Comments On

TRAI CONSULTATION PAPER

NO 9/2004 DATED 20 Apr 2004

On

Issues Relating to Broadcasting & Distribution

Of TV Channels

By

Lt Col (Retd) VC Khare

Introduction

  1. On 20 Apr 2004, TRAI the nominated Regulator for Cable TV and Broadcasting Services, issued another Consultation Paper listing out issues before them, a written account of their International research on related issues and emergent questions. This is an effort to prepare a case for implementation of CAS or its repeal as applied to Cable TV. However the silver lining is that though CAS scuttled by politicians and bureaucrats has gone into coma, addressability is alive awaiting incarnation in DTH, Broadband and IP based services.
  1. Each one of these competing services will require a STB (Set Top Box) as an interface between digital transport mode and display of entertainment content on viewer’s TV set. One would like to wait and see how the scuttlers of CAS for Cable TV will be advocating Set Top Boxes and payments for the same by the users, if level playing field is to be provided.
  1. This paper has attempted to answer points raised in the consultation paper mentioned above. In the context of Cable TV Industry.
Conditional Access System
  1. Should CAS be introduced to view pay channels? If yes, should it be mandated by law or voluntarily introduced by service providers so that they are o get subscription revenues, which may otherwise be lost in the distribution chain?

Broadcasting Law does not exist in India. Hence Broadcasters are operating without a law and the Government cannot question any of their actions in any Indian Court of Law. Cable TV Services are provided under a law, the Cable TV Networks Regulation Act 1995 and its Amendment 2002, which have remained monumental because of lack of political will to enforce it.

Cable TV Act 1995 did not provide for any payments for content by the viewers. Pay TV Broadcasters introduced this practice contrary to the provisions in the Act and started charging for their content delivered mixed with Free to Viewer (FTV) bundle to the viewer on the Cable TV Network. The end viewer paid for this bundle at a flat monthly rate, with no means available at his end to distinguish between Pay TV content and FTV. As connectivity on Cable TV Networks scaled up, the advertisement revenue potential registered an upward trend. Pay TV Broadcasters started imposing periodic connectivity increases and event based hikes. Since end viewer did not have means to distinguish between Pay TV and FTV content, the linear response to pay channel hikes did not materialize. In fact it got largely subsidized due to under declaration by LCOs, till the state of unviability was reached. At this stage CAS was legislated. Pay TV Broadcasters saw a clear decline in the levels of revenue established by them in the existing state of confusion and opposed mandatory implementation of CAS.

It is, therefore, clear that effort to mandate CAS implementation has failed as far as Cable TV is concerned. Hence the option now is to leave it for voluntary implementation despite very heavy capital expenditure, beyond the capability of the LCO (Last Mile Cable Operator).

With the Cable TV Networks Regulation Act 1995 Amendment 2002, CAS has the legislative support, MSOs in 4 metros have hardware installed and networks tested with adequate number of set top boxes available in stock. Cable TV operators can educate their viewers that they cannot sustain the bundled delivery of PAY TV content and hence these services were being got encrypted. The encrypted content was accessible with a set top box, which can be procured through out-right purchase, hire purchase or leasing, subject to financial and security safeguards.

The rates being demanded by Pay TV Broadcasters should be publicized. Till the content delivery in free access mode is curtailed, distinction between Pay TV and FTV at the viewer’s end will not be possible. The end viewer with the backing of CAS legislation has to be educated and enabled to switch over to set top box usage. Once this is done, transparency in Pay TV connectivity would be implied and Broadcasters will get their fair share of revenue with documented records. The loss of revenue for the Broadcaster shall be prevented.

  1. If CAS is to be mandated, what safe guards need to be built in to protect the consumer and improve implementation?

The barriers to implementation have been defiance of Broadcasters in declaring the ‘a-la-carte’ rates for their content and election based interests of politicians. With elections coming to an end, a firm step has to be taken by the regulator to seek fresh registration of Broadcasters stating the nature of their business and making their representatives accountable under existing business laws of the land, including cancellation of their business permits and banning carriage of their channels on the Cable Networks or similar services. Consumer Interest is to be protected by enabling funding of STBs through Banks, hire purchase or even provision of boxes by service providers on lease against refundable, non-interest bearing security deposits on migration from area of usage. Another method, almost an impossibility, is to fix Pay TV rate like the neighboring nation i.e. Pakistan at Rs 2/- per channel per month, provided political will exists.

  1. If CAS is to be introduced voluntarily, how should it be done and who would take initiative to introduce it?

CAS abroad was introduced by Cable Operators by introducing Value Added Encrypted Services accessible through a set top box ordered by viewers willing to be billed for the same and be disconnected on payment defaults. In the Indian Context, the provision for phased and Government aided roll out of CAS should be dispensed with. Provision should be made for supply of set top boxes on lease as and when the Cable Operator reaches his limit of providing bundled Pay TV and FTV content. However the day Cable Operator wishes to introduce it on his network, politicians and Administrators should not entertain complaints against the Cable Operator.

