New Delhi: India’s telecom regulator Telecom Regulatory Authority of India (Trai) doubles up as the regulator of the broadcast business and it has had its hands full dealing with regulatory and competition-related issues in the sector. In an interview, Trai chief Nripendra Misra spoke on tariff regulation in the business. Edited excerpts:
When Trai fixed channel prices in 2004, it said this would be a temporary intervention while it studied the sector and came up with a much more representative pricing regime. Besides minor changes, that regime has continued to date. In many areas, India has stopped fixing prices, allowing the market to do so. And costs have gone up significantly.
Let’s analyze where all we have fixed the price and then get into this. The first price fixation took place in 2004, when the order was issued on at what price cable operators will give the service to consumers. Also, the RIO (reference interconnect order) price was fixed, which is the price at which the broadcaster will give the channel to the cable operator. Then we took into account inflation and made provision for certain increases.
The second price fixation came when we fixed for CAS (conditional access system) for a very limited clientele in the four metros. We fixed the channel price and we also determined the revenue sharing concept (between cable operators, multi system operators or large cable operators, and broadcasters). The objective then was that while we move to a more addressable digital system, the price for the consumer should remain at the same level as what was prevailing then.
Structural change: Trai chief Nripendra Misra. He says Trai regulated prices when it saw a market failure. Ramesh Pathania/Mint
We did say at that point that the channel price fixed for CAS will be reviewed after a year. And we started seeking data from the broadcasters. Meanwhile, we made certain other recommendations. That 55 more districts should be brought under voluntary CAS, that digital transmission through HITS (Headend-In-the-Sky) may be allowed. DTH (direct-to-home) was already there by then. So then we thought that may be it was better to wait for some more time. So effective revisions did not start.
The other price we fixed was the price at which broadcasters will give their feeds to DTH, which we recommended should be 50% of the CAS rates, which is in fact, derived from a TDSAT (Telecom Disputes Settlement and Appellate Tribunal) judgment. There also we did not fix the price. We only issued an advisory. Because we were seeing that the agreements were not taking place in DTH. It all depended on the parties involved. There were several broadcasters who could not get bandwidth because perhaps they could not negotiate effectively. There are complaints, and I will not take a position on this, that the carriers are now asking for carriage charges.
So if I’m the seeker, then I’m on a weak wicket. If DTH is the seeker for a broadcaster, whose bouquet is popular, then DTH is on a weak wicket. So we thought let’s minimize the friction areas. So we devised the reference interconnect offer. Again, we only said there should be these details in that document. Within that they would also provide the price of the channel.
But there is a “must provide” clause which means no broadcaster can say no to a DTH company.
Must provide and must carry clauses have actually got many weaknesses in terms of effectiveness. Must provide means if I’m offering, you have to carry it. The must carry guy will say I’m unable to carry because I do not have the bandwidth. So now people are taking advantages of the technicalities of these clauses. Our interest is to see that disputes are minimized. Every person doesn’t go to TDSAT.
Also, the process must start for digital transmission and I should say with tremendous satisfaction, that barring one or two broadcasting companies, all have respected our advisory. It’s no mean achievement and in some way I’d like to give credit to Trai that without making regulation, without fixing the price, without issuing directions, just by putting an advisory on our website, the industry has accepted it. So 50% pricing for DTH is not mandatory, it’s advisory in nature.
In non-CAS cable, we have not fixed the price, we have only prescribed a certain relationship between bouquet pricing and a la carte pricing. In CAS, yes it is Rs5, and in DTH, it’s merely advisory.
Even there, it is based on a TDSAT judgment that is more than a year old. They based it on the difference between an addressable system and a non-addressable system. So they thought may be there is a 50% under declaration in the non-addressable systems, so let’s bring it down in an addressable system.
But then why not in CAS?
In CAS we have fixed it at Rs5 per channel so there is no question of that. You may feel that Rs5 is too low, but if you see the bouquet price, it’s attractive. Even in DTH, if I’m offering 70 channels and I’m taking Rs300 from the consumer, the average price is coming to almost Rs5. So, Trai fixed it at Rs5 and it was fixed in a manner that there is a revenue sharing formula between broadcasters, MSOs (multi system operators) and cable operators. So I think overall the water has found its level. I think the question of whether there can be certain relaxations, if some controls can be loosened, etc., will come a little later. At this stage, our major push is digital transmission.
But the question still remains as to why have price controls in a service that is mostly a luxury, or at least is certainly not a necessity?
