TRAI needs to allow the broadcasting sector to flourish by scaling down economic regulations and taking stock of the performance of last-mile distributors
Much has been written about the uproar over the telecom regulator’s decision to bring in amendments to the New Tariff Order (NTO). Dubbed NTO 2.0, the revised tariff order has met with severe criticism and legal armour from broadcasters, who have accused the Telecom Regulatory Authority of India (TRAI) of sabotaging the sector by introducing clauses that will allegedly erode subscription revenues, push broadcasters towards an advertising-led revenue model and destroy the level-playing field in favour of Distribution Platforms (DPOs) and advertisers.
The TRAI, on its part, has argued that the amendments were necessary as the NTO had failed to meet its objective of giving adequate choice to consumers through rampant “misuse” of power and flexibility granted to broadcasters. But, perhaps, the most stinging reason that led to these amendments was the TRAI’s inability to keep cable bills in check, prompting consumers to downsize on TV viewing.
There are compelling reasons to scrutinise the regulator’s tinkering with the Network Capacity Fee (NCF) to expand the reach of Free-To-Air (FTA) channels under the NTO 2.0. There was widespread belief that the TRAI would waive off or at least reduce the NCF under its amendments to make TV viewing more affordable. Far from it, the TRAI has replaced the old NCF structure with a two-slab one that further expands the ambit of FTA channels.
To recapitulate, the NTO issued last year mandated DPOs to provide 100 FTA channels, which included 76 private ones and 24 Doordarshan (DD) channels to every subscriber for Rs 130, excluding tax. Under the amended NTO, the TRAI has asked DPOs to provide up to 200 channels, excluding 24 DD channels for Rs 130. The regulator also introduced another slab — for more than 200 private FTA channels and 24 DD channels, the NCF would be Rs 160 excluding tax.
The TRAI may have had the best intentions in introducing the two-tier NCF structure. “TRAI recognises that the new regulatory framework implemented in 2019 caused distortions that led to price increases in the TV market. Primary among them is a reduced incentive for distributors to improve the quality of service on account of the NCF. Consumers also pay more to watch the same content and it’s tedious for them to keep track of the number of subscribed channels, as a result of the NCF. Through this two-slab system, TRAI ostensibly seeks to address such documented challenges,” says Vivan Sharan, Partner, Koan Advisory.
Despite its stated intention, however, the revision in NCF — along with the mandate to reduce the MRP of channels from Rs 19 to Rs 12 to be part of a bouquet — has raised difficult questions, many of which reflect the TRAI’s own inconsistencies.
For one, the NTO was introduced last year in an attempt to empower consumers and give them the freedom to choose what they want to watch and pay only for that. The TRAI has repeatedly argued that the introduction of à la carte pricing was necessary as broadcasters were dumping “unwanted” channels on consumers through bundling and bouquet formations. But here’s the catch, while the TRAI is attempting to restrict broadcasters from bundling or forming bouquets, doesn’t allowing a distribution platform to offer 200+ FTA channels tantamount to bundling? Then again there’s an issue of who really benefits from the introduction of the new NCF structure — consumers or DPOs?
Chairman of Star and Disney India Uday Shankar points out the anomaly, “If the regulator is so concerned about bringing down the price for the consumer, then why in the name of an NCF, are the distributors being allowed to charge as much as Rs 160? Theoretically, they can charge anything up to Rs 160 for only providing FTA channels. Just to understand the ludicrous contradiction of this order, the same channels could be obtained by the consumer by going to DD Free Dish. So something that the Free Dish makes available for free, the regulator, in the name of bringing down the burden on the consumer, has allowed the DPOs to charge up to Rs 160.”
Broadcasters are bemused that the TRAI is willing to give private DPOs the upper hand even at the cost of the Government’s own DD Free Dish. “Doesn’t TRAI favour private and commercial DPOs vis-a-vis DD Free Dish DTH, where the subscriber has to incur a one-time cost for a Set Top Box and gets the FTA channels for free for life but has to pay private DPOs a monthly NCF for those same channels?,” asks an executive from a leading broadcaster on condition of anonymity. The executive argues the TRAI is not only destroying DD Free Dish’s viewership but consumers are repeatedly “fleeced” each month in the name of NCF.
