State-wide Monopolies curbed

TRAI has given its recommendations on monopoly/ market dominance in cable TV Services considering a state as a relevant market.

On the request of I & B Ministry, the sector regulator TRAI has given its recommendations on monopolies and market dominance after going through its process of consultation with all stake holders.

In order to curbs the cable monopolies that have come up in several states, the TRAI has recommended that no multi-system operator (MSO) can have more than 50 per cent market share in any state and any merger & acquisition (M&A) activity will require the sector regulator’s prior approval. 

The single entity MSO which has an existing market share of over 50 per cent in a state, however, will not need to cut down its majority control. But it will not be permitted to merge or acquire the control of any other MSO or local cable operator (LCO) in that market.

Recommendations of TRAI are listed below. 

1. The State, with certain exceptions as mentioned in the Table, should be considered as the relevant market for assessing monopoly/ market dominance of MSOs in TV channel distribution market. 

2. The market dominance should be determined based on market share in terms of number of active subscribers of MSOs in the relevant market. For measuring the level of competition or market concentration in a relevant market, the Herfindahl–Hirschman Index (HHI) should be used. 

3.  The threshold value for any individual/ ‘group’ entity contribution to the market HHI should be no more than 2500. 

4. Any M&A among MSO(s) or between an MSO and LCO in a relevant market shall require the prior approval of the regulator. The decision on any proposal, complete in all aspects, shall be conveyed within 90 working days. 

5. Such proposals of M&A shall be approved, provided the following two conditions are satisfied: 

a)  Post-M&A the contribution of resultant entity to the market HHI does not exceed 2500, and 

b)  Depending on the value of the post-M&A market HHI, any one of the following conditions are met: 

(i)  either the post-M&A HHI of that market is less than 2000, or 

(ii)  in cases where the post-M&A market HHI is between 2000 and 3300, the proposed M&A does not result in an increase in market HHI (delta) by more than 250 points, or 

(iii)  in cases where the post-M&A market HHI is beyond 3300, the proposed M&A does not result in an increase in market HHI (delta) by more than 100 points. 

For calculating the increase in HHI (delta) as a result of the M&A among MSO(s) or between an MSO and LCO in the relevant market, the difference of the market HHI pre-M&A and post-M&A shall be taken. 

6.  An entity is said to ‘control’ an MSO/ LCO and the business decisions thereby taken, if the entity, directly or indirectly through associate companies, subsidiaries and/or relatives: 

(a) Owns at least twenty per cent of total share capital of that MSO/ LCO. In case of indirect shareholding by an entity in MSO(s), 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%.; Or 

(b) exercises de jure control by means of: 

(i) having not less than fifty per cent of voting rights in the MSO/ LCO; Or 

(ii) appointing more than fifty per cent of the members of the board of directors in the MSO/ LCO; Or 

(iii) controlling the management or affairs through decision-making in strategic affairs of the MSO/ LCO and appointment of key managerial personnel; Or 

(c) 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 the MSO/ LCO, in ways as mentioned in (b) (i) (ii) and (iii) above. 

For this purpose: 

(i) The definitions of ‘associated company’, ‘subsidiary’ and ‘relatives’ are as given in the Companies Act 2013. 

(ii) An ‘entity’ means individuals, group of individuals, companies, firms, trusts, societies and undertakings. 

7 If an entity ‘control’ many MSOs/ LCOs simultaneously in the relevant market, these MSOs/ LCOs shall be treated as interconnected entities and shall be treated as a single ‘group’. 

8 Any arrangement that results in ‘control’ of MSO(s)/ LCO(s) in a relevant market by an entity shall require the prior approval of the regulator. The decision on any proposal, complete in all aspects, shall be conveyed within 90 working days.

9 Such arrangements shall be approved provided the following two conditions are satisfied:

a. Post acquiring ‘control’ the contribution of ‘group’ to the market HHI does not exceed 2500, and

b. Depending on the value of the market HHI post acquiring ‘control’, any one of the following conditions is met: 

(i) either post acquiring ‘control’, HHI of that market is less than 2000, or 

(ii) in cases where post acquiring ‘control’ market HHI is between 2000 and 3300, the proposed M&A does not result in an increase in market HHI (delta) by more than 250 points, or 

(iii) in cases where post acquiring ‘control’ market HHI is beyond 3300, the proposed M&A does not result in an increase in market HHI (delta) by more than 100 points. 

For calculating the increase in HHI (delta) as a result of formation or expansion of ‘group’ among MSO(s) / LCO(s) in the relevant market, the difference of the market HHI pre-‘control’ and post-‘control’ shall be taken. The combined market share of MSOs of a ‘group’ in the relevant market would be considered for calculating the HHI.

10 In the cases where any group’s contribution to market HHI is more than 2500 in a relevant market as on the date of issue of guidelines, such legal entity/ ‘group’ shall take necessary remedial measures, within 12 months from the date of issue of guidelines, so as 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.

11 Any MSO who by itself contributes to more than 2500 HHI in a relevant market should not be permitted to merge with or acquire the ‘control’ of any other MSO/ LCO in that relevant market. Also, the tariff offerings, interconnect agreements, must carry provisions and quality of service of such MSO would be closely monitored by TRAI for any anti-competitive practices.

12 The Following information shall be disclosed by the MSOs on their website: 

(a) Ownership pattern including foreign investment/ joint venture details; 

(b) List of MSO(s)/LCOs, who are part of the ‘group’ in the relevant market; 

(c) Details of Chairman, Directors in the Board, CEO and CFO; 

(d) State-wise (as given in table 1.2) geographical area coverage details.

13The Following information shall be provided by the MSOs annually to MIB and TRAI : 

(a) Share-holding pattern including foreign investment/ joint venture details as per instructions issued from time to time. Changes, if any, in the share-holding pattern during the reporting period, shall be reported within 30 days of such changes; 

(b) Copy of shareholders agreements, loan agreements, contracts and/or understandings (once and subsequently for the changes); 

(c) The details of MSO(s)/LCOs who are part of the ‘group’; 

(d) Interests of the entity(ies) which controls the ‘group’ of MSOs/ LCOs in the relevant market; 

(e) Details of Chairman, Directors in the Board, CEO and CFO; 

(f) State-wise geographical area coverage details.

14 State-wise (as given in table 1.2) number of active subscribers will be provided by the MSOs to MIB and TRAI on quarterly basis.

15 The Cable TV Networks Rules may be amended to incorporate the rules on M&A/ acquisition of control, to be framed to prevent monopolies/accumulation of interest in the cable TV services and also to make it mandatory for MSOs to comply with the same.

Source: http://cablequest.org/articles/regulations/item/3783-state-wide-monopolies-curbed.html
Source: http://cablequest.org/articles/regulations/item/3783-state-wide-monopolies-curbed.html