Tariff should be Technology Agnostic
Lt. Col K K Sharma (Retd)
Prior to 1994, there were no pay channels and thousands of cable operators provided video as well as FTA channels to the masses. When Pay channels were introduced, broadcasters demanded operators small lump sum amounts like Rs. 1000-2000 per month. The operators had requested the government at that time too to allow these channels to be distributed only through addressable systems which is the norm all over the world but the request was ignored.
Consumers were too happy to get more and more content without paying additional money for that and the operators had to bear the burden to keep their business going as there was no addressability. The average tariff in cable TV has almost remained the same since then where as the pay channel rates have increased more than 1000%. Pay broadcasters knew that the people will get addicted to their content and so kept on forcing the operators to pay for these channels or face the wrath of the public as the government was too reluctant to control the broadcasters. Not only this, these few popular channels were bundled with newer and not so popular channels forcing operators increased bouquet rates but operators could not force the subscribers to pay more.
Even when CAS was legislated in 2003, it were the pay broadcasters who convinced the government that the people were not prepared for such a technology in-spite of it having been cleared by both the Houses of Parliament. It is this aspect of cable TV operation which has lead to the present state of chaos in the industry.
Although late, but Telecom Regulatory Authority of India (TRAI) has finally woken-up to resolve the issue of tariff in satellite and broadcasting industry in India in a comprehensive manner. This time, the regulator has come up with three consultation papers for deciding the tariffs for cable TV services in CAS areas, in non-CAS areas and for digital cable through HITS. The cable TV industry has been experiencing a period of uncertainty for many years due to ad-hoc regulations introduced either on the directions of the courts or for crisis management. This has hampered the growth of the Industry compared to its competitors like DTH, IPTV and Broadband, which from the beginning started in a regulated manner.
Cable TV Tariff in CAS areas
It is good that the authority is reviewing the tariff for Cable TV Services in CAS notified Areas now after three years of its implementation. However, market competition increased by introduction of DTH and IPTV is not fair to Cable. When all technologies compete in the same area under similar conditions, everyone gets a chance to compete on equal terms. But by restricting the CAS areas to a small portion of the three metros, growth cannot be expected beyond a certain limit. Saturation will reach sooner or later and curb the growth any further. Thus, operators are not motivated to invest more.
Tariff of Pay Channels has to be technology agnostic. Consumers of all addressable systems (Digital Cable, DTH, IPTV or Broadband) must get the same deal from pay channels. Consumers are not much affected when they shift from Analog to digital networks as far as the pay channels are concerned. Since migration from a non-addressable system to an addressable one brings no major hiccups to consumers, there is no need for working out separate tariff as it will make regulations ineffective in the long run. These tariffs should also be applicable to voluntary CAS areas. This will give choice to consumers and encourage digitalization with CAS making the system transparent and more accountable.
As far as consumer is concerned, he wants to pay the same amount for a particular channel of his choice whether he views it on an addressable system like CAS, DTH or IPTV or on non-addressable system like the analog cable in non-CAS areas. What will differentiate is the experience of service if any. Digital cable, IPTV and DTH can provide on-demand services and more value ads. There can be 3D or HDTV version of a channel or a sports channel can have a multiple angle viewing experience, for which a consumer may like to pay more.
The data given by TRAI for the existing CAS areas in the Consultation Paper and the survey report of CMS done for TRAI which is placed on the TRAI Website speaks volumes of what is required in the tariff regime. They tell us about the existing scenario and how to go ahead for the benefit of all.
The following points emerge from the survey done by CMS:
- Competition from DTH has forced Cable Operators to reduce their subscription from Rs. 200 to Rs. 185.
2. Lowest Subscription is in Chennai (Rs 106) and it is the only city with total CAS area coverage.
3. 75% Subscribers get the receipts from cable operators.
4. Majority of subscribers are not willing to pay more for better services through digitalization.
5. People who want to pay more want to migrate to DTH. Initial installation charges for DTH, of course is also a deterrent.
6. Better Quality and fast redressal of complaints are two factors for which some people are ready to pay more.
7. Channels watched by an average household range from 7-15 only.
Thus, to achieve a consumer friendly tariff for cable TV service the following is required:
– Tariff for services as well as pay channels have to be affordable by majority of the existing subscribers, preferably below Rs. 200/-.
– Operators must be given adequate incentives for digitization to extend the CAS implemented areas.
– CAS must be implemented in the whole country without any delay.
– MSO/Operators must be able to differentiate their services from others.
– Customers connected to an addressable system anywhere in India (Cable, DTH or IPTV) should pay the same price for pay channels. Only basic service charges should differ from platform to platform.
– Manufacturing of digital equipments including STBs in India should be encouraged.
– 29 Million addressable market is adequate for the Premium Pay and Niche channels. As brought out above, digital addressable cable has been confined to a universe of mere 5 million TV households where as, DTH and IPTV have been given 140 million TV households to be exploited. They have already reached a connectivity of 23 million and 1 million till date. This means that the addressable market in India has 29 million subscribers. This should be adequate for the high priced channels which can be placed in the premium category. Rate of these channels can be left to the broadcasters. If they can create a demand, they will get the payments. All channels which need to be priced more than Rs. 5.35 can fall in this category.
