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DTH operators and tariff model at the wholesale and retail level
MUMBAI: Three of the six private direct-to-home (DTH) operators have batted in favour of cost-based model in determining wholesale tariff, the price at which the broadcasters offer their content to distribution platform operators (DPOs).
Airtel Digital TV, Dish TV and Sun Direct have suggested that the Telecom Regulator Authority of India (TRAI) adopt a cost-based model for determining wholesale tariff.
Videocon d2h and Reliance Digital TV have urged the regulator to go for a regulated RIO (reference interconnection offer) model. Tata Sky is the only DTH operator to propose a complete forbearance at the wholesale level.
Dish TV and Sun Direct have suggested that the authority should consider regulated RIO model in case it is not in favour of a cost-based model.
DTH operators have altogether opposed universal and flexible RIO models, as these are other forms of the forbearance regime.
When it comes to retail tariff, all the DTH operators have spoken in unison urging the regulator to maintain forbearance at the retail level as there is enough competition in the TV distribution space with six DTH platforms, thousands of multi-system operators (MSOs), including the big six at the national level, and two headend-in-the-sky (HITS) platforms.
TRAI had floated a consultation paper in January titled ‘Tariff Issues related to TV Services’ seeking stakeholders views on different issues including the tariff model to be adopted at the wholesale and retail level. The regulator had suggested various models in the consultation paper at the wholesale as well as retail level.
At the wholesale level, it had suggested three models, namely price forbearance model, cost-based model, and RIO-based models. Under the RIO models, it had proposed three models—universal RIO, flexible RIO and regulated RIO.
TRAI also suggested three integrated models, namely conventional MRP model, flexible MRP model and distribution network model. At the retail level, it suggested two models—price forbearance model and exclusive a la carte model.
So what is the cost-based model that many DTH operators favour? The model envisages that the price of a channel would be regulated on the basis of actual input costs incurred on creating content.
The average unit outflow of a channel will be determined considering the total cost of content production, revenue from advertisements and the number of total subscribers subscribing to that channel. The broadcaster can then fix the price of the channel and bouquets by adding their profit margins.
Under the regulated RIO model, the regulator will specify price cap for channels of each genre. There will be linkage between prices of a la carte and bouquet of channels. It will also have framework for discounts offered by broadcasters to ensure non-discrimination.
In the price forbearance model, the broadcasters have complete freedom to price and market their TV channels as per their business requirements.
All DTH operators except Tata Sky have urged TRAI against adopting the price forbearance model. They contend that price forbearance would create broadcaster monopoly and that it would lead to enormous litigations due to arbitrary price of content.
The universal RIO and flexible RIO models would also give power to the broadcasters, as they are similar to the price forbearance model.
Price regulation, the DTH operators argue, should continue to protect the interests of distribution platform operators (DPOs) as well as the consumers.
Airtel Digital TV’s views on cost-based model
Airtel Digital TV argued that a cost-based model would allow for an effective recovery of the seller’s costs with a reasonable margin. This makes the broadcasters’ business viable as costs and returns are accounted for. Further, it constrains the ability of broadcaster to charge monopolistic price (i.e. an unwarranted price premium) as the price must be aligned to the cost base. This protects consumer interests and prevents over-charging.
It further stated that the cost-based model should factor in the level of digitalisation and the cost should decrease with the increase in digitalisation in future, since broadcasters are able to realise the increased ad and subscription revenue without any corresponding increase in their costs.
The DTH operator also contended that the refulated RIO model is workable only if the price cap of the channel is based on its cost.
Dish TV’s views
While supporting the cost-based model, Dish TV said that the mechanism has been envisaged under Section 11(2) of the TRAI Act under which the regulator has the obligation to fix the rates for Telecommunication (Broadcasting Services).
However, if TRAI comes to the conclusion that determination of the prices of the channels through the cost-based model is not possible and decides to adopt the RIO model at the wholesale level, the DTH operators would support the regulated RIO model, Dish TV stated.