Because today this sector is covering 120 million homes. It is no longer a luxury. Radio and television is no longer a luxury. It might have been a luxury in the 50s and 60s. The definitions of luxuries change with lifestyles. I definitely do not think having a television is a luxury today. And we have to protect the consumer’s interest and see at what price he’s getting it. It’s also not just consumer interest. There are three levels of stakeholders and if we don’t fix it, we will have no basis for evaluating the revenue sharing concepts. So, somewhere you have to get into the retail price, the wholesale price and the interconnect price at least for the initial five-six years. Later on of course once the relationship is established, it (deregulation) is possible.
And the final word on this is, you regulate prices when you see a market failure.
So you saw a market failure in broadcasting?
A very clear market failure was happening. In the sense that the agreements and the reference interconnect offers were not coming through. Do you know that the agreements were not even being shared? It all depended on the strength and might of either the broadcaster, or the MSO. You talk to any cable operator and he will tell you that he never used to get a copy of his agreement with the MSO. The MSO would get his signature and keep it with itself. You talk to any MSO and he will tell you, that he never got any signed agreement from the broadcaster. He signed and gave it to the broadcaster.
Are you saying that before Trai came in to regulate, the industry was in a bit of a Wild West situation?
Well it was a bit of an uncontrolled situation. Don’t forget that Trai came in 2004 and DTH was just emerging at that time and at that stage it was extremely important that these relationships get established. So I do think the market failure signals were very clear.
While this might serve consumer interest in terms of pricing, doesn’t this restrict variety on television? Because broadcasters’ revenues from subscription are artificially restricted, they are forced to depend entirely on advertising, which means they have to put the lowest common denominator content on TV. The industry also complains that niche channels can’t develop under this price-controlled environment.
I don’t agree. Broadcasters make 70-80% of revenues from advertising and only the remaining comes from subscription. So anything you regulate on the 20% don’t have an impact on the remaining 80%. Secondly, revenue from advertising is dependent on ratings. It is the ratings system, sponsored by advertisers and supported by broadcasters, that is determining both the selection of channels and programme contents. If the rating methodology is bringing about certain distortion in content, or if that is not encouraging better programmes, one can look into that. But I don’t think this is happening because certain subscriber fee has been regulated.
Coming to niche channels, if we receive any request from a broadcaster saying I want to start this niche channel, it will not get any advertisements, and we want to charge more from the viewers, because it will be watched only by those with a special interest in that kind of content, we will definitely consider taking them out of the pricing system. I’m not committing, I’m saying we’ll be extremely receptive to this. Some broadcasters did talk to me and I said send the proposal to us and we’ll consider it. But don’t forget, such a thing is possible only if there is an addressable system. So this is still a very very narrow market. We are talking about just 5 million DTH subscribers.
Trai’s recommendations on TV rating points, or TRPs, will disqualify the incumbent agency TAM Media as cross holding in a measurement agency by an advertiser is not allowed and TAM is part owned by WPP?
No, I think that recommendation is only about cross holding within the country. So I don’t think any existing rating agencies will get disqualified.
One complaint about Trai’s recent recommendations on cable services is that the time frame of five years set for complete digitization is too long as other digital technologies are taking over fast.
There is nothing stopping a cable operator from digitizing his network before five years. There are already cities where MSOs and cable operators provide digital signals. For a country of our size, five years is not too long a period. If you see the international experience, analog transmission exists in parts of the US even today. So I’d say if we are able to achieve 100% digital transmission in five years, I’d say it’d be one of the finest achievements of the country. Some degree of coexistence is going to be there. In rural areas, if analog cable is able to give 50 channels, that’s fine. Not everyone is looking to have 200 channels. Predominantly digital transmission should be our goal. According to me, it should be a national goal. The offshoot of this is that it releases the spectrum dividend. In a country like ours where spectrum is a scarce commodity, this should be our top most priority.
The spectrum released as a result of digitization, which enables more channels in the same bandwidth, can be utilized in a way that benefits all the stakeholders. In the UK for instance, they have incentivized digital transmission by saying whatever spectrum is released as result of digitization, will be used in a manner that is beneficial to the stakeholders. We can also work out a way to do this.
Unfortunately in our country, whenever we talk of spectrum, we think of telecom, without realizing that there is a huge amount of spectrum being used by broadcasting services.
So efficient utilization of spectrum is one issue. Apart from that, digitization will mean addressability, which means no tax evasion, you have better picture quality, you have a choice of which channels to watch, unlike the bundled cable system, etc. So the market becomes very healthy.
We, at the authority, are extremely committed to digitization. Let me share with you, at one stage, we even thought about financial subvention from the government to aid the process of digitization.
You have spoken in the past about a fund in broadcasting that is similar to the universal service obligation fund in telecom…
Yes, some such measure could be thought of. We did not go that far in our recommendation but the country will be better served with a bit of investment that will help us make this transition. A fund like this is very much on our radar, but we have not picked this for our work plan at least for the next six months. There are a lot of issues to be decided. Whether the USO (universal service obligation) fund itself can be used for digitization, or there should be a separate cess on broadcasters. All these need to be settled.
