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Running through TRAI’s cross-media recommendations

MUMBAI: The Telecom Regulatory Authority of India (TRAI) has allowed vertical integration of a broadcaster with a distribution platform operator (DPO) but has recommended a set of restrictions to ensure that there is a level playing field so that the independent entities do not face unfair competition.

The broadcast sector regulator believes that some element of vertical integration is needed at this early stage as it will help to develop and expand the digital distribution network for television channels.

In its recommendations on cross-media holdings in the new ‘DTH Licensing Regime’, TRAI has liberalised the cross-holding between a broadcaster and a DPO but has imposed restrictions on market share, channel capacity reservation and nature of content deals.

The broadcaster is also restricted to have “control” of only one DPO of any category, meaning that it can exercise “control” in either a direct-to-home (DTH) or a cable TV company.

”Companies can enjoy vertical integration but it cannot be at the cost of others. This is what TRAI has tried to achieve in its new recommendations on cross-media restrictions,” a media analyst said.

The authority has recommended that the entity that controls a broadcaster or the broadcaster itself cannot ‘control’ more than one distribution platform operator (DPO) of any category either a multi-system operator (MSO)/HITS operator or DTH operator in a relevant market and vice versa.

The recommendations, subject to government approval, will mean that companies like the Essel Group and Sun Group, which have interests in cable as well as DTH, will have to give up control of one of the distribution platforms.

Cross-media holding restrictions removed

Pertinently, the recommendations are silent on the quantum of cross-media holding restriction between broadcasters and DPOs, implying that the broadcasters can virtually own 100 per cent in a distribution platform subject to foreign direct investment (FDI) guidelines.

In the existing DTH licence guidelines, the authority had imposed a restriction of 20 per cent on cross-media holdings.

By not having a cap on cross-media holdings, the authority has allowed broadcasters like Star India to increase their holdings in the existing distribution platforms. Star India holds 30 per cent in DTH company Tata Sky.

Definition of control

Defining ‘control’, the authority stated that an entity is said to control another entity if it directly or indirectly through associate companies, subsidiaries and/or relatives owns at least 20 per cent of total share capital of another entity.

In case of indirect shareholding, the extent of ownership would be calculated using the multiplicative rule. For example, if an entity owns 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 six per cent.

An entity 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.

An entity also exercises de facto control by means of 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.

The authority in its recommendations stated that there should be uniformity in the policy on cross-holding/control between broadcasters and DPOs as well as among DPOs in the broadcasting and distribution sectors. This means that recommendations will have ramifications outside DTH as well, and will include cable TV, HITS, and IPTV.

Restrictions on vertically integrated DPOs

TRAI has imposed restrictions on vertically integrated entities.

If a vertically integrated DPO, while growing organically or inorganically, acquires a market share of more than 33 per cent in a relevant market, then the vertically integrated entities will have to restructure in such a manner that the DPO and the broadcaster no longer remain vertically integrated.

While the relevant market for assessing market share/market dominance of MSOs will be the state, in the case of DTH operators the relevant market will be the entire country.

The market share of a DPO would be the number of active subscribers of that DPO as a percentage of total number of active subscribers of that category of DPOs in the relevant market. Here, active subscribers of a DPO would mean the subscribers who are registered with that DPO for provisioning of TV services and availing the same.

A vertically integrated DPO will have to declare the channel-carrying capacity of its distribution network. Besides, at any given point in time, it shall not reserve more than 15 per cent of this capacity for its vertically integrated broadcaster(s). The rest of the capacity is to be offered to the other broadcasters on a non-discriminatory basis.

Last but not least, a vertically integrated DPO will have to publish the access fees for the carriage of channels on its network. The access fee so specified shall be non-discriminatory for all the broadcasters. DPO shall file the specified access charge, with justification, with the authority.

Restrictions on vertically integrated broadcasters

The holding company of a broadcaster, or a broadcaster, can “control” only one DPO of any category in a relevant market and vice-versa. This means that it can either “control” an MSO/HITS operator or a DTH company.

The entity that controls a vertically integrated DPO or the vertically integrated DPO itself, shall not be allowed to “control” any other DPO of other category.
The authority said that the vertically integrated entities will be allowed a period of one year to comply with the amended cross-holding/control requirements.

A vertically integrated broadcaster can have only charge-per-subscriber (CPS) agreements with various DPOs, which should be non-discriminatory.

A vertically integrated broadcaster will have to file its RIO for its approval by the authority. The RIO should cover all scenarios for interconnection, and interconnection agreements should be only on the terms specified in the RIO.

Furthermore, broadcasters and DPOs should be separate legal entities.

The authority also said that rationalised and regulated vertical integration may be permitted between broadcasters and DPOs.

The vertically integrated broadcaster or DPO, as the case may be, will be subject to an additional set of regulations vis-à-vis the non-vertically integrated broadcasters and DPOs, it added.

Restrictions on horizontal integration

In order to prevent horizontal integration between different platforms, TRAI has recommended that any entity controlling a DPO or the DPO itself should not control any DPO of other category with the sole exception of MSOs and HITS operators who can have cross-holding/control among them, subject to market share restrictions, as specified from time to time. This means that an MSO can combine with a HITS platform but is excluded from controlling a DTH company. Similarly, a DTH company cannot control a cable TV or HITS entity.

Also read:

How TRAI’s cross-media restrictions can impact Star, Zee and Sun
DTH ops to save 2.5–3.5% in licensing fee as per new TRAI reco
TRAI puts cross-media restrictions in DTH licensing regime