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A critical look into TRAI’s CPE tariff order for DTH

By RP SIngh

The Telecom Regulatory Authority of India (TRAI) has recently come out with a revised Telecommunication (Broadcasting and Cable) Services (Seventh) (the Direct-to-Home Services) Tariff Order, 2015 on 1 April 2015, thus fixing the tariff in respect of customer premises equipment (CPE) used by the DTH service providers. This tariff order has been notified to come into effect from 1 June 2015.

It is interesting to note here that this tariff order is a revision of a similar CPE tariff order, which was challenged in appeal by the DTH operators, whereby the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) had directed TRAI to consider certain significant and crucial cost components the authority did not consider then. It seems the regulator has once again not only ignored critical cost components, but has travelled too far by stretching the applicability of the new tariff order to even high-definition (HD) CPE, which was neither sought to be done by the TDSAT nor justified considering huge cost gap between the vanilla CPE and HD CPE.

Feeling aggrieved by this new tariff order, the DTH operators had no other option but to have this tariff order impugned once again before the tribunal. After admitting the appeal by the DTH operators, the TDSAT kept this matter for hearing on 25 May 2015.

Presently, when there are six DTH operators already creating enough competition,  the question arises as to why TRAI wants to interfere in the pricing aspect of CPE, which are offered to the customers by DTH operators already at a highly subsidized price. As the DTH operators are already with huge losses and multiple taxes, such lopsided tariff orders will put additional financial burden on them and make their businesses unviable. On the contrary, considering the tardy progress of digitisation in the country, digital platforms like DTH should be given more and more flexible and amenable milieu to help government to achieve complete digitisation, instead of curtailing their very basic and constitutional right to trade with freedom.

The DTH operators had earlier detailed out the cost components to be considered by TRAI while coming out with a tariff order pertaining to CPE. However, TRAI has ignored these crucial cost components while formulating the tariff order for CPE.

DTH service providers opine that TRAI has been trying to control the price of the CPE offered without taking into consideration the fact that the prices at which the CPE are offered by the suppliers/manufacturers to the DTH Operators have never been controlled before. Thus, forbearance or absence of control on input cost of CPE vis-à-vis control on retail pricing of CPE makes a contradictory and lopsided picture of the tariff order.

It is interesting to note that all the tariff orders coming from the authority are only for DTH operators, whereas they are silent on such tariff order for cable operators.

Broadly, the cost components, which TRAI seems to have ignored while coming up with the tariff order, are explained by a leading dealer.

The said dealer who installs at least 100 connections per month states that the dish antenna, wires, screws and other consumables like connectors, etc. once installed cannot be reused by new customers as none of his customers will accept old rusted dish antenna. The customer always demands a new STB, new antenna, fresh wires, and he insists that the ‘seal’ of the package containing set-top box should be broken in front of him only.”

In other words, for a dealer, a returned dish antenna, wires, screws and other consumables like connectors, etc. are equivalent to junk. TRAI has obviously forgotten to consider the customer’s preferences in this regard.

Before getting down to writing this column, we checked with few customers whether they would buy a refurbished CPE including a refurbished STB at full price, which is returned by another customer. The answer was an emphatic “NO”.

A DTH operator procures CPE at an approximate cost of Rs 3,050, which includes STB (Rs 2,000 including import duty/VAT), ODU comprising antenna, wires, LNBF, connectors and consumables (Rs 700), and smart card (Rs 350).

On top of the procurement cost, a DTH operator approximately incurs Rs 400 towards installation and activation, Rs 100 towards distributor, and Rs 400–450 towards dealer margin. Thus, the total cost of new customer acquisition for a DTH operator comes to approximately Rs 4,000, whereas the CPE is provided to the customer at Rs 1,600, which is a significantly subsidized price, i.e. more than 50 per cent discount on landing cost incurred by DTH operators.

There is another twist in the tale, which is about the business dynamics the authorities have failed to appreciate. Every six months, a dealer would lure customers to return old CPE and induce them to take a new connection of the other brand/DTH operator in order to earn more dealer margin. This would naturally pave the way for unethical practices among dealers to promote rotational churn, which would cause the DTH operators great loss.

It is also learnt that it takes a DTH operator at least a couple of years to recover the subsidy of about Rs 2,000 given to its customers, which, in turn, is contingent on such customers remaining active on its platform continuously for such two years. It is in this context that the DTH operators feel aggrieved by the open-ended tariff order. While the authorities have mandated the DTH operators to provide refurbished CPE to customers, they have not considered the refurbishment cost burden a DTH operator will have to incur.

In order to recover the subsidy given to the customer to the tune of Rs 2,000 and more, DTH operators are of the opinion that a customer must continuously stay active for a period of at least two years on one particular DTH platform.  In this competitive market, DTH operators are bound to offer customer beneficial services, as the DTH operators understand that if the customer is not happy with their services, they will lose the customer and will eventually lead to non-recovery of the subsidy provided to the customer. As the DTH operators are currently trying their best to retain customers by giving them all required services, then where is the question of commercial inter-operability?

It would be interesting to see in which direction the matter will go and whether the TDSAT adopts a positive outlook and considers these crucial cost components.

(Author is an independent expert. Views are personal.)