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Cable TV’s year of challenges in 2014

If 2013 was a year marked by clashes between multi-system operators (MSOs) and local cable operators (LCOs) over billing and revenue share, 2014 will go down as the year of battles between MSOs and broadcasters. Litigations and switch-offs dominated the year.

However, the headline grabber was the high-profile dispute between Star India–Taj Television and Hathway Cable & Datacom. The MediaPro split and renewal of Phase I and II agreements with MSOs coincided. Following a lengthy negotiation, Hathway could not arrive at an agreement with both Star and Zee, who had set up independent distribution teams following the split.

As the negotiations failed, Hathway decided to put both Star and Zee channels on RIO (reference interconnect offer). While agreeing to an RIO deal, Star and Taj averred that Hathway must pay the outstanding dues for the intervening period between coming into effect of the RIO deal and expiry of the previous deal based on RIO rates. Hathway contended that it would pay outstanding as per the previous arrangement which was based on fixed fee.

The matter landed in TDSAT and the tribunal after days of hearing ruled that broadcasters cannot apply RIO retrospectively. The TDSAT directed all MSOs to put Star channels on RIO from 10 November based on an application filed by Hathway arguing that all MSOs must move to RIO from the same date.

Meanwhile, during the hearing Star filed an affidavit saying that it would only do RIO deals with MSOs for a period of one year to ensure parity. The affidavit was filed in response to Hathway’s allegation that MediaPro, the entity in which Star held 53 per cent, favoured vertically integrated MSOs like DEN Networks and Siti Cable in content deals.

The affidavit was a big punt by Star to give a leg-up to packaging in DAS areas. It also came out with an incentive scheme for MSOs to make RIO affordable. While initially resisting the amended RIO, the MSOs later fell in line and opted for the incentive scheme. As per the incentive scheme, MSOs had to put Star’s entertainment channels in base pack with a guaranteed penetration level and LCN.

While the MSOs have come out with packages for Star channels, the situation on the ground has remained unchanged due to resistance by the LCOs. Even as Star was hard selling its incentive scheme to the MSOs, Taj Television, the distribution arm of ZEEL, ended its RIO agreement with Hathway and signed a cost-per-subscriber (CPS) deal.

Another big development of the year for the cable TV industry was the extension of cable TV digitisation by the BJP government. The deadlines were extended to provide more time to domestic manufacturing of set-top boxes (STBs) and registration of MSOs.

The announcement put paid to the plans of MSOs and broadcasters alike. The extension of deadline halted expansion by MSOs. For broadcasters, it meant that the wait for carriage fee rationalisation and fair share of subscription income would only get longer.

During the year, the MIB also sent shockwaves through the industry when it cancelled the DAS licences of Digicable and Kal Cables. The MSOs, however, got the cancellation stayed by the High Courts of Bombay and Madras respectively. The MIB granted 82 MSO licences in 2014, taking thetotal number to 131 as on 7 November 2014. It also cancelled 10 licences including that of Digicable and Kal.

The MIB also reconstituted the DAS Task Force and widened it by giving more representation to independent MSOs and LCOs. However, after two DAS Task Force meetings, the LCOs are feeling left out as the ministry has left it to state governments to nominate a representative from their states. The decision has not gone down well with the LCOs.

There was a lull as far as deal making was concerned. This was understandable as the investors who had put their money in cable TV hoping that digitisation would bring a fundamental shift in the business model of distribution industry felt shortchanged due to lack of movement on billing.

But that did not stop US-based funds Small Cap World Fund and American Fund Insurance from pumping in Rs 300.80 crore (Rs 3 billion) into Hathway for 94 lakh (9.40 million) equity shares on a preferential basis at Rs 320 per share. The MSO followed that up by roping in Singapore’s CLSA to invest Rs 150 crore (Rs 1.5 billion) for a minority stake.

Macquarie Bank too upped its stake in Hathway to 9.62 per cent by acquiring 4.07 million (4,073,580) shares, or a 2.67 per cent stake for Rs 124.13 crore (Rs 1.24 billion).

Odisha-based independent MSO Ortel Communications got SEBI nod for its Rs 1 billion Initial Public Offering (IPO). The MSO plans to use Rs 73.6 crore (Rs 736 million) from the IPO proceeds for expansion of network for providing video, data and telephony services. Further, it will utilise Rs 19.9 crore (Rs 199 million) for digital cable services and Rs 10.3 crore (Rs 103 million) for broadband services.

