Thursday, 9 June 2016

Broadcasters Pulled up for not Complying with Tariff Orders

On 9th May, the Telecom Authority of India (TRAI), in exercise of the powers conferred upon it under the Telecom Regulatory Authority of India Act, 1997, to protect the interest of service providers and consumers, directed all the broadcasters of pay channels to strictly comply with the provisions of clause 3C of Tariff Order, 2004 and clause 4 of the Tariff Order, 2010 at the time of providing signals of TV channels including in term of CPS agreements.
 This was a historic move welcomed by all MSOs and Cable Operators as so far Pay Broadcasters were never questioned by the Authority or the MIB on their undue exploitation of the MSOs, LCOs and Consumers.
On examining the information relating to the interconnection agreements filed by the broadcasters under the Register of Interconnect Regulations, 2004, the Regulator noted that in many cases the agreements are signed in the name of Cost Per Subscriber (CPS) deals between the broadcasters and Distribution Platform Operators (i.e. Multi System Operators providing cable TV services through Digital Addressable Systems and DTH operators) for offering of channels of the broadcasters in different formations, assemblages and bouquets for a group or a bundle of channels.
 How the Broadcasters circumvented the Tariff Order
The TRAI had asked the broadcasters vide its letter dated 1st December to clarify the exact nature of CPS agreements being executed with different Distribution Platform Operators and also explain how CPS agreements comply with the existing regulatory framework including the provisions of clause 3C of Tariff Order, 2004. Most of the broadcasters, in their responses stated that under CPS agreements all the channels of a broadcaster are given to a Distribution Platform Operator at a single rate per subscriber per month. The Distribution Platform Operator pays to the broadcaster on the basis of the number of Set Top Boxes carrying any or all the channels of the broadcaster irrespective of number of channels of the broadcaster actually opted by subscribers.
Broadcasters also stated that CPS based agreements are purely mutually negotiated interconnection agreements and cannot be construed as bouquet of channels and hence do not fall within the realm of a-la-carte or bouquet offerings and; since CPS agreements do not fall within the category of a-la-carte or bouquet offerings therefore such agreements do not contravene the provisions of the clause 3C of the Tariff Order.
CPS deals are very much governed by the Tariff Orders- TRAI
However, TRAI examined the response of the broadcasters in pursuance of the provisions contained in sub-clauses (2) and (3) of clause 3C of the Tariff Order, 2004 and the definition of bouquet or bouquet of channels in the Tariff Order, 2010, and concluded that since in the CPS agreements, an assortment of distinct channels is being offered together as a group or as a bundle in the CPS agreements, it is nothing but a bouquet or bouquet of channels. 
It also clarified that provisions of the Tariff Order, 2004 and Tariff Order, 2010 are applicable to all type of interconnection agreements, including mutually negotiated interconnection agreements, entered between the broadcaster and the Distribution Platform Operators. Thus, the conditions specified in sub-clause (2) of clause 3C of the Tariff Order, 2004 are applicable on the CPS agreements signed for an assortment of channels offered together, as a group or bundle of channels.
TRAI also clarified that a broadcaster may offer discounts to Distribution Platform Operators on a-la-carte rates of its channels or bouquet rates and such offer of discount, in no case, shall, directly or indirectly, have effect of contravening the provisions of sub-clause (2) of clause 3C of the Tariff Order, 2004.
Sub-clause 2 of clause 4 of the Tariff Order, 2010 reads as under:-
"2) In case a broadcaster, in addition to offering all its channels on a-la-carte basis, offers, without prejudice to the provisions of sub-clause (1), pay channels as port of a bouquet consisting only of pay channels or both pay and free to air channels, such broadcaster shall specify the rate for each such bouquet of channels offered by it
  (a)  Provided that the composition of the bouquets offered by the broadcaster to distributors of TV channels using addressable systems shall be the same as those offered by such broadcaster for non-addressable systems, and
(b) the rate for a bouquet of channels for addressable systems shall not be more than thirtyfive percent' of the rate for such bouquet as specified by the broadcaster for non-addressable systems."
MSOs feel that the present RIO of the broadcasters are a tool to force the DPOs to comply with their packaging and penetration requirement.
Gaurav Gupta of Star Broadband from Delhi told that after going through all the major RIO’s released last month it can be seen that all of them are offering discounts ranging between 80-90% (see table). He pointed out that since this is essentially the arrangement between Broadcaster and MSO, why should it affect the share of LCO or cost to consumer. Hence it become all the more imperative to declare MRP based on the discounted rates of all the channels and discounts based on LCN, packaging etc. should affect only the transactional share between MSO and Broadcaster, not of the entire value chain.
He says that price of most of the leading channels after discounting comes to Rs.2 and based on that the MRP can be safely assumed to be Rs. 5. So whether MSO will have to give Rs. 1.50 or Rs. 2.50 to broadcaster will depend if it adheres to LCN and other conditions. But the share of LCO and cost to subscriber must remain unaffected.
It may be recollected that the prices of the bouquet and composition thereof, as existing on 26 December 2003, was frozen by TRAI. Accordingly, the Broadcasters were obliged to continue providing the same bouquet which was existing on that date. The said obligation continues even today. Even Tariff Order, 2015 issued by TRAI on January 6, 2015 stipulated the continuation of the bouquets of the broadcaster existing as on 01.12.2007.
Vikki Choudhry of Home Cable, New Delhi says that Star India Private Limited- In a brazen manner and in complete defiance of the said obligation, have uploaded a new RIO where they have intentionally not mentioned Bouquet 1 which was prevailing on 01.12.2007 at a monthly subscriber rate of Rs 32.10 per subscriber per month ( Non CAS rate). Since they have not declared the said Bouquet 1, the ala carte rates of the channels have been derived from the new bouquets only because of which the ala carte rates of their channels are also in breach of the price freeze order of the TRAI.
In his letter to TRAI Vikki pointed out that Star has published a National Bouquet which contains all their channels @Rs 146 per subscriber per month. In case a DPO is not able to achieve any of their purported benchmarks for discount, it will have to pay Rs 146 only for Star TV distributed Pay TV channels. He further says that similar practice will be adopted by other pay TV Broadcasters also.
Distributors of addressable system have been complaining to TRAI that the rates of Bouquets/ Channels offered by the Star in the present RIO are illusory and unrealistic and it is not possible for a distributor of channels to subscribe to the channels of Star and provide its services to its subscribers at an affordable cost.
It is unfortunate that even after 10 years of TRAI’s regulatory regime; the industry has not evolved a stable consumer friendly model of service, so much needed for the growth of the industry. Only when these content related issues get resolved the MSOs and cable operators will be able to focus on Broadband and future services.

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