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Why Ortel Communications wants RIO-only model

MUMBAI: Ortel Communications has suggested to the Telecom Regulatory Authority of India (TRAI) that broadcasters should offer their channels only on a la carte basis and that no other kind of content deal should be allowed.

So how would this reference interconnection offer (RIO) model help the multi-system operator (MSO)?

Ortel feels that its content cost per subscriber has been higher due to historic reasons and this disparity can get corrected by the RIO-only model. Following the policy of owning the last mile, it has had to compete with the MSOs who were already existing in the marketplace and so had to pay a higher price for accessing content from the broadcasters.

Ortel’s content cost works out to Rs 60 per subscriber, even when its area of operations has not moved to digital addressable system (DAS). In FY15, the MSO’s programming expense stood at Rs 34.2 crore (Rs 342 million) on a subscriber base of over 0.5 million. The expectation is that the cost per subscriber (CPS) would fall or at least remain similar to other distribution platform operators (DPOs) if the RIO model is adopted.

Bibhu Prasad Rath“Our effective content cost per customer is around Rs 60. By adopting the mandatory a la carte pricing, the future cost will depend on the off-take of respective channels. This will ultimately be paid by the consumers according to the channels they select,” said Ortel Communications president and CEO Bibhu Prasad Rath.

Though content cost is on the higher side, Ortel’s subscription revenue realisation per subscriber is better than many MSOs as it owns the last mile and does not have to share revenue with the local cable operators (LCOs). In FY15, revenue from cable subscription fee stood at Rs 79 crore (Rs 790 million), indicating an ARPU of Rs 165.5 (digital and analogue cable).

Another reason why Ortel is keen on RIO is that it has introduced technological processes and is in a position to implement a la carte offering to its customers. “Being a last-mile player, we are in a position to effectively implement tiering through our CAS [conditional access system] and SMS [subscriber management system], hence our expectation that the industry moves in this direction of transparency,” explained Rath.

Ortel’s other condition is that all the broadcasters should offer the a la carte price of their channels to all the DPOs on a non-discriminatory basis in all markets across the country. It feels that the pan-India MSOs should not have an advantage of content cost being lower due to their larger subscriber base.

“Today, pricing of content is historical and has no philosophy. If there is mandatory non-discriminatory a la carte pricing of channels to DPOs, then there will be no cost advantage or disadvantage. This will bring in uniformity of the content cost across the country among all DPOs. A specific product [TV channel in this case] should cost the same across markets without any discretionary negotiations. This is a standard practice in all consumer products,” Rath said.

Broadcasters should not be allowed to offer discounts to DPOs linked to any other factor such as volume, carriage, placements and reach. This will ensure that the cost of a particular channel remains uniform for all DPOs, irrespective of their size or geographical presence, across the country, enabling them to get into a fair competition.

Why broadcasters should be prohibited from making bouquet pricing? “Since one of the key objectives of DAS has been to provide consumers with the volition to choose their own channel lists, bouquets at the broadcaster level must be strictly prohibited. This will also solve one of the chronic problems of the industry where weaker channels ride on the back of more popular channels,” he said.

It should also be mandatory for all DPOs to offer channels to consumers on a purely a la carte basis. TRAI should cap the distribution margin at 25%.

While batting for the RIO-only model, Ortel suggested that broadcasters be given the freedom of pricing their channels and that there be no kind of price cap for any channel.

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