TRAI

TRAI TARIFF TALE CONTINUES: ONLY WHEN BROADCASTERS HAD THOUGHT THEY HAVE WON THE WAR

December 17, 2018

The dramatic judicial battle between Regulator, Broadcasters and Distributors concerning the new TRAI tariff order finally seemed to have had come to an end on October 30, 2018, when the Supreme Court dismissed Star India’s appeal in Star India Private Limited v Department of Industrial Policy and Promotion & Ors[i] But twists and turns in this tale continues as TRAI has filed a fresh petition in the Supreme Court on the issue of 15 percent cap on discount on a bouquet price of TV channels to consumers that had been set aside by Madras High Court while upholding TRAI’s right to regulate the broadcast sector. The Supreme Court has not yet listed TRAI’s petition but it is expected to take it up in January when it resumes work after the winter vacations.[ii]

Also, many of you who are expecting a drop in your monthly cable and DTH bill, be ready for a shocker, because from December 29 onwards many of your favourite channels will now not be available in the basic pack capped at Rs 130 ( plus taxes)

Top television broadcast networks, including Star, Zee and Sony Pictures, in their Reference Interconnect Offers ( RIOs) have decided not to offer their channels in the basic pack of cable and DTH operators, once the new tariff order for the industry comes into effect from 29^th of this month.

But before we get more into the current status of this complicated matter, let us see from where it all started!

BACKGROUND

The Regulations and the Tariff Order were notified by the Telecom Regulatory Authority of India (the “TRAI”) on March 3, 2017 and were immediately challenged by Star India.

A writ petition was filed by the Appellant challenging the impugned clauses in front of the Madras High Court wherein the issues for determining were:

Whether the TRAI has the power to regulate the content of the broadcast;
Whether the impugned clauses lead to regulation of content of the television channel by the broadcaster effecting directly on the pricing and marketing of a television channel, thereby making it illegal interference with content of the broadcast.

The Madras High Court held in favor of the Respondents aggrieved by which an appeal was filed with the Supreme Court. The primary basis for the challenge was the lack of authority of the TRAI to issue such regulations or orders under the TRAI Act, 1996 (the “TRAI Act”).

A division bench of the Madras High Court delivered a split verdict, with one judge striking down a majority of the clauses in the Regulations and the Tariff Order under challenge, while the other judge upheld them as being in line with the TRAI Act. The case was referred to a third judge of the Madras High Court, who arrived at the same conclusion as the latter judge and held the Regulations and the Tariff Order to be valid. Aggrieved by the judgement of the Madras High Court[iii], Star India preferred an appeal before the Supreme Court.

CLAUSES OF THE REGULATIONS THAT WERE UNDER CHALLENGE

A-la-carte offering

Under Clause 6(1) of the Regulations, Broadcasters are mandatorily required to offer all their television channels on an a-la-carte basis to distributors. While they can offer their channels in the form of a bouquet, but such bouquets should: (i) contain either only pay channels or free-to-air channels, and not both; and (ii) not contain high definition (HD) and standard definition (SD) formats of the same channel in the same bouquet.

Reference interconnection offer

Under Clause 7(2) of the Regulations, the Broadcasters are required to publish a reference interconnection offer on their websites, which, among other details, should mention the maximum retail price of a pay channel per month and also the maximum retail price of a bouquet of pay channels per month.

Interestingly, broadcasters are not permitted to include within its reference interconnection offer, the channels of other broadcasters (except certain group companies). This seems to indicate that a broadcaster cannot bundle channels of other broadcasters while offering their channels.

Maximum discounts

Under Clause 7(4) of the Regulations, the maximum discount that a broadcaster can offer to a distributor per pay channel or bouquet of pay channels is 15 % (fifteen percent) of the maximum retail price.

Interconnection agreement

Pursuant to Clause 10(3) of the Regulations, broadcasters are required to enter into an interconnection agreement in writing with distributors on an a-la-carte basis for distribution of pay channels.

CLAUSES OF THE TARIFF ORDER UNDER CHALLENGE

Provisions similar to those mentioned in Clause 32(a) (a-la-carte offering) and Clause 3.2(b) (reference interconnection offer) are included in the Tariff Order and were under challenge before the Supreme Court. In addition to that, the following major provisions were also challenged.

Consistency in price

Under Clause 3(2) and 3(3) of the Tariff Order, the maximum retail price of a pay channel and a bouquet of pay channels are required to be uniform for all distribution channels.

This would mean that a broadcaster cannot charge different prices to different distributors even if the intended subscriber base of such distributors is different. Under Section 33(a) of the Copyright Act read with Rule 56 of the Copyright Rules 2013, broadcaster has the right to decide separate MRP for different category of audiences.

