DPOs which should be non-discriminatory.
ii. A vertically integrated broadcaster shall file its RIO for its approval by the Authority. The RIO should cover all scenarios for interconnection and interconnection agreements should be only on the terms specified in the RIO.
iii. A vertically integrated DPO will have to declare the channel carrying capacity of its distribution network. And, at any given point in time, it shall not reserve more than 15% of this capacity for its vertically integrated broadcaster(s). The rest of the capacity is to be offered to the other broadcasters on a non-discriminatory basis.
iv. A vertically integrated DPO shall publish the access fees for the carriage of channels over its network. The access fee so specified shall be non-discriminatory for all the broadcasters. DPO shall file the specified access charge, with justification, with the Authority.
Restrictions on Horizontal Integration: The Authority recommends that any entity controlling a DPO or the DPO itself should not „control any DPO of other category. However, MSOs and HITS operators can have cross-holding/control amongst them, subject to market share restrictions, as specified from time to time.