Tuesday, 12 May 2015

TRAI Economics go wrong TDSAT sets aside Tariff Hike of 27.5 %

Telecom Disputes Settlement and Appellate Tribunal (TDSAT) on 28 April, set aside the TRAI 27.5 per cent inflation-linked tariff hike for non-addressable systems and asked broadcasters to maintain a separate account for the additional subscription amount that they have collected from distribution platforms as a result of the tariff hike. 
This came as a big relief to the content distribution platforms who were being asked to pay heavily inflated costs to pay TV broadcasters in the name of TRAI’s Tariff Order. The TRAI had notified the Tariff Order on 01 March 2014, allowing 27.5% inflation linked hike in the tariff ceilings that were applicable on both levels - wholesale as well as retail. The Authority implemented this hike in two installments, 15% came into effect from 1st April 2014 and 12.5% from 1st January 2015. Many Cable TV associations appealed against the Tariff Order and many intervened in the principal appeal. All separate appeals were clubbed together by the court.(See Box)
During the arguments, TRAI justified that for making adjustments for inflation, Wholesale Price Index (WIP) had been used and Consumer Price Index (CPI) was not used. 
Mr. Aman Lekhi, senior counsel appearing on behalf of the Centre for Transforming India submitted that WPI as a measure of inflation is not appropriate for service sector.  As per Mr. Lekhi, the WPI is a general index meant for micro-economic purpose and used for fiscal and other economic policies of the Government. He submitted-
(a) WPI does not include services which form a major part of inputs for broadcasting sector. (b) The economic activities are divided into 130 sectors and inputs of the said sectors are given in Input-Output Matrix (IO Matrix). The Inputs of communication sectors which is broadcasting service are few compared to WPI basket of 676 items. Importantly the Communication Equipments which is item No. 92 in IO Matrix and also in WPI basket constitute 53 % of input for broadcasting services and price inflation for this in the last five years is 0.04 % only. Communication Equipment which forms more than 53 % Inputs in IO Matrix contributes only 0.11% in WPI basket. (c) GDP Deflator is a better alternative and should have been considered before deciding to use any of the indexes. It is economy wide and sector specific also.
He further submitted that TRAI did not consider the growth in the number of subscribers which would offset the increase in the cost of input of services and goods. (i)With a growth of subscribers @ 34%, the cost of providing service reduced from Rs.110/- to Rs.57 in four years. The increase of 27.5% in the ceiling price when applied on the increased number of subscribers, i.e., 34%, results into exponential growth of 308% in the revenue for the broadcasters.  (ii)Advertisement revenue also increases with increase in subscriber base  (iii) Inflation is linked with costs and not with price. (iv)TRAI miscalculated charges for 30 FTA channels by applying 11% increase on Rs.94/- to arrive at Rs.117/- which shows that the entire approach was casual and arbitrary. 
Considering the above TDSAT set aside the 27.5 per cent inflation-linked tariff hike for non-addressable systems. TDSAT chairman Aftab Alam and member Kuldip Singh said in their order that the ‘The Telecommunication (Broadcasting & Cable) Services (Second) Tariff (Eleventh Amendment) Order, 2014’ and ‘The Telecommunication (Broadcasting & Cable) Services (Second) Tariff (Thirteenth Amendment) Order, 2014’] were ‘untenable.’
 The Tribunal advised TRAI to have a fresh look at the various tariff orders and come out with a comprehensive tariff order superseding all the earlier orders. TDSAT also said that TRAI may consider classifying the content into premium and basic tiers and identify the major cost components so that increase or decrease in such costs may be suitably factored while working out the inflationary hikes. The effort should be to encourage a correct declaration of SLR. While carrying out the exercise, it may take the inputs from various stakeholders and give a reasoned order for accepting or rejecting the same. The tribunal said that the above are only some suggestions and TRAI being an expert body may arrive at suitable tariffs independently.

Source: http://cablequest.org/news/regulations-news/item/6923-trai-economics-go-wrong-tdsat-sets-aside-tariff-hike-of-27-5.html

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