Broadbandindia Magazine

The regulatory body for the broadcasting and telecommunications industry in India, Telecom Regulatory Authority of India (TRAI) has floated a consultation paper to review the tariff for cable TV service in CAS (conditional access system) notified areas. Going digital has enabled the Indian pay-TV market to continue  growing at a satisfactory pace, and providing the much-needed boost for conditional-access system (CAS) providers as they are now very much in demand by pay-TV operators to protect their premium content.

Tariff for Cable TV

Reviewing the “Issues to Tariff for Cable TV services in CAS notified Areas”, TRAI would cover the areas such as tariff for basic service tier, retail price for a pay channel, tariff options for supply of set-top boxes (STBs) and revenue share arrangement between service providers. For the same, the TRAI has asked views/comments from the stakeholders in the industry in order to resolve the issues that have been raised by the broadcasters and consumers time and again.

1. Basic Service Tier

As per the existing tariff order “basic service tier” means a package of free-to-air channels provided by a cable operator, for a single price to the subscribers of the  area in which his cable television network is providing service and such channels are receivable for viewing by the subscribers on the receiver set of a type  existing immediately before the commencement of the Cable Television Networks (Regulation) Amendment Act, 2002 without any addressable system attached to such receiver set in any manner. Basic service tier is to have a minimum of 30 free to air (FTA) channels. As on date, the cable operator can charge a maximum of Rs.82/ – per month per subscriber for providing the basic service tier. More than 30 FTA channels can be made available to the subscribers within this ceiling (Rs.82/-). However, STB is not required by a subscriber to view the FTA channels forming part of basic service tier.

Section 4A of the Cable Television Network (Regulation) Act 1995 provides that the Central Government by notification in the Official Gazette may make it obligatory for every cable operators in a particular city, town or State to transmit or retransmit programme of any pay channel through an addressable system with effect from such date as notified in the notification. Section 4A of the said Act further provides that programmes of basic service tier shall be receivable by 18 any subscriber on the receiver set (television) without any addressable system (STB) attached to the receiver set. Copy of Section 4A of Cable Television Network (Regulation) Act 1995 is at Annexure-II.

Roll out of CAS in parts of three metros and whole of Chennai shows that around 40% of subscribers in Delhi and Mumbai have opted for STB. Whereas in Kolkata and Chennai this percentage is in the range of 15-20%. The reason could be that most of the popular regional channels are FTA in Chennai. Using STB has many advantages as the medium will be converted to digital. So even if it is used only for viewing FTA channels more number of channels can be viewed by using STB. Analysis of the reports submitted by the MSOs operating in the CAS notified areas indicate that usually 50-60 FTA channels are available without STB and 120-140 FTA channels are available with STB. Another advantage of using STB is that, being digital the quality of reception of TV channels will be better, be it FTA or pay. In the digital system the possibility of interference from terrestrial channels is ruled out. Further, usage of STB will bring in addressability in the system. All the service providers in the value chain will be able to know the number of subscribers for each channel.

There is a view that the cable TV services should be provided using STB only i.e. all subscribers should have STB for receiving the cable TV services. Such an arrangement, as discussed above would improve the quality of reception, receive more number of channels and determine the exact number of subscribers. It will bring in transparency in financial transaction across the supply chain. Also, this will be effective in preventing piracy of signals. The lack of transparency and absence of relevant business information leads to frequent disputes between stakeholders. Above all, the usage of STB will achieve the larger goal of digitization with addressability. This issue has been discussed in detail in the consultation paper issued on 25th March 2010 on issues relating to tariff for cable TV services in non-CAS areas. The possible argument against mandating usage of STB could be the financial implication to the subscriber, as every subscriber is compulsorily required to have a STB.

However, if use of STB is to be made mandatory (even for FTA channels) in CAS notified areas, then it would require an amendment in Section 4A of Cable Television Networks (Regulation) Act 1995, since the present provisions prescribe that programmes of basic service tier shall be receivable without STB.