Atria Convergence Technologies, which is controlled by India Value Fund Advisors, hiked its stake in Beam Telecom to 80 per cent. Atria had raised Rs 180 crore of debt to fund the stake acquisition. Atria also said that it is planning to invest Rs 500 crore (Rs 5 billion) to reach the target of getting one million broadband subscribers within two years. The company is looking to raise Rs 350 crore (Rs 3.5 billion) as debt while the balance funding will come from the existing shareholders. The cable TV and broadband player also rechristened its broadband brand as ACT Fibernet.

Not to be left behind, Hinduja Ventures Ltd (HVL) announced its intent to invest Rs 300 crore (Rs 3 billion) in IndusInd Media & Communications Ltd (IMCL), the company that runs MSO InCable, for expanding the digital base of its cable TV network and improve customer service.

Subhash Chandra-promoted Siti Cable Network also got the board approval to raise up to Rs 600 crore ($100 million) through issuance of securities to fund expansion in Phases III and IV. Similarly, Sameer Manchanda-promoted DEN revealed plans to build a war chest of Rs 3,000 crore (Rs 30 billion) to fund its cable TV digitisation and broadband programme.

On the regulatory front, the Telecom Regulatory Authority of India (TRAI) came out with recommendation on ‘DTH Licensing Regime’. While allowing a broadcaster to own a distribution platform, the authority put a caveat that the broadcaster can control only one DPO in any one category. For example, Essel Group can own either a direct-to-home (DTH) company or a cable TV company, not both at the same time.

The authority came out with recommendation on platform services (PS) operated by cable TV service providers. To bring PS under the regulatory framework, the authority has outlined the registration mechanism for PS and the content that can be offered.

Significantly, it allowed MSOs to run local ‘affairs’ cable channels without capping their foreign direct investment (FDI). It also capped the number of PS that a distribution platform can offer at 15 and 5 for addressable and non-addressable areas. The regulator also asked the government to bring ground-based local cable channels under regulatory framework.

TRAI came out with a consultation paper seeking to punish MSOs and LCOs that fail to implement billing. To achieve this, TRAI proposed a financial disincentive of Rs 20 per subscriber on the MSO and/or its linked local cable operator for first contravention and Rs 50 for subsequent contraventions. In the cases where any non-compliance of the regulations prescribed in Regulation 16(2) is observed by the authority, a financial disincentive of Rs 100 per subscriber will be levied on the MSO for each contravention.

In order to facilitate voluntary digitisation, the authority proposed that the tariff order applicable for addressable systems will apply for cable TV operators who are implementing DAS before the notified cut-off dates, provided that these service providers get registered and establish digital addressable cable TV system (as prescribed in the Cable Television Networks [Regulation] Act, 1995 and the rules made thereunder).

The authority said that the regulatory prescriptions relating not only to the tariff but also to the interconnection and quality of service (QoS) shall be the same as those applicable to cable TV services offered in DAS, adding that it wants to facilitate and incentivise cable TV operators who implement DAS before the cut-off dates.

With the objective of streamlining distribution of TV services to commercial subscribers, the authority amended the tariff order for commercial subscribers in which it disallowed entities like hotels and restaurants from obtaining television service from broadcasters directly. The authority said that the commercial establishments will only have to provide television service from a distribution platform like cable TV, DTH, headend-in-the sky (HITS), or internet protocol television (IPTV).

As per the amended tariff order, commercial establishments that do not charge its customers for providing television programmes are to be treated like ordinary subscribers and should be charged on per-television basis.

Irked by the amended tariff order, the broadcasters challenged the tariff order in the Delhi High Court and TDSAT. While Star India challenged the order in Delhi High Court, the Indian Broadcasting Foundation (IBF) did so in TDSAT.

The broadcasters, however, failed to get any reprieve as both Delhi HC and TDSAT refused to stay the amended tariff order. The tribunal had kept it open for commercial establishments that were not protected by the 2006 TRAI Regulations, to take the supply of TV channels under the statutory scheme framed by TRAI.

The tribunal also stated that contracts that were signed before the coming into force of the impugned order shall not be terminated or annulled, but its terms and conditions will remain dormant and ineffective until the disposal of the present petition.

In case the IBF appeal succeeds and the impugned tariff order is set aside and in case there is no consequential direction in the final judgment, the earlier agreements between the subscribers and their respective suppliers of TV channels will be revived, regardless of any other arrangement made by the subscribers during the pendency of this petition, the tribunal had said in its interim order.

The year also saw TRAI notifying a 27.5 per cent hike in non-addressable cable tariff in two phases after getting a go-ahead from the Supreme Court to revise tariff to make adjustments for inflation. The tariff hike has been challenged by the LCOs and DTH operators in TDSAT.