The legal head of another popular broadcaster laments that the TRAI has played into the hands of DPOs, granting them unequivocal authority to create base packs for consumers. “DPOs will now create a base pack of 224 poor-quality FTA channels priced at Rs 160 and push these onto consumers. Meanwhile, as a content creator, my relationship with my consumers is curtailed, I lose the authority to decide how my channel will be carried by the platforms and the reach it will garner, and my economies of scale have been eroded too,” says the legal executive who does not wish to be named.
Distributors, however, say there is no inherent benefit to them as claimed by broadcasters. The CEO of a leading Multi-System Operator says on condition of anonymity, “The NCF was never designed as a premise to offer FTAs to consumers. Platforms charge consumers NCF to cover the cost of setting up the infrastructure to carry channels and their operations. As part of that commitment, the TRAI directed us to offer 100 FTAs under the NTO. So FTAs are incidental, not the primary reason why NCF is levied.”
Then there’s the critical issue of guaranteeing choice to consumers. Broadcasters allege that while the TRAI seems to be offering a wider viewing through the 200+ FTAs, there is no real choice on offer. “MSO head-ends are not capable of delivering differential packages of FTA channels to every household taking into account their age, language and genre preferences. So where is the choice as far as FTAs are concerned?,” asks the senior executive. All of this could have perhaps been pardonable if the new NCF structure could guarantee lower cable bills, a claim TRAI is only happy to make. Broadcasters, however, are quick to burst the bubble. “DPOs will charge a MRP of either Rs 130 or Rs 160 for the FTA channels and then consumers have to opt for à la carte channels or broadcasters’ bouquet or DPO bouquets to watch their choice of channels. So how will the two-slab NCF actually reduce bills?,” argues the executive. To put it another way, the NCF itself serves as the biggest single-fixed component of monthly cable bills.
Distribution platforms have another point of view and say the NCF’s two-pronged approach will ease cable bills and satisfy even conscious TV watchers. For a fee of Rs 130 and taxes, an entry-level consumer can now avail up to 200 FTA channels, giving him a wider basket. Then again, even if a consumer opts for the entire universe of pay channels, the TRAI has limited the NCF to Rs 160 a month, which hitherto increased as the number of channels increased (an additional NCF of Rs 20 was charged for every slab of 25 channels).
Broadcasters argue the reduced MRP caps and new NCF structure will limit the number of channels in pay bouquets, erode the value delivered to consumers and the loss of subscribers and revenues will force more pay channels to become FTA, which solely rely on advertisement revenue for their business.
As more channels become FTAs, it will also force broadcasters to fight a hard battle with DPOs to be included in their FTA base packs, giving platforms the upper hand to negotiate higher carriage fees. Put together, this will negatively affect the quality of programmatic content and the viewing experience for consumers.
“Smaller broadcasters pay channels may convert to FTA to remain attractive for consumers, following the introduction of new economic regulations on bouquets. If more such pay channels become FTA, broadcasters will cease to invest in high-quality, niche content. This will negatively impact content quality,” says Sharan.
As more channels become FTAs and more air-time becomes available, ad rates will fall and advertisers will gain immensely. This will lead to an increase in number of advertisements on TV. “This will only expedite the migration of consumers to other digital platforms, where they not only enjoy high quality content but also without the frequent interruptions of advertisements,” says the head of another broadcaster.
The TRAI did not respond to an email seeking replies on the new amendments that come into effect on March 1.
Experts say TRAI needs to allow the broadcasting sector to flourish by scaling down economic regulations and taking stock of the performance of last-mile distributors. “The NCF has certainly increased the cost of watching TV. This can only be remedied by enhancing competition among last-mile TV distributors, not by more economic regulations,” says Sharan. “Distributors must do justice to consumers by actually using revenues from NCF to improve quality of service. A transparent ecosystem-wide audit is desperately needed. Logically, this should precede regulatory changes,” he concludes.
The legal executive warns that should the TRAI continue with excessive and arbitrary regulatory measures, it will push the broadcast sector on to the same thorny path as the telecom sector.
“Until a decade ago, India boasted 14 telecom players; today we are staring at a duopoly. The broadcast sector is headed in the same direction. More channels are forced to go the FTA way, leading broadcasters are not launching new channels and smaller, niche channels are shutting shop. Ultimately, if the broadcast sector perishes, so will the distribution platforms,” he says.
(The writer is a journalist covering the media and entertainment landscape)