At the same time, the Govt should expedite launch of DTH and Broadband services through Corporates to provide alternative to existing Cable TV viewers. Since those services also require set top box, the viewers will realize the difficulties faced by Cable Operators.

A clear message has to go to viewers that CAS is legal and that Govt is not impeding its implementation.

  1. Should Operators Provide subsidies on STB? If so, who should bear the cost of this subsidy? Will there be a need to regulate the commercial arrangements between players to share the burden of subsidy?

STB is an interface between the feeder and the TV set to enable access to

encrypted PAY TV content against specified rates, accepted by the viewer

prior to installation of STB. Logically viewer should pay for its cost, on

account of sale, or lease rent. In case of lease rent the amortized cost of STB is

to be built in the lease rent. Since the box remains the property of service

provider, depreciation @ 20% per anum will be availed by the service

provider. After 5 years the continuing lease rent would be the consideration

for the investment. In this method, need for regulating the lease rent shall not

arise.

Another option is to make service provider give free STBs, provided same is

Applied to DTH also, on a level playing field.

  1. Should it be made compulsory for service providers to give an option to subscribers to get STB on rent?

Yes.

  1. Should prices of STBs be regulated? If so, should it be regulated for rental of

STB or even for sale of STB?

Prices of STB depend upon features and workmanship. Hence these should

Not be regulated. Only norms for amortization and interest rates for

Investment should be fixed on ‘ Not Exceeding’ basis.

  1. Should prices of basic analogue/digital STBs capable of decrypting of signals

be regulated or prices of even those STBs having additional features need to be regulated?

Prices of STBs should NOT be regulated. These should be left to service

provider or market forces. If burden of cost of acquisition is not falling on

consumer, how would he be interested in its price as a custodian.

  1. In case it is decided to regulate hire purchase or rental of STBs, what should

be the maximum permissible limit of refundable security deposit and how

should rent be determined?

Rental arrangement, against non-interest bearing refundable security deposit, is

the best option for the user. It provides infinite warranty and insulation against

technological upgrades. Security deposit should be limited to cost plus taxes

on the cost of this box

  1. Should interoperability of the box be mandatory for Cable TV System? If Not,

On what conditions should the STB be returned to the Cable Operator?

Interoperability is not favoured in addressable Cable TV service because of

Hacking at manufacturer’s level. Box designer and Conditional Access vendors are different. Further, encryption algorithm is changed very frequently.

Box should be returned firstly if user does not want to subscribe to PAY TV, or secondly is desirous of changing the service provider or thirdly is changing residence to an area where the other service provider is using different conditional access or a different transport platform (analog or digital).

13. What should be quality of service norms for:

(i) Maximum time for repair/replace the STB:

Replacement would be applicable only to leased boxes. For bought out boxes, restoration of serviceability in warranty period, for damages due to manufacturing defects only, time should not exceed 15 days. For boxes outside warranty period also, it should be 15 days after repair cost estimate is accepted by the user with willingness to pay for the repairs.

(ii) Maximum time for refund of security deposit on return of STB.

Non-interest bearing security deposit, on return of STB in working condition, without irritant appearance damages, should not exceed 7 days

(iii) Period of warranty of STBs?

Will apply to bought out boxes only. For consumer electronics it is one year from the date of purchase or installation whichever is earlier.

  1. How would answers to these questions be different if the CAS is introduced on

a mandatory basis or voluntary basis?

Answers would not differ. This question has arisen because CAS was to be

mandated. In voluntary implementation by Cable Operator, like introduction

of Cable TV service itself, TRAI would not be required. Complaints, if any

would have gone to Consumer forum.

Price Issues On Cable Services

  1. Should pay channels be subject to price regulation? If yes, what should be the

methodology for determining prices?

All pay channels accessing viewers on Cable TV Networks started as Free to Viewer. As their eyeballs base gathered critical mass, their advertisements market went up. They converted to encrypted analog IRDs first and then to Digital IRDs. An IRD is also a Cable Headend level STB. Hence it would be evident that Pay Channel Broadcasters launched Conditional Access at Headend Level and made Service Provider pay for IRD if he wanted to access PAY TV content. The IRD was neither given free nor leased. Having addicted the viewers to particular channels the subscriptions started hiking arbitrarily.

Hence first matter for examination is disclosure of methodology of fixing PAY TV rates by the Broadcasters initially and then the justification for hikes.

But in absence of Broadcasting Law in the country and Registration of the PAY Channel Broadcasters as PAY TV content vendors for Cable TV Networking, this question cannot be raised on grounds of maintainability.

Hence, CAS amendment Act having provisioned for payment for TV content, this matter should be left to affordability by the viewer. As soon as that threshold is crossed, viewer will discard the PAY TV content. Encryption of PAY TV content should be enforced across the country from a particular day.

  1. Should the type of price regulation depend on competition in the market?

If yes, then what should be the link between the price regulation and extent of competition?