The other issue relating to basic service tier is the tariff for availing the basic service tier. While fixing a ceiling of Rs.77/ – (excluding taxes) for basic service tier in the year 2006, the Authority has taken into account the Government of India notification no. S.O. 503(E) dated May 7, 2003 vide which a ceiling rate of Rs.72/- per month per subscriber was fixed for the basic service tier under the Cable Television Networks (Regulation) Act, 1995. While fixing the ceiling of Rs.72/-, Ministry of finance has done a complex cost based exercise. After taking into account an inflation of 7% (Rs.5/ -), a ceiling of Rs.77 (72+5) was fixed for basic service tier. This ceiling of Rs.77/- (excluding taxes) was further enhanced to Rs.82/- w.e.f. 1st January 2009 through another inflation linked adjustment of 7% (7% of 77=5).

2. Retail price of pay channels

The present tariff regulation for cable TV service in CAS notified areas provide a ceiling of Rs.5.35/- (excluding taxes) per subscriber per month per pay channel. Initially the ceiling was Rs.5/-, (excluding taxes) which was subsequently raised to Rs.5.35/- with effect from 1st January 2009 by providing an inflation linked adjustment of 7%. While deciding this ceiling of Rs.5/- one of the key factor was the existing terms of cable transmission in a non-CAS environment. The primary purpose of an addressable system is to facilitate choice of pay channels at the level of subscriber, improved quality and monthly cable bill at a reasonable/acceptable level commensurate with the number of channels chosen by the subscriber. While deciding the ceiling of Rs.5/- (excluding taxes) per pay channel per month in 2006, the Authority relied on

A. The prices made available by the stakeholders during the process of consultation.

B. Inference drawn from the agreements between the broadcasters and the MSO.

C. Available data from CAS areas in Chennai.

D. Offers made by DTH operators.

E. Reported mismatch between the actual subscriber and chargeable subscriber.

F. Arrangements of revenue sharing with a reference to advertisement, carriage and revenue generated from the subscribers.

Broadcaster, specially the sports broadcasters have been raising concerns on this ceiling, in the background that they have to pay large amount for acquiring sports broadcasting rights. In their view the uniform ceiling of Rs.5.35/- is not justified. Therefore, one view could be that instead of a uniform ceiling across all genres, there could be more than one ceiling depending on the genre of the channel. In that case the question would be that for how many genres the ceilings should be prescribed. For comparing the rates of similar channels in non-CAS areas, the Authority has recognized eleven genres which are

i. General entertainment (Hindi)

ii. General entertainment (English)

iii. General entertainment (Regional language)

iv. Music (any language)

v. Movie (any language)

vi. News (any language)

vii. Sports (any language)

viii. Infotainment (any language)

ix. Kids (any language)

x. Life Style (any language) and

xi. Religious (any language).

However, it is to be kept in view that many channels have contents of different genres.

One view could be that market has matured enough and the retail tariff for pay channels should be under forbearance. Support of this argument is that, if the broadcaster increases the rates of their channels then subscriber base may reduce, which in turn may affect the advertisement revenue of the broadcaster. Therefore, the pressure on advertisement revenue will discourage the broadcaster from increasing the tariff. The counter view could be that above argument could be applicable for general contents, for highly popular content (for example live coverage of sports event) the retail price may be jacked up unreasonably. Next issue is the relation between a-la-carte and bouquet rate.

One view could be that it is more significant in cases where there is no price cap on a-la-carte channels. In the case of analogue system, this issue is relevant only between broadcasters and MSOs, whereas in the case of CAS this issue is relevant both between broadcaster and MSO; and between MSO and subscriber. Broadcasters and/or MSOs, to promote channels which are not much in demand, may make such channels part of the bouquet and give the bouquet at such a discount that subscriber is encouraged to go for bouquet which ultimately may cost the subscriber more than the a-la-carte cost of his/her required channels. In such a situation, perverse pricing can be prevented by having a relation between a-lacarte and bouquet rate.

There are some channels (like “Topper”, as on date) which have a subscription revenue based model without advertisements. Similarly, there are other niche channels like high definition channels (HD channel) which are available through special set top box only. The target group for such advertisement free and specialised channels are limited as on date. The issue is whether tariff ceilings for such channels should be different from the normal pay channels or left under forbearance.

In the present tariff order there is a provision that a pay channel should be subscribed by the subscriber for a minimum period of four months. One view may be that there should be not be any minimum period and the subscriber should have the freedom to change channels at his/her will. However, counter view could be that unless there is a provision of minimum period of subscription the business model of the broadcasters will be adversely affected. This aspect could be more relevant for those channels which have event based contents like sports channels.

