February 2010

CATV RATE CAP POSTPONED TO JUNE

BACKGROUND

In March, 2009 the TRAI approached the Supreme Court to challenge the directive from the TDSAT tribunal, which rejected its order to propose a cap on the rates for cable services in India. The TDSAT had rejected TRAI's tariff order that was passed in 2007, citing breach of transparency principals.

The TRAI insisted that the order, which was prevalent for over a year, must be allowed to continue. TRAI counsel Harish Salve stated that the order protected around 80 million homes in a transparent and reasonable way by specifying caps on cable TV rates.

On 13th May 2009, the Supreme Court allowed the TRAI to work out a fresh tariff regime for cable services in general (non-CAS) cable TV areas, based on a classification of cities and the number of pay channels provided.

CAP ON CATV CARRIAGE FEES TOO

A Bench headed by Chief Justice K G Balakrishnan, while directing TRAI to carry out the exercise de novo (afresh, without being influenced by the TDSAT ruling), clarified that the comprehensive tariff order would include a cap on carriage and placement charges.

It rejected the objection raised by senior advocate C S Vaidyananthan, appearing for MSOs that the issue of capping the carriage charges was not the subject matter of the appeal and it should also include advertisement charges.

The Court also continued its earlier order that tariffs prevalent when the TDSAT rejected TRAI's order would continue until the new tariffs were declared.

ACTION SO FAR

The TRAI, recognising the enormity so the task to declare a defendable tariff cap, employed the services of consultancy firm Ernst & Young to compute revenues models & profitability of all industry players. This would include ARPUs, Gross revenues and profits of not only MSOs, cable TV networks, CATV distributors and pay TV channels, but also separate figures for each category of pay TV channel, such as Hindi GEC, News, Music & other entertainment channels.
Based on the Supreme Court's dictate, the TRAI called for business details from all industry players. When they dragged their feet in providing the commercial details, the TRAI warned them that it would amount to contempt of the Supreme Court order.

OPERATIONAL ESTIMATES DECLARED

On 10 Nov 2009, the TRAI declared its 'Operational Estimates For Tariff Caps.' It asked all players to revert with their feedback if there were major differences with their figures and what the TRAI had estimated.

Based on these (or suitably revised - after feedback) the TRAI has set out to arrive at maximum tariffs that can be charged within the Cable TV industry, keeping in mind the profitability of each player, so as to provide a reasonable return to all players.

18 JAN DEADLINE

The TRAI's final verdict was due to the Supreme Court on 18th January 2010.

However on that day, TRAI's senior counsel Harish Salve and Sanjay Kapur submitted that the scale of the exercise being undertaken was huge, as it involved examining the financials of a highly fragmented sector spread throughout the country with around 60,000 LCOs, 6,000 MSOs, and 173 broadcasters excluding public service broadcaster Prasar Bharati. Further, these broadcasters have 512 registered television channels of which around 150 are pay channels, 1 HITS platform & 6 private sector DTH operators.

"The collection, collation and analysis of inputs/information from such a fragmented sector is proving to be a time consuming process, beyond the expectations of the appellant (TRAI)," the TRAI pleaded.

MSOs& B'CASTERS AGREE

The counsel appearing for broadcasters and MSOs said they had no problem in giving more time to the TRAI to complete the exercise, but the same should be done only after taking into consideration the total subscriber base of 80 million households. "The TRAI should not proceed till it took into consideration the realistic subscriber base or it should provide details of the database to us so that we can do the survey," senior counsel C A Sundaram said.

30 JUNE DEADLINE

On 18th January 2010, the Supreme Court granted the TRAI time till June end, to work out a fresh tariff regime for cable services in general cable TV (non-CAS) areas based on classification of cities and the number of pay channels provided.

For wider participation of the stakeholders, TRAI has decided to give a last and final opportunity to all the stakeholders to submit (or supplement earlier info) in the prescribed formats by 15th February 2010, along with any other relevant information/suggestions.

The TRAI's final directive will affect more 80 million Indian Cable TV homes.

The TRAI is also simultaneously working on declaring similar tariff caps for the DTH sector. Those recommendations are also expected around end June 2010. n