Competition will be generated after CAS is implemented and delivery of bundled PAY TV content, as bulk broken bundle, ceases. Viewer should stop receiving PAY TV content like Free to Viewer, to necessitate use of STB, to select content according to affordability, so that demand for PAY TV content at rates dictated by PAY TV Broadcasters drop to triggering of price war between popular channels and extinction for piggy back PAY Channels.

An exemplary norm for fixing pay channel rates would be to emulate PAKISTAN model for same satellite, same sub-continent satellite casts by the same Pay Channel Broadcasters.

Competition, when generated will come from DTH, a service being launched by PAY TV Broadcasters, with investment models engineered to circumvent Indian DTH Policy, or Broadband Service Providers delivering Broad Spectrum Content over Narrow Spectrum high-speed data. This will take years to become a reality.

At present competition can only be perceived as PAY TV content being delivered over CATV, DTH, DTT and Broadband at different rates to viewers to subscribe to such services to create competitive environment.

  1. What is adequate competition? Should one use a thumb rule that three or

more operators in the market or entry of services through alternate

technologies like DTH or IPTV and acquiring a specified level of market

share is sufficient to result in adequate competition?

Adequate competition is when delivery mechanisms of alternate or similar

technologies are available at the door step of the viewer to make ‘on the spot’

choices and have services installed within 24 hours to feel the comparison,

with in the affordability. It goes without saying that alternate services will

take a finite time to gather the critical mass.

It does NOT matter how many competitors can be established to confront the

User, each one ready to give the ‘Feel Better’ touch.

  1. Should bundling of channels into a bouquet and discounts thereon be

allowed?

If the statute passed by the Government is to be requested, then bundling, contrary to the CATV Networks Regulation Amendment Act 2002 should NOT be allowed. The ‘a-la-carte’ must be insisted upon, orders in ‘a-la-carte’ package only accepted for delivery, without prejudice to discounts on aggregated bills being admitted by the Service Providers as business providers, provided Govt dues in terms of tax accruals are levied at ‘a-la-carte’ aggregates.

  1. If bundling of pay channels is allowed, should the ceiling rate on individual

pay channels in relation to a bouquet price be specified? If so, what should

be the ceiling rate of an individual channel?

If bundling is allowed, then the bundled rate should be divided by the number

of channels in the bundle offered to arrive at the distributed per channel rate.

Individual channel of most popular channel could be 20% higher than such a

quotient and the rate of ‘piggy back’ weak channel not lower than 50 % of the

quotient. If weaker channels are capped in this fashion, they may be forced to

turn Free to Viewer, to the benefit of the customer.

  1. Do you think the price of Rs 72/- per month for Basic Tier Service requires

any review? Should these changes be made applicable in whole country or

applied only where CAS has been implemented?

This price requires immediate review because its fixation is technically and

practically unsound.

Once the rate is fixed on convincingly right basis, then it should be

prescribed for application in the whole country, not withstanding any

complimentary discounts admitted by cable operators. But the service

provider shall be obliged to remit service tax at the prescribed and

promulgated rate, the discounts shall be to cable operators remuneration

account.

Such rates should be revised in the National budgets, because service tax is

levied on this amount. Any upward revision would accrue revenue to the

Central Govt.

Broadcasting is a central Govt subject. Cabled Broadcasts delivery, meets

All ingredients of Broadcasting and exceeds them in terms of

simultaneously and continuously handled spectrum width. Entertainment tax

is levied on Cabled Broadcasts in analogy with Cinematograph because

movies a re shown on Cable TV. But the same thumb rule is not applied on

terrestrial Door Darshan bill of fare showing movies or stand alone Dish

antenna systems ( C Band TVROs). Hence there is a clear case for making

CATV networking a Central Govt subject, so that it moves out of

jurisdiction of State Govts. In a funds starved beauraucratic governance, this

tax, going purely on established precedence, could be levied centrally at

uniform rates across the country. The accruals could then be re-appropriated

to states in proportion of CATV connections in the states.

  1. Do you agree that charges payable on additional TV set in a house is limited

to installation payment equivalent to cost of 20 meters of drop cable? if no,

should prices be revised after revising the subscriber base by taking into

account the number of additional TV in a household?

Not agreed, because the justification suggested is not maintainable. First by

analogy with basic telephony and secondly with electricity supply. Every

additional telephone is charged for separately in telecom business. This

analogy of using a few meters of copper wire and buying a handset is not

acceptable in Basic telephony services. In fact it is punishable on detection.

Similarly every additional connection in electricity distribution consumes

power which is paid for additionally at prescribed tariff rate, though

additional electrical wire, switch and sockets are paid for by the user.

Additional TV sets, upset the power calculations in distribution systems, add

noise, cause reflections due to mis-matches and thus impair picture quality. In

HFC, the Optical Power link budget will get seriously affected in large

networks. In fact where additional TV set is a black and white TV set,

without SMPS, the reflections affect neighbour hood receivers and travel

upwards till feeder amplifier. If compliance of IS 13420 is to enforced in the

interest of the consumer, this suggestion should not even be entertained.