Maximum retail price and discounts on bouquets

Pursuant to Clause 3(3) of the Tariff Order, any pay channel which is part of a bouquet cannot have a maximum retail price per month of above INR 19 (Indian Rupees nineteen).

Promotional scheme

Under Clause 3(4) of the Tariff Order, broadcasters are permitted to offer promotional schemes on the maximum retail price per month of its a-la-carte pay channels. In such a case, the price offered under the promotional scheme shall be construed as the maximum retail price during the period of offer. However, such schemes can only be offered twice a year and for a period not exceeding ninety day in each instance. Such restriction was alleged to infringe upon the broadcaster’s ability to commercially monetize his content.

CONTENTIONS OF THE APPELLANT

The Appellants argued that the impugned clauses of the Interconnection Regulation and the Tariff Order are not in conformity with the TRAI Act because The TRAI Act enables TRAI to only regulate transmission or reception of broadcasting services which means regulation of measures taken for carriage of these signals. But by making regulations on pricing of the channels and providing direction on how to group the channels is leading to regulation of the content of the broadcast. The Appellant also argued that by making such regulations TRAI has not only acted ultra-vires the Parent Act but has also infringed broadcaster’s rights under the Copyright Act, 1956.

FINDINGS OF THE SUPREME COURT

The Supreme Court while delivering its judgment rejected the Appellant’s arguments and upheld Madras High Court’s Order.

The Supreme Court in its judgment viewed that TRAI has not acted ultra-vires the Parent Act. It placed reliance upon the objective set out in the TRAI Act, which clearly states that the reason behind establishment of TRAI is to protect the interest of the consumers and the service providers.

With regard to the contention of overlapping of the Copyright Act 1956 by the TRAI Act, Supreme Court held that the object of the Copyright Act 1956 is to protect the proprietary interest of the owner whereas object behind the TRAI Act and the regulations under the TRAI Act are to focus on protection of the ultimate consumers. Therefore jurisdictions of both the laws are totally different and thus, the TRAI Act cannot overlap the Copyright Act 1956 and even if it does then the same can be justified under the grounds of public interest.

CONVERTING FREE CHANNELS INTO PAY: SMART MOVE BY BROADCASTERS

The basic pay pack has been capped at Rs 130 by the Telecom Regulation Authority of India in it’s TRAI order. In response to this, Zee Entertainment Enterprises (ZEE), Sony Pictures Networks India (SPN), Viacom18 and TV18 that have converted all their free-to-air channels into pay channels. There are clearly two reasons for doing this : 1) First is that there will be a mad rush to be a part of these packages and distribution platforms (cable & DTH) will ask for extremely high carriage and placement fee, and 2) secondly, viewers will never opt to go for higher packs if they get their dose of entertainment at a much lower price. This is a very well-calculated move by the broadcasters because offering of channels in a base pack is to be done by Distribution Platform Operators (DPOs). The broadcasters are only required to declare the MRP of their channels and the channels that are to be offered on an a-la-carte basis.

As the bundling of channels have not been banned, but price negotiations between broadcasters and DTH and cable operators have been, the TRAI order has actually given an advantage to the broadcasters who are very well utilizing it by announcing new pricing for their channels keeping in mind the popularity of each channel.

Have a look at the following table to understand how smartly, different broadcasters have kept most of their popular channels at a much higher price (mostly Rs 10 and above) and the not so followed channels priced mostly below 5.

Continue reading to see how they have even bundled the not so popular and popular channels in one bouquet, discounting it at a high margin, so that customers chose to go for the bouquet options.

LIST OF NOT SO POPULAR HINDI CHANNELS WHICH HAVE BEEN PRICED MOSTLY AT RS 5 OR BELOW

GENERAL ENTERTAINMENT CHANNELS		KIDS		Hindi HD
Zee Anmol	1	Discovery Kids	3	Star Gold Thrills	1
Zoom	1	Disney Junior	3	Discovery Jeet	2
Zee Anmol Cinema	1	Pogo	4.25	INFOTAINMENT
Big Magic	1	Cartoon Network	4.25	Living Travelz	0.1
Sony WAH	1	NEWS		Living Rootz	0.1
Sony PAL	1	Zee Business	0.5	Discovery Turbo	1
Rishtey	1	Zee News	0.5	Discovery Science	1
Zee Action	1	Zee Hindustan	0.5	Animel Planet	2
Zee Salaam	1	CNBC Awaaz	2	FYI TV 18	2
Star Utsav	1	MUSIC		Discovery Channel	4
Star Utsav Movies	1	MIX	1
Discovery Jeet	1	Zing	1
Big Ganga	2	Zee ETC	1
UTV Action	5	MTV Beats	2
Bindaas	5	MTV	5

