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TRAI’s outlook and the carriage fee dynamics

MUMBAI: The Telecom Regulatory Authority of India (TRAI) has decided to regulate carriage fee, which has historically been a major source of revenue for multi-system operators (MSOs) and a matter of concern for broadcasters.

While providing for a common interconnection framework for all addressable systems including DTH, cable TV, headend-in-the-sky (HITS) and IPTV, the broadcast sector regulator has proposed to cap carriage fee at 20 paisa per channel per subscriber per month. For a high-definition (HD) channel, the rate of carriage fee per subscriber per month shall not exceed 40 paisa.

Direct-to-home (DTH) operators have been struggling to establish carriage fee as a significant source of revenue stream. Their argument has been that broadcasters should treat cable TV operators and DTH service providers equally while stitching content deals. Carriage payouts, in other words, should be on similar terms and not be tilted heavily in favour of cable.

It is not clear yet whether TRAI’s new interconnection framework will effectively correct these anomalies. TRAI, however, has pressed for transparency and non-discriminatory practice. Distribution platform operators (DPOs) will thus have to publish information about available capacity and declare the rate of carriage fee per channel. They will also have to declare the discounts they are offering.

In what could be a significant development, TRAI has said that no carriage fee is to be paid by a broadcaster if the subscription of the channel is more than or equal to 20% of the subscriber base. The regulator feels that in cases where a channel’s penetration reaches 20% of the subscriber base in a particular market, DPOs can meet their distribution expenses out of the rental collected from the subscriber.

Besides, carriage fee amount shall slide down if the TV channel’s subscription increases. “The quantum of carriage fee should diminish proportionately due to increased revenue accruing from subscriptions to the DPO for that channel,” TRAI said.

The authority has decided that for a channel where the subscription reaches between 5-10% of the total subscriber base in a relevant market, the carriage fee must be reduced by 25% from the initial amount.

Similarly, for 10-15% penetration, the carriage fee must reduce by 50%. Penetration of 15-20% should call for a carriage fee reduction by 75%.

“No carriage fee may be levied once the penetration reaches 20% of the total subscriber base in a relevant market,” TRAI said.

A distributor of TV channels may offer discounts to broadcasters on the carriage fee. This shall, however, not exceed 35% of the rate of carriage fee declared by them.

“The offer of discounts, if any, to broadcaster on the carriage fee, shall be on the basis of fair, transparent and non-discriminatory terms. The parameters of discounts shall be objective, measurable and computable,” TRAI said.

The distributor may offer discount on the rate of the carriage fee to the broadcasters for longer period interconnection agreements or for carrying more number of channels in the reference interconnection offer (RIO).

Carriage fee means an amount paid by a broadcaster to a distributor of television channels for carrying its channel(s) on its distribution network.

While allowing carriage fee, TRAI has also stressed on a ‘must carry’ provision for all addressable systems, on first come first serve basis.

Calculating carriage fee amount

The amount of carriage fee will be calculated for a subscriber base in the relevant geographical area(s) of the channel(s) as declared by the broadcaster in the interconnection agreement.

If the number of average active subscribers in a month for a channel in the target market is less than 5% of the average subscriber base of the distributor, then the carriage fee amount shall be equal to the rate of carriage fee per channel per subscriber per month, as agreed under the interconnection agreement, multiplied by the average subscriber base of the distributor in that month in the target market.

If the number of average active subscribers in a month for a channel in the target market is greater than or equal to 5% but less than 10% of the average subscriber base of the distributor in that month in the target market, then the carriage fee amount shall be equal to the rate of carriage fee per channel per subscriber per month, as agreed under the interconnection agreement, multiplied by 0.75 times of the average subscriber base of the distributor in that month in the target market.

If the number of average active subscribers in a month for a channel in the target market is greater than or equal to 10% but less than 15% of the average subscriber base of the distributor in that month in the target market, then the carriage fee amount shall be equal to the rate of carriage fee per channel per subscriber per month, as agreed under the interconnection agreement, multiplied by 0.5 times of the average subscriber base of the distributor in that month in the target market.

If the number of average active subscribers in a month for a channel in the target market is greater than or equal to 15% but less than 20% of the average subscriber base of the distributor in that month in the target market, then the carriage fee amount shall be equal to the rate of carriage fee per channel per subscriber per month, as agreed under the interconnection agreement, multiplied by 0.25 times of the average subscriber base of the distributor in that month in the target market.

If the number of average active subscribers in a month for a channel in the target market is greater than or equal to 20% of the average subscriber base of the distributor in that month in the target market, then there shall be no carriage fee amount.

Why TRAI has allowed carriage fee in digital addressable system

In the new regulatory framework being notified by TRAI, the sector regulator has allowed DPOs to charge a rental amount for distribution of TV channels to the subscribers. This is proposed to be capped at Rs 130.

The rental amount will be able to recover the distribution expenses incurred in the form of fixed costs (like depreciation, administrative, customer service and maintenance costs) and variable costs (like transmission cost which vary with the number of channels carried on a distribution network). Rental amount will vary based on the number of channels subscribed by an individual subscriber. For channels above 100, a subscriber will have to pay to the distribution platforms for additional network capacity in bundles or lots of 25 SD channels at a rate of Rs 20 per month.

However, there will still be a need to fill the gap between the retransmission expenses incurred by a DPO on carrying a particular channel on its platform and the rental amount charged from subscribers for that channel on proportionate basis. TRAI thus feels that DPOs should be permitted to charge carriage fee. This provision has to be seen in the backdrop of a ‘must carry’ provision.

“Where a request has been made by the broadcaster to carry channels under ‘must carry’ conditions, a provision for levy of carriage fee has been made so that the DPO is able to recover the additional re-transmission cost for distribution of that channel on its network,” TRAI stated.

When a broadcaster invokes a ‘must carry’ provision, payment of carriage fee may be inevitable. The DPO can insist for it because it will incur additional cost for re-transmission of signals of a TV channel. Placement and marketing fees are totally optional and depend on their mutual agreement. Even without payment of placement and marketing fees, a channel can secure a space on a distribution network within its declared genre space.

“For channels which have relatively less demand in a particular market, a DPO may not be able to recover fully the retransmission expenses from the rentals charged from the subscribers. In such cases, a DPO may not be interested in seeking signals of those channels for retransmission on its network,” TRAI observed.

The broadcaster of such channels may like to invoke ‘must carry’ provisions to reach their targeted customer segment to protect their other sources of revenue like advertisement and subscription. This lays the ground for carriage fees.

Why cap on carriage rate per channel 

TRAI is in agreement with the views of the broadcasters that to restrict levy of carriage fee to a reasonable level, a cap on carriage fee rate is necessary.

After the implementation of digitisation, it is natural to expect that the dependence of MSOs on carriage fee as a source of revenue would reduce due to transparency in subscriber numbers. Further, digitisation would enable carriage of large number of channels on cable TV networks, thus reducing the gap between demand and supply. This situation in turn would bring down carriage fee per subscriber per month.

TRAI noted that the data relating to carriage, placement and marketing fees have been combined by service providers. Despite repeated requests by TRAI, the service providers could not make available data specifically relating to carriage fee only.

“There is lack of transparency in such dealings and such opaqueness often results in discriminatory behaviour under the guise of mutual negotiations. However, from the available data and discussions with the service providers during the meetings called on this issue, it emerged that after digitisation of cable TV networks, carriage fee per subscriber per month has reduced over a period of time,” TRAI said.

Based on available data and current market situation, TRAI fixed the monthly carriage fee rate at a maximum of Rs 0.20 per channel per subscriber.

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