It has further proposed that the regulated RIO model must provide the flexibility to the broadcasters and distributors of TV channels to enter into fixed-fee arrangements. TRAI should have the power to conduct audit of all the stakeholders so as to verify the compliance of the regulations by the said stakeholders. The prices at the wholesale level must be regulated and fixed by TRAI.
Sun Direct bats for cost-based model
Sun Direct submitted that TRAI needs to identify the major cost components of broadcasters by calling for data from them so that an increase or decrease in such costs may be suitably factored while working the tariff. It also said that the cost-based model is a scientific method for price calculation and is transparent. It also provides reasonable rate of return on investments.
As an alternative to the cost-based model, Sun Direct said that the regulated RIO model would be in the best interest of the industry, as it would provide flexibility to the broadcasters to price their channels within the prescribed price caps while controlling risk of exorbitantly high price due to their monopolistic behaviour.
It further submitted that there should be further rationalisation of tariff for DTH operators to ensure a level playing field between DTH operators and MSOs.
Currently, DTH operators are burdened with additional costs of entry fee, bank guarantee and licence fee, the costs of which are not incurred by the MSOs, thus giving MSOs an unfair advantage over the DTH operators, Sun Direct submitted.
Tata Sky for forbearance on retail pricing
Tata Sky submitted that TRAI should do away with the price cap on wholesale price and continue forbearance on retail pricing. The existing regulations to ensure non-discriminatory access, including a ‘must carry’ obligation, are enough to check discrimination in offering content. Further, it stated that there are sufficient laws that already provide safeguards against monopolies.
DPOs as well may be focused on different geographic or socio-economic segments, and will therefore be willing to pay a higher or lower amount for channels according to their targeted customer base, the DTH operator said. It further stated that consumers have access to diversified content at the best possible prices due to the hyper competition.
Videocon d2h for regulating wholesale pricing
Videocon d2h submitted that the wholesale pricing of both SD and HD channels should be regulated to ensure that DPOs could offer reasonable a la carte rates to subscribers. The regulated RIO should be adopted looking at existing and historical commercial deals between broadcasters and DPOs.
It also stated that the rate of HD channels should be regulated since there is no difference between SD and HD channels. The wholesale rates of SD and HD channels should be treated at par. It proposed that the rate of SD and HD channels should be same, with the subscriber having the option of choosing the format.
It also suggested that the regulator make it mandatory for broadcasters to file compliance/monetary report so that they are not able to pass on artificial benefits to select DTH operators.
Reliance Digital against cost-based model
Reliance Digital TV submitted that the cost-based model is not feasible since it may be difficult to arrive at cost-based pricing for the channels, which is an inefficient way to price the channels as it gives lot of legroom to the ineffective channels with high cost to have a high RIO rate.
It recommended that the RIO rates be brought down to their real rate, which is 90% of their actual rate. The current RIO rates are divorced from the market reality. Moreover, most of the deals today are either cost per subscriber (CPS) or fixed fee.
It further stated that the regulated RIO framework should also regulate the discounts provided to the broadcasters since they are discriminatory and create a non-level playing field in the distribution sector. It proposed that volume-based discounts and discounts based on the number of channels should be done away with.
It suggested that the broadcaster should be allowed only to publish a la carte RIO rates and the DPO should have the flexibility of forming his own bouquets using the channels offered as a la carte. The RIO rate of bouquets formed by the DPO from the channels of a broadcaster should be as per the existing twin conditions at the wholesale level.
The price forbearance model would be suitable at the retail level in the broadcasting sector. There is enough competition between the various DPOs comprising DTH operators, MSOs, HITS, IPTV and cable TV operators to ensure that prices are competitive and in consumer interest. As stated by TRAI itself, this model envisages minimal regulatory intervention in fixing the retail price as well as the manner of packaging and distribution of a la carte channels and bouquet being offered to subscribers.