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DTH ops to save 2.5–3.5% in licensing fee as per new TRAI reco

MUMBAI: The Telecom Regulatory Authority of India’s (TRAI) latest recommendations regarding licensing fee have put a smile on the face of the direct-to-home (DTH) operators.

In its recommendations on ‘Issues related to new DTH licences’, the sector regulator clarified on Wednesday that the licence fee in the new DTH licensing regime should be charged at eight per cent of adjusted gross revenue (AGR). As per TRAI, the AGR will be calculated by excluding service tax, entertainment tax and sales tax/VAT paid to the government from the GR.

At present, a DTH licensee is required to pay 10 per cent of gross revenue (GR) as licence fee, which the DTH players have been contesting, demanding the same to be charged on the basis of their AGR.

Jawahar_Goel02TRAI has also recommended that the DTH licensees shall pay licence fee on a quarterly basis, and not on an annual basis. These recommendations will need the government approval.

The DTH operators, who pay both service tax to the central government and entertainment tax to the state governments, will be able to save anything from 2.5 to 3.5 per cent on their licensing fee as per the new formula.

Dish TV managing director Jawahar Goel welcomed TRAI’s recommendations on the licence fee issue. “There will be a benefit of 3-3.5 per cent,” he told TelevisionPost.com.
According to market analysts, Dish TV will help Dish TV’s absolute EBITDA improve by 10-14 per cent.

Harit-Nagpal-2Tata Sky MD & CEO Harit Nagpal said that he is happy with the recommendations and that relief in every per cent counts. “There had to be some amount of relief to the DTH industry, which has been paying high percentage of taxes. These are very fair recommendations,” Nagpal told TelevisionPost.com.

“There are two main aspects to the recommendations—one is the 20 years licence term that gives the DTH players an assurance of business continuity, and the second is the licence fee.”

He applauded TRAI for accepting the industry’s demand for a reduction in the licence fee and for the calculation of the licence fee based on AGR. “This will help us save anywhere between 2.5 and 2.8 per cent on licence fee,” Nagpal added.

Anil Khera

Videocon d2h CEO Anil Khera said, “We welcome the TRAI recommendations on 8 per cent AGR licence fee and 20 years of licence validity. This will certainly bring growth in the DTH segment. However, the DTH industry was hoping for 6 per cent AGR or 8 per cent AGR with pass through of content cost.”

Another top executive of a DTH company said that roughly the shift from 10 per cent GR to eight per cent of AGR will result in a reduction below three per cent. “While service tax is the same, different states have different entertainment tax regimens. For instance, in Uttar Pradesh, it is the highest. So if a DTH player has more subscribers in the state, they will pay more in entertainment tax and thus AGR will be slightly lower,” he said.

However, the DTH operators are waiting for more clarity from TRAI on the recommendations.

Why did TRAI shift to AGR?

The regulator is of the view that the licence fee is basically non-tax revenue being collected from a service provider against the privilege of being permitted to perform a particular licensed activity.

“The DTH service providers are presently supposed to pay sales tax, service tax and the entertainment tax on the goods and services provided by them to their subscribers, apart from the licence fee. The revenue on which the licence fee is levied should not include the revenue which actually goes towards payment of other forms of taxes. Therefore, the licence fee should not be charged on the GR; rather, it should be charged on AGR, computed by deducting the amount of the above-mentioned taxes from the GR,” TRAI said in the recommendations.

On arriving at eight per cent, TRAI is of the view that with growing convergence of telecom and broadcasting services, it would be logical to align it with the percentage prescribed in the Unified Licence (UL).

In the UL, the AGR is arrived at by excluding the taxes and the charges of pass-through nature paid to other telecom service provider(s) to whose network, the licensee’s network is interconnected. However, in the case of DTH, other than taxes, there is no such pass-through component analogous to the pass-through for interconnection charges applicable for telecom services, TRAI opined. So content is not being passed through.

Pending dues

Interestingly, while DTH companies provide for 10 per cent licence fee on overall revenue in their profit and loss account, they pay less (only on subscription revenue net of content costs) at about five per cent of overall revenue. The rest is booked as a provision in the balance sheet, along with applicable interest, As the case related to this is being heard in the Supreme Court.

Earlier, on 24 March, the Ministry of Information & Broadcasting (MIB) had sent notices to the DTH operators to cough up pending dues within 15 days. The total amount claimed by the government was a whopping Rs 20.66 billion (Rs 2,066 crore) from six private players.

Out of the six, Tata Sky paid a large chunk (Rs 383 crore, or Rs 3.83 billion) out of its due of Rs 6.2 billion (Rs 620 crore), and informed the ministry that it would pay the rest in three equal instalments within one year.

The amount pending for other DTH players include Dish TV (Rs 6.25 billion), Airtel Digital TV (Rs 2.98 billion), Sun Direct (Rs 2.30 billion), Videocon d2h (Rs 1.57 billion), and Reliance Digital TV (Rs 1.36 billion).

TRAI also recommended the licence fee period to be extended to 20 years (from 10 years) and commercial interoperability of set-top boxes (STBs) to be mandatory.

Also read:

How TRAI’s cross-media restrictions can impact Star, Zee and Sun
Running through TRAI’s cross-media recommendations
TRAI puts cross-media restrictions in DTH licensing regime
TRAI issues consultation paper on DTH licence renewal
Govt asks DTH operators to cough up Rs 20.7 bn as licence fee dues
TRAI proposes DTH licence fee charges at 8% AGR in new consultation paper