3. STBs matters

Every cable TV subscriber in a CAS area who intends to watch pay channels has to acquire a set top box (STB) on his own or from a MSO. Even those subscribers who do not wish to watch pay channels may have STB for better reception of signals and for watching more number of FTA channels. The success of CAS implementation is dependent upon the manner and tariff at which the STBs are supplied to cable TV subscribers. The Authority in its tariff order for CAS areas prescribed two standard tariff packages (STP) for acquiring STB by cable TV subscribers. Option-I of standard tariff package, as prescribed in the tariff order in 2006 provides a monthly rental of Rs.30/- with a refundable security deposit of Rs.999/-. Option-II provides a monthly rental of Rs.45/- with a refundable security deposit of Rs.250/-.

No monthly rental is required to be paid by 24 subscriber after 5 years and the STB becomes the property of the subscriber. In case a subscriber returns the STB, then the MSO/LCO is entitled to deduct at the rate of Rs.12.50 and Rs.3.00 for every month or part of the month for which STB has been used under option I and II of standard tariff packages respectively. (Refer Annexure-I and Annexure- III). In addition to the mandatory standard tariff packages for STB, MSOs/LCOs were free to offer any other scheme to the subscribers. Subscribers were also free to acquire STB either from the MSO/LCO or from the market subject to the condition that the STB should be compatible with the MSO system.

Two standard tariff packages for acquiring of STB by the subscribers were modified w.e.f. 1st January 2009. In the first standard tariff package monthly rental was  reduced to Rs.22/- with security deposit of Rs.750/-. In the second standard tariff package monthly rental was reduced to Rs.34 with security deposit of Rs.200/.  Monthly deduction in case a subscriber returns the STB, were also reduced to Rs.10 and Rs.2.50 for every month or part of the month for which STB has been used under option I and II of standard tariff packages respectively. These reductions in standard tariff packages were done because the prices of digital STBs had come down due to technological advancement and easy availability of STBs. While reviewing the tariff dispensation for CAS notified areas one of the issues that comes at retail level tariff is the cost of acquiring of STB by the subscriber. One view may be that it should be left to the market forces because subscribers have an option of another platform of DTH which has 6 service providers who are competing with each other to acquire the subscribers by offering various schemes.

It’s important that Trai has asked comments from the stakeholders on whether the use of STBs should be mandated on CAS notified areas for viewing both free-to-air (FTA) and pay channels. Currently, cable TV subscribers do not have to use a STB if they only want the FTA channels.

4. Revenue share arrangement between service providers

Subscription fee paid by subscriber in CAS areas has two components. First component of the subscription fee is the tariff for basic service tier and the second is the tariff for subscribed pay channels. Telecommunication (Broadcasting and Cable Services) Interconnection (Second Amendment) Regulation, 2006 (9 of 2006) dated August 24, 2006 provides for revenue share arrangements amongst service providers in the notified CAS areas. The subscription revenue from pay channels is shared in the ratio of 45:30:25 in respect of broadcaster, MSO and cable operator. The share of broadcaster was kept at 45% which was the lower of the arrangement in Chennai.

A higher percentage was given to the MSO since the cable operator was not to share the revenue from the basic service tier with the MSO. The Regulation provided that the revenue from the basic service tier will be kept entirely by the cable operator and the carriage fee if any will be kept by MSO. However, Hon’ble TDSAT vide its judgement dated 12th May 2009 in Appeal NO.11(C) of 2006 has struck down this clause. Therefore, at present the revenue generated from the basic service tier may be shared between MSO and LCO on mutually agreed terms.

The issue is how the revenue generated from subscription should be shared between the service providers in the value chain. Should the subscription revenue from pay channels be shared in the present prescribed ratio of 45:30:25 or the ratio of revenue share modified. Similarly what should be revenue share arrangement between MSO and LCO in the case of basic service tier? One view could be that it should be left to the market to decide. However, the other view may be that the present arrangement for revenue share from the pay channel revenue may continue. As for as the revenue share arrangement between MSO and LCO, for basic service tier is concerned, one view could be that the present system of mutually negotiation should continue.