LIST OF HINDI PREMIUM CHANNELS WITH HAVE BEEN PRICED HIGHER THAN Rs 5

HINDI HD CHANNELS		GENERAL ENTERTAINMENT CHANNELS INCLUDING MOVIES		SPORTS
FYITV18	6	STAR GOLD SELECT	7	TEN1	19
FYITV18	6	STAR GOLD SELECT HD	10	TEN1	19
MTV BEATS	6	STAR GOLD	8	TEN2	19

UTV HD	15	STAR GOLD HD	10	TEN3	19
STAR PLUS HD	19	STAR BHARAT	10	SONY SIX	19
STAR BHARAT HD	19	UTV MOVIES	10	SONY ESPN	19
ZEE TV HD	19	SONY	10	MUSIC ( HD)
&TV HD	19	&PICTURES	10	MTV BEATS	6
ZEE CINEMA HD	19	SONY SIX	19	MTV	10
&PICTURES HD	19	SET	19	NOTE MOST FOLLOWED HINDI CHANNELS HAV BEEN PRICED AT RS 10 AND ABOVE
SET HD	19	SET MAX	19
SET MAX HD	19	ZEE CINEMA	19
SAB HD	19	ZEE TV	19
COLORS HD	19	STAR PLUS	19
		Colors	19

LIST OF ENGLISH CHANNELS WHICH HAVE BEEN PRICED AT RS 5 AND BELOW

NEWS		ENGLISH INFOTAINMENT		SPORTS
		Nat Geo Music	1	Star Sports First	1
		Nat Geo People	1	Star Sports 3	4
		Fox Life	1	DSport	4
		TLC	3
CNN	0.5	Animal Planet	3
WION	1	Nat Geo Wild	5
MIRROR NOW	3	CNBC TV18 Prime	5
ET NOW	3
ET NOW	3
CNBC TV18	5
Times Now	5

LIST OF POPULAR ENGLISH CHANNELS PRICED BETWEEN Rs 5 and Rs 10

ENGLISH ENTERTAINMENT CHANNELS ( HD )		ENGLISH INFOTAINMENT HD			SPORTS
VH1	8	DISCOVERY	6		Star Sports 2	6
STAR WORLD	9	DISCOVERY	6		STAR SPORTS 3	4
STAR WORLD PREMIERE	9	ENGLISH ENTERTAINMENT (HD)			STAR SPORTS SELECT 2	7
NEWS		STAR WORLD		9	STAR SPORTS FIRST	1
CNBC TV 18	5	STAR WORLD PREMIERE		9
TIMES NOW	5

LIST OF PREMIUM HD ENGLISH CHANNELS WHICH HAVE BEEN PRICED AT RS 10 AND HIGHER

ENGLISH ENFOTAINMENT		SPORTS		POPULAR ENGLISH ENTERTAINMENT CHANNELS
SONY BBC EARTH	10	STAR SPORTS SELECT HD2	10	Colors Infinity HD	19
NATIONAL GEOGRAPHY	10	STAR SPORTS SELECT HD 1	19	Comedy Central HD	19
HISTORY TV18 HD	19	STAR SPORTS SELECT HD 1	19	Comedy Central HD	19
ENGLISH MOVIES		STAR SPORTS HD 1	19	Zee Café HD	19
		STAR SPORTS HD2	19	DISNEY INTERNATIONAL	15
		STAR SPORTS 1 HD HINDI	19	AXN HD	15
STAR MOVIES SELECT	10	TEN 1 HD	19	ENGLISH ENFOTAINMENT HD
ROMEDY NOW	10	TEN 2 HD	19	History TV 18 HD	19
MN+	10	TEN 3 HD	19
MNX	10	SONY ESPN HD	19
HBO HD	15
MOVIES NOW HD	15
STAR MOVIES HD	19
LE PLEX HD	15
&FLIXHD	19
PIXHD	19
&PRIVE HD	19

BOUQUET REDUX: The 15 percent discount clause

The initial tariff order stipulated that the discounts on MRP of a bouquet should not exceed 15% of the cumulative individual channels’ cost. However, this clause was rejected by the Madras High Court and was surprisingly not challenged by TRAI in the Supreme Court. Hence, the clause of 15% discount cap on bouquet compared to a-la-carte price has been rejected. It may be noted that most broadcasters who have declared RIO rates are offering discounts much higher than 15%, as it is now allowed.

The following table obtained from respective RIO agreements shows broadcasters like Sony and Zee continuing to give discounts as high as 50 percent on their bouquet pricings. The old regime seems to continue on broadly similar terms in the new regime.

