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How DTH companies view TRAI’s proposal on cross-media restrictions

MUMBAI: Vertically integrated operators such as Tata Sky, Dish TV and Reliance Digital TV have urged the Telecom Regulatory Authority of India (TRAI) not to impose any cross-media restrictions on the direct-to-home (DTH) companies.

Issuing a supplementary consultation paper on 14 November, TRAI had proposed to amend Clauses 1.4 and 1.5 of the DTH guidelines that bar broadcasting companies or cable networks from collectively holding or owning more than 20 per cent in a DTH company and vice versa.

Opposing TRAI’s cross-media restriction, Dish TV said that the sector regulator’s apprehensions about market distortion due to vertical integration lack evidence.

It also stated that in the last 10 years of DTH operations, there has not been any kind of market distortions limiting competition or selectively blocking content because of lack of cross-holding restrictions.

While affirming that the proposed cross-holding restrictions are unnecessary and devoid of any justification, Dish TV said that there is a well-defined regulatory framework already in place in the form of various interconnection regulations issued by TRAI. There is also a strong disputes adjudicatory mechanism in the form of TDSAT which ensures that channels of all the broadcasters are available to all the DTH operators on demand (‘must provide’) and that, too, on non-discriminatory basis, Dish TV argued.

“Similarly, no broadcasting entity has ever complained that its channels are being blocked by a DTH operator in order to give preference to the channels of vertically integrated broadcaster,” Dish TV asserted.

It also emphasised that the proposed cross-media restrictions are meaningless in the current context when content generators can continue to generate content from within India or overseas, and can deliver it via various media including IPTV, VoD or streaming.

“In the current digital cable delivery scenario, there is no dearth of capacity or channels and multiplicity of content can always be maintained. With up to 1,000 channel capacity in digital cable, no case is made out for restricting vertical integration or horizontal integration with respect to either content generation or distribution platforms,” it averred.

Dish TV said that the existing players must be given 3 to 5 years’ time to comply with the new provisions.

Tata Sky, on the other hand, contended that there is no risk of vertical integration in India since there is no market that is able to dominate the distribution space. It pointed out that the DTH market has adequate competition with as many as seven DTH operators in addition to several multi-system operators (MSOs).

Tata Sky, a joint venture between Tata Group and Star India, also stated that investment in the DTH sector across the world is done by entities involved in some part of the value chain in the media industry. “It is natural for businesses to expand in related business. Therefore, any restriction of either 20 per cent or any control will only slow down the growth of the DTH industry in India,” it explained.

Star India, which has a 30 per cent stake in Tata Sky, has opposed the cross-media holding clause saying that the broadcast ownership rules cannot survive in the current market.

The broadcast network has submitted that TRAI should recommend an elimination of the entire legacy structural ownership regulations that tie the hands of broadcasters. It also said that the Competition Act already provides necessary safeguards for anti-competitive behaviour, abuse of dominance and even curtailment of plurality by ensuring freedom of trade.

“The dilemma that arises from TRAI’s new definition of ownership and control in the paper is that while indirect holdings would be acceptable from an FDI point of view, they would not be so acceptable from a vertical integration viewpoint. This is in spite of the fact that such indirect holdings are purely economic holdings that do not even result in commensurate incremental ownership and control in the ultimate entity where the funds are invested,” Star said in its submission.

The broadcaster also noted that the definitions that have been taken from the Companies Act, the Income Tax Act, the Take-Over Code and the Competition Act are disparate in themselves owing to the differing objects and reasons for which they were enacted in the first place.

“Therefore, to compile all these definitions into one whole shall only result in aggravated confusion among investors, which is best avoided,” Star argued.

Videocon d2h, owned by the Videocon Group which has no presence in broadcasting, maintained that it conforms to the changes proposed by TRAI to prevent vertical integration.

“We agree with the views of the authority on proposed investment of the provisions incorporated under Clause 1.4 in the current DTH Guidelines. We agree that the definition of control as mentioned in the Paragraph 1.2 could be adopted in order to contain vertical/horizontal holdings among the broadcasters and various TV channel distribution platforms,” the DTH operator stated.

“We also concur with the proposal of the authority to replace the existing Clauses 1.4 and 1.5 of the DTH Guidelines in line with the amendment as mentioned in Paragraph 1.15.”

Videocon d2h also said that the cross-media restriction must be extended to other distribution platforms to establish parity. “We would also like to state that parity between equally established stakeholders across the distribution chain including but not limited to pay TV operators such as digital and analogue cable MSOs, OTT platforms, to name a few, needs to be achieved by applying similar principal as proposed by the authority,” it added.

Times Television Network (TTN), the company which runs news channels Times Now, ET Now, Bollywood lifestyle channel Zoom and English movie channels Movies Now and Romedy Now, said it is concurs with TRAI’s view on the issue of ‘control’ and cross holding.

The company, in its replies, has submitted that the issue of ‘control’ in the DTH services sector is extremely significant considering that cross holdings between broadcasters and service providers and among service providers themselves has become a serious competition issue.

“To add to it, there is no ‘must carry’ obligation upon DTH service providers considering their channel carrying capacity/bandwidth challenge. The authority’s efforts are praiseworthy for examining the definition of ‘control’ under various statutory and legal provisions viz. the Competition Act, 2002, SEBI’s Takeover Code & Income Tax Act, 1961,” Times Television Network said in its reply.

It further added that the company is of the view that the interpretation taken by the authority of the term ‘control’ and the ancillary terms therein is comprehensive and shall serve the purposes of DTH licence/ guidelines.

With regard to time frame, TTN said three months would be adequate for the DTH licensees to comply with the new provisions.

Cable Operators Federation of India (COFI) said that there should be no cross holding/control in a DTH company by a broadcaster, TV channel aggregator or TV channel distributor. Channel aggregator should also be included among the entities that would be debarred from controlling any DTH or other distribution operator. It may also be ensured that no cross-holding company or another media company extends loan facility/ financial assistance to a DTH company.

Background to TRAI’s cross-media proposal

TRAI had proposed cross-media holding based on entity wherein DTH licensees cannot allow any entity controlling broadcasting and/or any TV channel distribution operator to control it and any entity controlling the DTH licensee should not control any broadcasting and/or any TV channel distribution operator.

The authority had adopted a new definition of control based on the Competition Act, 2002, SEBI regulations, Income Tax Act 1961 and the Companies Act 2013.

An entity (E1) is said to ‘control’ another entity (E2) and the business decisions thereby taken, if E1, directly or indirectly through associate companies, subsidiaries and/or relatives:

(a) Owns at least 20 per cent of total share capital of E2. In case of indirect shareholding by E1 in E2, the extent of ownership would be calculated using the multiplicative rule. For example, an entity that owns, say, 30 per cent equity in Company A, which, in turn, owns 20 per cent equity in Company B, then the entity’s indirect holding in Company B is calculated as 30 per cent * 20 per cent, which is 6 per cent; OR

(b) exercises de jure control by means of:

(i) having not less than 50 per cent of voting rights in E2; Or

(ii) appointing more than 50 per cent of the members of the board of directors in E2; Or

(iii) controlling the management or affairs through decision-making in strategic affairs of E2 and appointment of key managerial personnel; OR

(c) exercises de facto control by means of:

(i) being a party to agreements, contracts and/or understandings, overtly or covertly drafted, whether legally binding or not, that enable the entity to control the business decisions taken in E2, in ways as mentioned in (b) (i), (ii) and (iii) above.

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