TRAI wants review of 42% ceiling on tariff of pay channels

subscribers post DAS. They complain that already they are forcing subscribers to pay twice or even thrice the subscription they paid in analogue regime due to the new TRAI tariff order, rates of channels of various broadcasters, STB rentals and taxes. Increasing the subscription further will not be in the interest of subscribers and they may stop watching cable TV which will harm the business of cable operators whose only livelihood now is from the subscription amount. Earlier they had their video channels to help them overcome the financial crises through advertisements and also carriage fee but now in DAS, they are not permitted to carry any video channel. Also the MSOs do not give them any share of carriage fee. 

TRAI has also overlooked its own observation on discriminatory pricing in the latest tariff order dated 10th Feb 2014, where it clearly states that the price difference between a vertically integrated MSO and an independent MSO is as high as 85%. This goes on to show that the prices already mentioned in the RIO are very high. Thus, instead of looking after the interests of the smaller players, TRAI is helping the big players and vertically integrated groups to make more money. 

Roop Sharma, President Cable Operator Federation of India (COFI), on this issue stated that “We have been making numerous representations in the past before the authority to fix MRP for channels and publicize the same in public domain to bring transparency into the system so that consumers know what price they have to pay. However, TRAI has ignored our pleas. Leaving price fixing to the MSO is leading to discrimination at all levels.”  The current price mechanism is ambiguous, opaque and discriminatory. The effective cost charged by the broadcasters for its content is not even 5% of the MRP mentioned in the RIO. This renders the RIO meaningless and leads to many disputes between the MSO and LCOs as well as between LCO and consumers. Consumers always think it is the last mile operators who are fleecing them where as it is the pay channel broadcasters who keep forcing more and more channels and keep increasing the price for the MSOs/ LMOs. 

Broadcasters and MSOs will in any case ensure their share is received in full even if consumers refuse to pay the hiked subscription but the short fall will always be borne by the LMO/LCO, whose fall- back share fixed by TRAI has already been reduced to an unviable level. If negotiations for revenue share with an MSO fail, an LCO will get only 45% of BST and 35% of pay channel revenue. Since pay channel demand rests with subscriber, only 45% of BST is assured to an LCO that is inadequate for him to sustain his business as he requires a minimum of Rs 150/-per connection to provide a quality service meeting standards laid down by TRAI.

Like in many developed markets across the world where a just and equitable approach is followed, a standard clause as given below is inserted in the RIO:

“The charges being made available in this RIO will be available to allInterconnecting Operators on a non-discriminatory basis. In the event that agreement is reached with any single Operator on new rates for any service covered by this RIO, then those rates will be made available to allInterconnecting Operators.”

It is quite surprising how in India an experienced regulator like TRAI thinks a fair deal has been made by neglecting the interests of the consumers as well as LMO/LCO. The irony is standard RIO published by authority does not even have a clause on non-discrimination of pricing.

On simple inspection of channel package by a leading MSO (see box) which he sells at total cost of Rs. 270 out of which he has to pay minimum of 35% to its LCO, the amount left for the MSO will be Rs. 175. Now the total al-carte price of the channels as per RIO comes to Rs. 700. Quarterly report of the same MSO shows that the total content cost per subscriber comes to Rs. 25-30, which means cost of content available to one MSO as per RIO is Rs. 700 for 130 channels, is available to another MSO at Rs.30. What is the kind of level playing field being created by the regulator? On top of that TRAI without fixing this issue of price discrimination is making representation for increase in the price for channels. If at all something is required to be done on pricing it is the requirement of declaring the MRP per channel for consumers so that all stake holders know what share will come to them. TRAI should also ensure that any broadcaster who does not wish to declare his channel MRP should be prohibited to be a part of any bouquet. All such channels should be sold a-la-carte so that their acceptance will depend on market force. 

Table of RIO Price for an MSO

Financial results of pay channel broadcaster groups and their vertically integrated MSOs in quarter ending December 2013 as reported in many media show that their subscription revenue post DAS has increased to the extent of 100% to 200% increase than in 2012 where as all others including the independent MSOs, small broadcasters and LCOs are suffering heavy losses.

We are sad to say that right from the beginning, DAS regulations have been framed only to help a few large players who also have vertically integrated distribution arms at the cost of thousands of small players. 

TRAI itself in its various consultation papers made the observations regarding discrimination, dominance, non-competitive practices, monopolies etc, but they are never applied in practice. Below is an abstract from one of its consultation papers.

“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).” 

Background

Pay channel broadcasters have historically quoted un-realistic list prices for their pay TV channels. The sum total of the Pay TV channel prices demanded from cable TV networks far exceeds the maximum monthly subscription paid by any consumer. The broadcasters, in reality arrive at a negotiated settlement with the distribution platform, and project the 'short-fall' in subscription revenues (based on list price) as 'under-declaration' or piracy.

Box giving time line of changes made by TRAI in Cable TV Tariff 

In July 2006, responding to unrealistic pay TV pricing demanded by broadcasters, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruled that Broadcasters cannot charge more than 50% from addressable digital distribution platforms, such as DTH, addressable digital cable TV networks, HITS & IPTV platforms.

After studying all the negotiated Pay TV agreements lodged with it, the Telecom Regulatory Authority of India (TRAI) realised that most broadcasters had negotiated with DTH platforms, at 20% of the list price. Some deals were as low as 10% of list price. Based on these observations, the TRAI felt that the TDSAT's 50% cap on wholesale digital tariffs needed to be revised downward to 35%, so that it would better reflect ground realities. On 21 July 2010, the TRAI issued its tariff order that Pay channels could not charge more than 35% of their list price, to digital distribution platforms. TDSAT rejected the TARI’s 35% tariff ceiling for digital pay TV platforms and stated that TRAI should start afresh the entire process of tariff fixation, by conducting a detailed study of the issue. 

The TRAI moved the Supreme Court against the TDSAT's rejection of the 35% ceiling. In an interim order on April 18, 2011 the Supreme Court had established a new tariff formula. Broadcasters could now charge all digital addressable pay TV platforms, a maximum of 42% of the list price applicable to analog pay TV networks. The new tariff formula would apply to wholesale of any pay channel to Digital addressable Pay TV platforms such as DTH, Digital addressable CATV, HITS & IPTV pay TV platforms. Justices RV Raveendran and AK Patnaik, while hearing the case, also said the current agreements between the DTH operators and broadcasters will continue. 

The Supreme Court judgment is another blow to broadcasters, proving that their pay channel list prices were un-realistically high and unreasonable. It also implies that the broadcasters' claims of 'Under-Declaration' by Cable networks are exaggerated by at least 58%.

The biggest challenge before the industry is offering choice to consumers and making them pay only for that. Once that happens, real viewership of pay channels will be available and only then one can say that market forces are deciding the prices. Till then it is all a game of bureaucratic high-handedness and nexus of Government and broadcaster lobby.

Source:  http://cablequest.org/articles/digitization/item/4408-trai-wants-review-of-42-ceiling-on-tariff-of-pay-channels.html

Source: http://cablequest.org/articles/digitization/item/4408-trai-wants-review-of-42-ceiling-on-tariff-of-pay-channels.html