– It is not practical to have pricing according to genres. There may be differentiation within a genre too. Hence to be fair to all kinds of broadcasters, they need to be given the freedom to choose their own pricing if they feel their product is of premium quality. This calls for Broadcasters to declare to the Regulator if their channel is FTA, ‘Normal Pay’ (which can be part of a bundle and with a-la-carte rate not more than Rs. 5.35), ‘Premium’ to include special and niche channels (not to have a regulated tariff) or Value added Service, to include VoD, ‘pay per view’ (like movie premiums) etc. Thus the system will work the same way as the Public Distribution System of the government which caters for the masses selling at controlled prices.
Thus, the tariff structure can be divided in to three different frameworks as follows:
– Non-addressable analog market (Non-CAS)
– Non-addressable Digital market (Non-CAS Digital)
– Addressable Digital market (CAS Areas, Voluntary CAS areas, HITS and IPTV networks)
Addressable Digital Market
In the addressable markets where CAS is used, the pay channel tariffs can be based on the MRPs and the revenue share system can continue as it is today. The system also should be made applicable to all areas where voluntary CAS has been implemented or the same pay channels are being distributed through DTH or HITS or IPTV. Also, dual feed of analog for FTA and digital for pay channels must continue on cable networks till CAS implementation in the whole country is completed.
In CAS notified areas retail tariff should comprise of
- Basic Package. (Min 50 FTA + 5 DD channels for Rs. 100/-). This is so because the number of FTA channels have increased and digital networks can carry much more channels than analog. Also, this additional revenue will be an incentive to move to digital in the non-CAS areas.
- Normal Pay channels. Could be bundled (at Rs 5.35/ MRP as suggested by TRAI) and sold to subscribers in bouquets. However, they should be made available a la-carte as well if the consumer so demands.
- Premium Channels. Since the pay channels have adequate addressable market now, let the broadcasters decide if they want to sell their channels to an elite addressable audience or to mass audience. While selling to the masses, they gain in viewership and get more ad revenue whereas, selling to selected addressable audience they market to a fully accounted market with no worry of under-declaration and a market which will pay them for their content, technology like HDTV and 3D and value added services.
- Value Added Services. These services depend upon the platform operators and can have no regulation of tariff.
There should be a relation between the a-la-carte price and the bouquet price of a Normal Pay channel to avoid any perverse pricing. The ratio should not be more than 1;1.5. That means a-la-carte price should not be more than 50% higher than the average price of a channel in a bouquet.
Time to Look after the LCO
Now, we have to move fast to a total digitalization era so as to compete with other technologies as well as move to triple play and other broadband services. It is the last mile operator who suffers the most in carrying services of broadcasters and MSOs. He does not get any carriage fee while carrying these services. Also, the quality of the service of both broadcasters and MSOs depend mostly on the performance of the last mile networks. They get no financial help for upgrading their networks. They have been upgrading their networks with their own money to carry more and more channels without any financial benefits for the last 16 years. Hence, we feel that the revenue share between broadcasters, MSOs and LCOs should be 40:25:35.
All MSOs run many video channels (even up to 10 or more in some cases). They do not yet pay any registration to the government for them but earn a lot in terms of ad revenue and sponsorships. They must pay carriage fee to the LCOs so that they can upgrade their network’s channel carrying capacity to carry these additional channels to the subscribers. Since MSOs earn ad revenue from the viewership provided by the LCOs, this revenue should be shared between the MSOs and LCOs in the ratio of 50:50.
While deciding the tariff issues, TRAI should also take in to account the number of subscribers who only watch FTA channels? There may be millions of them. There is also a need to take in to account the number of black and white TV sets or old colour TV sets in India which receive only 11-30 channels out of the 500 odd channels available in the country? Five Doordarshan channels are mandatory to carry by all Cable Operators which leaves only 6 private channels for these subscribers. A similar argument applies for old colour TV sets which can receive not more than 30 channels.
The Democratic Operator
In case of cable operators, who try to provide all popular channels to all their subscribers, they charge a differential pricing at the retail level without the content being different to accommodate different types of subscribers. Moreover, as the operators belong to those areas, it is difficult for them to ask the same price from a consumer having a large 42 inch LCD TV and another having a black and white TV having a limited channel reception.
Thus a cable operator in the non-CAS areas has been selecting channels and subscription fee for his subscribers in a very democratic way considering-
- Consumer Choice.
- Language of the region
- Type of TV set owned
Non-Addressable Digital Markets
Basic Tariff- Should include a minimum of 50 FTA+5 DD channels for Rs. 100/-
and also cover the cost of distribution on the network.
Normal Pay TV – Should include a minimum number of Pay channels at a fixed cost but number of channels and the cost to be more than the Analog networks.
Premium Channels- Left to the choice of the operator.
VAS- Left to the choice of the Operator.
Pay TV –Normal Pay channels to be available a-la-carte. Decision to accept the bouquets on the Headend operators. A cap of Rs 2.40 to be made for these channels to be paid to the Broadcaster.
Premium Channels- May be introduced by the Headend operator on his own choice to increase the value of his network and differentiate from others. If his area is higher income group, he may demand more subscriptions from his subscribers.
VAS- As per the wish of the Headend Operator.
Article Source : Tariff should be Technology Agnostic : ArticleBase
Cable Quest –
About the Author:
Lt. Col K K Sharma (Retd)