Why did this not find a place in the final recommendation?
For one that was not part of our consultation and I think we could not have evolved a proper scheme within the time that was available to us.
In the current recommendations, the entire idea was that the cable industry is restructured in such a way that the investors have confidence in it. They want predictability and certainty about policy. Which was being addressed as the functional area was increasing and viability norms were getting better defined, etc. The technological roadmap was also well laid. Competition is the third plank. If DTH wasn’t there, the urgency for cable operators to digitize wouldn’t have been there. Now they know it is change or perish situation. So we thought if all these things are taken care of, then the investments will come in. Even foreign investment will come in.
The landscape will change. I don’t expect small players. What I expect is big players and their franchisees. That is the US model. There you do not have a large number of cable operators. In a country of that size, you perhaps have 5-6 cable operators and their local agents.
There are some feeble voices that I hear from India also, about vertical integration. Functional areas are getting integrated and linkages in such a manner that sustenance is drawn from a parent that happens to be an MSO.
Trai recently suggested in a paper that it also be made the regulator of content. What is the rationale behind this?
That was totally misunderstood. Some newspapers misunderstood it as our enthusiasm to also regulate content. It was a recommendation for a structural change. In an era where there is convergence, and in a few years and even now to an extent, it is becoming difficult to distinguish between what is telecom and what is broadcasting. With such convergence, you also need institutional reform. Because you cannot have a situation where the carriage regulation is with one authority and content with another. This is the present situation. Now, you don’t need to experiment to learn everything. You can learn from international experience. Globally, all other regulators are regulators for telecom, broadcast and post. Here, we are unnecessarily trying to create a multiplicity of institutions.
In most of the countries, where regulation of content is with the broadcast regulators, it has two-three other frameworks. Content is mostly driven by self regulation. There are ombudsmen, codes of conduct etc., which is the first stage. Secondly, there are advisory bodies that are formed comprising specialists in that sector. It is only after an issue is filtered through these two frameworks and a reference is made to the regulator, that he investigates the matter. So it’s not that you are constantly monitoring content and taking action. It will still be driven by self-regulation. It’s just that since you need an institution, it is better to give it to Trai, which is already regulating carriage, instead of creating another institution.
In the context of the Broadcast Bill, where there is a recommendation for a regulator that will regulate both transmission and content, we have already conveyed to the government that there is no need for another regulator. It is not that we are suddenly looking to regulate content aggressively. The print media gave this whole thing a tinge of sensationalism.
The News Broadcasters’ Association has formed a self-regulatory body. You think such initiatives will be sufficient?
I have not seen the details. But I think anything that is self-regulatory should be welcome. We have recognized this with the endorsement of Barc (Broadcast Audience Research Council). In the media sector, I think anything that comes from the industry will ensure that the public sphere remains sacrosanct. Any intrusive policies will result in the shrinkage of that public sphere. To my mind, the most important thing to safeguard in a democracy is that the public sphere remains where it is, where the participation of the public can be ensured in the process. I firmly believe that self-regulation is the first solution we should be searching for, before launching any other alternatives.
In the recommendations you made about TRPs, Barc is of the opinion that many of the steps are quite intrusive?
Not at all. I believe we have devised a healthy system. If you look at the Italian system, the entire ratings process is regulated. The challenge here is not whether there should be two members from the ministry on the Barc board or three. I think the challenge for Barc and its officials is to get the whole thing in motion. If they have understood the flavour of our recommendations, which emphasizes on sound methodology, selection of the ratings agency, audit process etc., they can go ahead and implement these without waiting for the recommendations. I’d say rather than getting into the small issues of this, Barc and those who are promoting it, would do a great service to the nation if they immediately set up this organization and make it functional.
There is a feeling that you don’t push the information and broadcasting (I&B) ministry as much as you do the telecom ministry to act upon your recommendations.
We have written three letters and the last one was very recently sent to the new secretary, listing the pending recommendations. I also sent a small note for the knowledge of the honourable minister.
Between the two ministries you deal with, do you think the I&B ministry takes longer to act?
No, I wouldn’t say that. In fact the previous secretary was extremely sensitive to the proprieties and urgencies of legal requirement. And the decisions taken there were strictly in accordance with the Acts and rules. But I think matters can be expedited. The country can’t afford this kind of a wait.
You will be stepping down in March. What is one policy change you are keen to see through?
Interconnection is one unfinished agenda. In telecom as well as broadcast. That is the foundation. If you don’t have effective powers to enforce interconnection, then no regulator can function.