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TRAI proposes 55:45 rev share between MSOs and LCOs as fall-back option

MUMBAI: The Telecom Regulatory Authority of India (TRAI) has recommended a 55:45 revenue share between multi-system operators (MSOs)/headend-in-the sky (HITS) operators and local cable operators (LCOs) as a fall-back option should the two parties fail to arrive at a consensual agreement.

LCOs will have a share in the rental amount paid by the subscribers to the distribution platform operators (DPOs). They will also take a share from the 20% distribution fee paid by the broadcasters to the DPOs.

Another salient feature of the interconnection agreement is that the DPOs will have to provide signals of TV channels to the LCOs on non-discriminatory basis.

As per the broad contours of the draft interconnect regulation floated by TRAI, DPOs will have to share with the LCOs 45% of the rental amount received from subscribers and the distribution fee received from broadcasters.

TRAI has derived the revenue share based on the fall-back arrangement it had mandated for FTA channels in the digital addressable system (DAS) regime. It has suggested sharing of distribution revenue as LCOs do the collection of the subscription amount from subscribers.

Hence, the authority has concluded that the distribution fee received from broadcasters should also be shared between the DPO and the LCO in the same ratio.

TRAI has suggested the fall-back arrangement to ensure that signals are not disconnected due to disputes between the service providers.

In the draft tariff order, the authority has suggested that distribution platform operators (DPOs) charge Rs 130 as rental fee from subscribers for providing 100 standard-definition (SD) channels. For extra 25 channels in a bundle or lot, the DPOs can charge Rs 20 as rental fee.

The tariff order further specifies that DPOs will get 20% distribution fee from the broadcasters for collection and remittance of pay channel revenue. Thus, rental and distribution fees are the major revenue streams for DPOs besides carriage fee.

Unlike the current regime, DPOs will not get any share in the subscription fee as subscribers will pay based on the maximum retail price (MRP) published by broadcasters.

The revenue share has been specified as part of the standard interconnection agreement (SIA) which is a fall-back arrangement in case the DPOs and LCOs do not reach a mutual agreement.

The MSOs and LCOs have the freedom to work out a mutual agreement without any restriction on revenue share. This agreement has been termed as the model interconnection agreement (MIA).

The MIA also provides the flexibility to add additional clauses to the MIA without altering or deleting any clause prescribed by TRAI. In the MIA the billing can be in the name of the MSO or the LCO as mutually agreed by the two parties.

However, the billing will be in the name of the MSO in the SIA wherein the authority has also demarcated the responsibilities besides fixing the revenue share as a fall-back option. In the SIA the LCOs have been given consumer-centric responsibilities while the MSOs have been given responsibilities that are directly linked with the SMS including billing for the subscribers.

Other salient features of interconnection agreement between MSOs and LCOs

TRAI has suggested that the interconnection agreement between the DPO and LCO should have the details of various services rendered by the parties and the charges to be levied by one party to the other party.

The interconnection agreement between the DPO and LCO should clearly earmark the roles and responsibilities of each party in conformity with the quality of service regulations issued by TRAI from time to time.

DPOs cannot provide signals to LCOs without entering into a written interconnection agreement. Similarly, LCOs cannot retransmit signals of TV channels of any broadcaster to any subscriber without entering into a written interconnection agreement with the DPOs.

The DPOs will have to provide signals to the LCOs within 30 days of receipt of written request from an LCO in lines with the MIA. If the mutual negotiations fail, the parties will have to sign an SIA.

The DPOs are required to give notice to the LCOs to enter into new written interconnection agreement at least 60 days prior to the date of expiry of the existing interconnection agreement. The DPOs will have to inform subscribers about the date of expiry of the agreement 15 days prior to the date of expiry of its existing interconnection agreement.

Sometimes LCOs switch from their affiliated MSO when they are either unable or unwilling to pay their outstanding dues to their affiliated MSO. This result in bad debts for their affiliated MSOs leading to the latter’s inability to pay broadcasters for the LCO’s portion of dues. Broadcasters are also unable to recover these dues from the MSO in such cases.

On the other hand, in the absence of regular issue of invoices, the LCOs are suddenly confronted with huge arrears, which they have no means of paying.

According to TRAI, the problem can be tackled by ensuring that the LCOs are issued invoices on a monthly basis clearly showing the arrears as well as the current dues. In such a situation, if an LCO wants to switch to a new MSO, then the latest invoice would clearly show the level of arrears outstanding against the LCO.

The LCO should not be considered in default of payment to a distributor if it produces the copy of immediately preceding three consecutive month’s invoices with corresponding payment receipts, as a proof of having paid its dues. Such stipulation will also protect the LCO from unexpected and unforeseen arrears being suddenly thrust upon him. Accordingly, TRAI has made suitable provisions in the regulations.

In DAS and HITS services, the last mile connectivity is mostly provided by LCOs. In terms of the licensing guidelines issued by the Government, the LCOs can also provide last mile connectivity for IPTV service providers. Efficient interconnection arrangements between a DPO and an LCO are vital for delivering services to the subscribers, TRAI observed.

LCOs play a very important role in the value chain for meeting the quality of service norms for the subscribers. LCOs, like any other entity in the value chain, are registered service providers. As per the Cable TV Act and Rules made there under, LCOs are registered in the head post office of the area of their operation.

The fundamental principles of non-exclusivity, must provide, non-discrimination, written agreement, and time bound provisioning of signals for fostering competition and level playing field applies to interconnection arrangement between the DPO and the LCO as well so that TV services of good quality at competitive prices can be delivered to the subscribers, TRAI said.

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