Scatmag.com

August 2014

THE IMPACT OF TRAI'S CROSS MEDIA RESTRICTIONS



As part of its recommendation for issuing new DTH Licenses, the TRAI has also outlined some recommendations on Cross-Media restrictions. The TRAI is working on a set of comprehensive recommendations on Media Control and Ownership. The TRAI Chairman told the press these would be released before end August 2014. Some Cross-Media restrictions have been included by the TRAI in the DTH Licensing Recommendations, to provide a complete licensing overview (including restrictions) for new DTH Licenses.

These new cross-media restrictions proposed by the TRAI break new ground. Past Cross-Media Restrictions pivoted around Percentage Shareholding. Given that companies are often structured around an elaborate web of holding entities and indirect holdings, the TRAI's new recommendations pivot around a new definition of 'Control' as indicated in the box.


DEFINING CONTROL

The definition of "Control" by the TRAI is central and pivotal in the new restrictions. It has been defined as:

An entity (E1) is said to 'Control' another entity (E2) and the business decisions thereby taken, if E1, directly or indirectly through associate companies, subsidiaries and/or relatives:

(a) Owns at least 20% of total share capital of E2. Indirect shareholding is calculated as follows: An entity who owns, 30% equity in Company A, which in turn owns 20% equity in Company B, then the entity's indirect holding in Company B is 30% * 20%, which is 6%.; Or

(b) Exercises de jure control by means of:

(i) Not less than 50% of voting rights; Or

(ii) Appoints more than 50% of the board of directors; Or

(iii) Controlling the management or affairs through decision-making & appointments; Or

(c) Exercises de facto control by 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 in ways as mentioned in (b) (i) (ii) and (iii) above.


DPO

Recently the TRAI has defined a new term & used it extensively: Distribution Platform Operators (DPOs).

3 types of DPOs have been defined:

♣ CATV/HITS

♣ DTH

♣ IPTV

Cable TV Networks (Headends) have been clubbed with HITS (Headend In The Sky) since both platforms primarily distribute Cable TV signals through Last Mile Owners (LMOs) to subscribers.



RESTRICTIONS

RIL has made open offers for the shares of Network18, TV18 and Infomedia Press Ltd.


HORIZONTAL INTEGRATION

Horizontal integration refers to a DPO buying-out other similar businesses in the same market or increasing its market share by expanding operations.

The TRAI has recommended that a DPO (e.g. an MSO or DTH operator) cannot increase its market share beyond 50% in its market (state for MSO & Entire Country for DTH), if it is not vertically integrated.

If the DPO is vertically integrated it can't increase its market share beyond 33%.

As an example an MSO such as Fastway Communications, which is not vertically integrated will not be allowed to service more than 50% of Cable TV homes in Punjab. Vertically integrated DishTV DTH can't own service than 33% of all active Indian DTH customers.


VERTICAL INTEGRATION

Vertical integration or cross-holding refers to common control between different DPOs e.g. a DTH Platform and a CATV Network.

The TRAI has permitted vertical integration to a limited extent to encourage market growth. However it has placed strict constraints on the extent of vertical integration.

The holding company of a broadcaster can 'Control' only one DPO category in the defined markets. Hence a broadcaster can have 'Control' of a DTH company but cannot also Control a MSO/HITS platform.

As an example, Star TV can exert Control in TataSky but will have to disinvest any control it may have in CATV/HITS or IPTV Operations.


OTHER RESTRICTIONS

A number of other restrictions have been imposed to ensure fair play.


NO FLAT RATE DEALS

A vertically integrated broadcaster can only levy "Charge Per Subscriber"(CPS) on DPOs such as CATV/ HITS or DTH platforms. The CPS must be nondiscriminatory. Such a broadcaster can't enter into 'Flat Rate' Agreements with any DPO.

As an example, Star TV and Zee TV must charge for their channels only on a 'Per Subscriber' basis. They can't work out lump sum payment deals. This will curb any possibility of Star TV favouring its group company such as TataSky or Zee TV favouring DishTV by offering Pay Channels at lower-than-market rates.

Readers may recall that recently Hathway has appealed the TDSAT against MediaPro having charged (its associate company) DEN Networks, lower rates. TRAI's new restriction will explicitly prohibit such practice.

CAPACITY & CARRIAGE

A vertically integrated DPO (e.g. CATV/HITS or DTH Platforms) must declare their channel carrying capacity. They can't allocate more than 15% of this capacity or its vertically integrated broadcaster(s). The remaining channel capacity must be offered to other broadcasters on a non-discriminatory basis, at not more than the publicly declared carriage fee. DPOs must register their carriage fees & justification, with the TRAI.


RIO

A vertically integrated broadcaster must get its RIO (Reference Interconnect Offer) approved by the TRAI and all its agreements should only be on the terms of the approved RIO.

Also, each category of DPO must be a separate legal entity.


PRACTICAL IMPLICATIONS

The new TRAI recommendations will have far reaching practical implications with several major broadcasters, DTH platforms and even MSOs. Let us take a brief overview in some of these instances.

InCableNet-HITS is a national level MSO. It has received initial license clearance and plans to launch a HITS platform shortly. This


ZEE EMPIRE

Subhash Chandra's Essel Group controls ZEE's broadcasting activity (ZEEL & Zee Media Corp), Dish TV DTH as well as Siti Cable's CATV activities. Clearly, the Essel Group exerts control over practically every DPO category.

If the TRAI's recommendations are adopted by the Government, the Essel Group can only retain control in Broadcasting and DTH. The group will have to sell-off its stake & give up management control in Siti Cable. "Restrictions such as these for existing players are unfair. This is harming our constitutional right to do business. We will fight it out," Dish TV Managing Director Jawahar Goel is reported to have told the press.


STAR TV - TATA SKY

Star TV is reported to currently hold approximately 30% stake in DTH platform - Tata Sky. The original agreement between Tata and Rupert Murdoch provides Murdoch the option to increase his stake to majority, should Indian laws permit it in future.

Interestingly, the restrictions recommended for new DTH licensing do not restrict FDI stake. This implies that FDI in DTH can now be 70%. This will attract foreign players who can now own and control Indian DTH.

In case Star TV currently 'Controls' any MSO, it will have to exit from that control.


FDI In DTH Can Now Be 70%.

SUN TV

The Maran family has built a huge Media Empire with strong presence as a Broadcaster (Sun TV), DTH platform (Sun Direct) and MSO (SCV). To qualify for a DTH license, Mr. & Mrs. Maran promoted Sun DTH in their personal capacity. However such work-around is not possible under the TRAI's new restrictions.

Sun TV will now have to sell SCV, if it wants to retain Sun Direct.


1 YEAR GRACE

The TRAI has recommended 1 year timeframe for all entities to scale-down/disinvest part of their operations to meet the vertical and horizontal control limits.


ONLY FIRST SALVO

The current restrictions are only the first salvo by the TRAI on cross-media restrictions and they simply cover instances where DTH licenses will be directly or indirectly impacted.

More comprehensive recommendations on media control and ownership have been promised by end August which will provide a complete picture.

The current restrictions seem fair in their intent & the TRAI's definition of 'Control' is comprehensive.

It needs to be seen whether these will be accepted by the Government. Unless they are passed as a law by Parliament, they will almost definitely be challenged by large media houses who will be forced to disinvest their presence in some of their established businesses. n