Minimum net worth criteria necessary for orderly growth of cable TV sector, MSOs tell TRAI

MUMBAI: The multi system operators (MSOs) have told the The Telecom Regulatory Authority of India (TRAI) that the present rules regarding the eligibility and net worth for MSO needs to be overhauled and there is a need to prescribe an entry-level minimum net worth for the MSOs to allow only serious players to enter the cable TV business.

The TRAI had issued a consultation paper on the entry-level net worth requirement of MSOs in Cable TV services. The objective of the consultation paper is to deliberate whether there is a need to fix entry level net worth for MSO.

Rule 11(3) of Cable Television Network Rules, 1994 mentions about the financial strength of the applicant for the grant of MSO registration without explicitly details thereof. Presently, the ministry of information and broadcasting (MIB) specifies a minimum entry level net worth requirement for broadcasters and headend-in-the-sky (HITS) operators.

The All India Digital Cable Federation (AIDCF), Hathway Digital, DEN Networks, GTPL Hathway, IndusInd Media and Communications Ltd (IMCL), and Siti Networks have submitted comments on the consultation paper.

AIDCF, the apex body of the digital cable service providers, has submitted that under the present rules any individual/company/associations of individuals can get operate as an MSO by just paying a processing fee of Rs 1 lakh only. It further stated that the present rule does not have a filter for serious and non-serious players.

The financial strength, it noted, will give the regulator/MIB an insight into the seriousness and sustainability of an MSO and also its strength to comply with the mandate of Regulations framed by TRAI.

The federation also submitted that the eligibility of minimum net worth will not only put a check on the violation of rules by MSOs but also ascertain the sustainability and growth of MSOs and cable sector.

Hathway Digital submitted that the MIB granted a total of 1471 MSO licences of which only 1143 are operational. It also noted that the number of non-operational MSOs has increased to 22.3% in 2018 from 20% in 2017. It further submitted that the absence of financial checks is one of the reasons for the non-orderly growth of the cable sector.

AIDCF and MSOs like Hathway and DEN have stated that the net-worth should be pan-India since the registrations are provided on a pan-India basis. They also argued that irrespective of the area of operations every MSO is required to make an investment for the set-up of headends, Conditional Access System (CAS), Subscriber Management System (SMS), Call Centers, set-top boxes, and office infrastructure.

The federation further stated that it is not in favour of categorisation based on the area of operation. Having said that, it noted that the MSOs should be classified as National Level, State Level, City Level/District Level MSO. The MSO who operates in more than five states can be construed as national Level, MSO operating in less than five states can be construed as state level and likewise city/district level.

GTPL has proposed five categories local MSO (City/Town/Village/District), district level MSO (Up to five districts within the state), state-level MSO (More than 5 districts/entire state/union territory), multi-state (up to five states/union territories), and national/Pan India (More than five states or union territories).

AIDCF has suggested that the minimum net-worth for an MSO operating in any region/geography should be Rs. 20 crore. Further, it stated that for an MSO business to be viable and profitable the minimum number of STBs that needs to be seeded should be 50,000, while the headend should have a channel carrying capacity of at least 300.

GTPL has ocal MSO (Rs 0.76 crore), district level MSO (Rs 2.76 crore), state level MSO (Rs 5.26 crore), multi-state (Rs 50.26 crore), and national/Pan India (Rs 100.26 crore).

IMCL has recommended that the net worth should be Rs 10 crore for national level MSO, Rs 5 crore for state-level MSO, and Rs 1 crore for district-level MSO.

“Looking into the mandatory requirement applicable to all MSOs irrespective of the size and geography and to ensure healthy growth of the sector Net Worth requirement can be fixed at Rs. 2 crore,” Siti Networks said in its submission.

It further stated that since the issue of infrastructure sharing is pending for consideration with MIB, the MIB before taking a final decision on net worth requirement of MSO must take a decision on this subject as in case the infrastructure sharing is permitted between service providers, the net worth requirement will be reduced to a great extent.

GTPL Hathway has submitted that an MSO should not be granted a Pan India licence irrespective of its area of operation. Rather it should be confined to the intended area of operations. It also stated that an MSO who has applied and has been issued license has to mandatorily commence operations for the intended area of operations within a period of twelve months, failing which the license issued shall stand cancelled.

The AIDCF and most of the MSOs have stated that the operational and statutory compliances mandated by TRAI for operating as an MSO are uniform and accordingly the financial strength whether it is company/ registered proprietorship/partnership firms or a group of individuals have to be even and maintained for smooth conduct of the business and statutory compliances as an MSO.

IMCL has stated that there should be provisions specifying eligibility only for corporate entities and at the outer for limited liability partnerships and for any other structured corporate business unit, thus allowing for accountability, for due auditing and tracking of financials. Sole proprietorships, it said, are not really susceptible to such measures.

For verifying the net-worth in case of individual or group of individuals, the AIDCF has submitted that the details/documents such as income tax return of last three years, property tax payment details if any, copy of inheritance documents such as succession certificate, Banker’s Certificate, DP Service Provider portfolio, CIBIL reports can be sought by the regulator.

It further stated that the individual and /or group of individuals on the basis of the above should be further required to furnish a certificate from a practicing chartered accountant certifying the net-worth and cash flow.

IMCL stated that individuals and group of individuals should not be permitted. For LLPs and other corporate entities, financial reports, tax returns, GST filings, and audit reports will be sufficient to verify the network of MSOs.

According to GTPL, the minimum net worth should be based on both i.e. average fixed cost plus the average variable cost required to provide competitive and sustainable services in the actual/intended area of operations, as the case may be.

ACT Digital Home Entertainment stated that the minimum net worth required must be based on average fixed cost and the working capital incurred by a new entrant.

Other MSOs are not in favour of prescribing net worth based on fixed and variable costs. It was also submitted that the net worth criteria should not be based on channel carrying capacity or proposed number of subscribers that an applicant MSO will cater to.