On the headend-in-the-sky (HITS) side, HVL became the second player to obtain a HITS licence. The company plans to invest $100 million in the HITS venture.

Noida Software Technology Park Ltd’s (NSTPL) JAINHITS is the only functional HITS operator in the country currently. It delivers more than 250 digital channels (including SD and HD), broadband services, interactive and other value-added services.

DEN Networks CEO SN Sharma quit the company. Arasu Cable TV Corporation, which is still awaiting DAS licence from the MIB, saw a change in guard twice. First J Kumaragurubaran was replaced by Mahesan Kasirajan as MD of the MSO. Later, Kumaragurubaran was brought in again as the MD of Arasu.

Fair trade regulator the Competition Commission of India (CCI) rejected DTH operator Dish TV’s complaint against six MSOs for ‘abuse of dominance’ against the broadcasters.

Dish TV had filed a complaint against Hathway Cable & Datacom, DEN Networks, Siti Cable, Gujarat Telelinks Pvt Ltd (GTPL), Fastway Transmission and Sumangali Cable Vision (SCV), alleging that they were charging high carriage and placement fee and under-reporting of subscribers vis-à-vis broadcasters.

This year the Maharashtra government promulgated the Maharashtra Entertainments Duty (Amendment) Ordinance 2014 that puts the onus of depositing entertainment tax on the MSO even as the LCOs will collect the tax from consumers. Gujarat government allows civic bodies to collect entertainment tax from cable TV operators to mop up tax collection.

Key pointers

  • Star files affidavit in TDSAT saying it will offer channels only on RIO to MSOs for a period of one year.
  • Star India offers incentives to cable TV ops in amended RIO agreement.
  • Ending RIO, Hathway and Zee’s Taj TV sign CPS deal.
  • MIB pushes back DAS deadlines for Phases III and IV to December 2015 and 2016 respectively.
  • Independent MSOs and LCOs get more voice in reconstituted DAS Task Force.
  • TDSAT says broadcasters cannot apply RIO retrospectively.
  • Ortel gets SEBI clearance for IPO.
  • Hindujas get HITS licence; plan to invest $100 million in the venture.
  • Atria Convergence to buy out promoters of Beam Telecom; raises Rs 1.4 bn debt.
  • Hathway official Vishal Chauhan attacked in Gurgaon by unknown assailants.
  • Hinduja Ventures to invest Rs 300 crore (Rs 3 billion) in IMCL.
  • TRAI notifies 27.5 per cent hike in non-addressable tariff in two phases after SC go-ahead.
  • CCI rejects Dish TV’s ‘abuse of dominance’ complaint against MSOs.
  • Atria hikes stake in Beam Telecom to 80%; plans to invest Rs 2 bn in cable TV & broadband biz.
  • Hathway ties up with Eros to launch online movie streaming service.
  • Hathway revives cable movie channel Hathway CCC Cine.
  • Govt mulls separate ISP licence for cable TV to push broadband.
  • Arasu posts net profit of Rs 12.02 crore (Rs 120.2 million) for the first time in FY14.
  • MIB cancels Digicable’s DAS licence as MHA denies security clearance; MSO gets stay order from Bombay HC.
  • MIB revokes registration of Kalanithi Maran’s Kal Cables due to denial of security clearance; Madras HC stays MIB order.
  • Singapore’s CLSA to buy minority stake in Hathway for Rs 150 crore.
  • Macquarie Bank acquires 2.67 per cent stake in Hathway for Rs 124.13 crore (Rs 1.24 billion).
  • Puducherry government planning to set up Arasu-like cable TV corporation.
  • Taking a leaf out of Tamil Nadu, Karnataka govt wants to run a cable TV service.
  • Asianet expands outside Kerala, launches digital cable service in Mangalore.
  • SN Sharma quits DEN.
  • J Kumaragurubaran reinstated as MD of Tamil Nadu Arasu Cable TV Corporation.
  • DEN bags ISL Delhi franchise.
  • DEN, Snapdeal’s parent Jasper Infotech float JV for a home shopping TV
  • TRAI notifies amended tariff order for commercial subscribers.
  • Siti Cable gets board nod to raise $100 mn via QIP.
  • MP HC restrains MSOs from disconnecting signals to LCOs.
  • MCOF announces the launch of virtual cable network for LMOs at GroundPost.
  • Fastway meeting with LCOs in Amritsar turns violent.
  • MIB urges states to provide right of way to cable operators.
  • Gujarat civic bodies to collect entertainment tax from cable TV ops.
  • Maharashtra amends Maharashtra Entertainment Tax Act 2014, according to which consumers will have to pay the entertainment tax for just one TV set.

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