SONY PICTURES NETWORKS INDIA ( SPN)
BOUQUETS	CHANNELS	MRP (in Rs.) per Subscriber per month (excluding all applicable taxes)	Maximum Retail Price (MRP) of the Bouquet per subscriber per month (in Rs.) ( excluding all applicable taxes)	DISCOUNT GIVEN
SONY SILVER PACK	SET	19	31	53%
	SAB	19
	SET MAX	15
	MAX 2	1
	SONY YAY!	2
	PAL	1
	SONY WAH	4
	MIX	1
	SONY Marathi	4
	TOTAL	66
SONY GOLD PACK	SET	19	39	55%
	SAB	19
	SET MAX	15
	MAX 2	1
	SONY YAY!	2
	PAL	1
	SONY WAH	4
	MIX	1
	TEN 3	17
	SONY BBC EARTH	4
	SONY MARATHI	4
	TOTAL	87
SONY PLATINUM PACK	SET	19	69	55%
	SAB	19
	SET MAX	15
	MAX 2	`1
	PAL	1
	SONY WAH	4
	MIX	1
	SONY YAY!	2
	SONY EARTH BBC	4
	TEN 1	19
	TEN 2	15
	TEN 3	17
	SIX	15
	SONY ESPN	4
	SET PIX	10
	AXN	5
	SONY MARATHI	1
	TOTAL	152
ZEE ENTERTAINMENT ENTERPRISES (ZEE)
BOUQUE	CHANNEL NAME	MRP (in Rs.) per Subscriber per month (excluding all applicable taxes)	Maximum Retail Price (MRP) of the Bouquet per subscriber per month (in Rs.) ( excluding all applicable taxes)	DISCOUNT RATE
SD BOUQUET 1- (HINDI)	Zee TV	19	45	49%
	&TV	17
	Zee Anmol	1
	Big Magic	1
	Zee Cinema	19
	&Pictures	17
	Zee Bollywood	2
	Zee Action	1
	Zee Anmol Cinema	1
	Zee News	0.50
	Zee Hindustan	0.50
	Zee Business	0.50
	Zee ETC	1
	Zing	1
	Zee Salman	1
	Ezmall.com	0.10
	Big Ganga	2
	Zee Bihar Jharkhand	0.50
	Zee Punjab Haryana Himachal	0.50
	Zee Madhya Pradesh Chattisgarh	0.50
	Zee Rajasthan News	0.50
	Zee Uttar Pradesh Uttarkhand	0.50
	Zee 24 Kalak	0.50
	TOTAL	88.10

Subscription revenue generated by such broadcasters are also going to remain unaffected due to the 15 percent discount cap along with the liberty to price any channel at Rs 19 on an a-la-carte basis.

HOW IS THE SITUATION FOR CABLE OPERATORS AND DTH PLAYERS?

With broadcasters strategizing TRAI’s order maximum to their favour, it is very much expected of cable operators and DTH players to approach High Courts or Telecom Disputes Settlement and Appellate Tribunal because all the previously free-to air channels which are now paid, will continue to be available for free on DD Free Dish.

According to TOI reports, the Pune Cable Operators Association ( PCOA) will move the Bombay High Court against the TRAI mandate.[iv]

With the ban on negotiated deals and contracts now, the platform operators can also no longer negotiate for lower rates based on their prices.

This has definitely upset the balance of power between the channel owners and the distribution providers, giving broadcasters a very clear opportunity to increase their revenue as compared to them.

Suresh Sethia of Siti Cable had tweeted “We fear utter chaos from December 29, as all Multi System Operaters (MSO) will log pay channels out of homes, unless someone petitions the SC to stall the roll out of the new system ( called ‘reference interconnect offer’ that will allow subscribers to pay for only those channels they want to view.”[v] ( Siti Cable is the MSO with the largest subscriber base in Bengal)

HAS THE TRAI ORDER BEEN SUCCESSFUL IN SERVING “ACTUAL CONSUMER INTEREST”?

The Supreme Court has definitely altered the landscape of broadcasting by upholding the validity of Regulations and Tariff order. It will definitely change on how consumers are offered television channels but whether it will provide “true” choice to consumers in relation to the channels they want to subscribe is highly doubted.

The most important aspect of the tariff order was “control to the consumers” with the “balance of power” shifting away from broadcasters and distributors but that doesn’t seem to have successfully happened with the decision of Supreme Court.

All of the new TRAI regulations particularly pertaining to bouquet pricing practically seem to be futile with the removal of the 15% cap. This 15 percent cap could have actually been instrumental in ensuring that a-la-carte rates are affordable to consumers. Today, when there is no 15% cap discount that can be applied for bouquet, the broadcasters are free to price the a-la-carte rate of a channel upto Rs 19 ultimately forcing consumers to opt for large broadcasters bundles of pay channels. The whole purpose of the tariff order seems to be defeated as these vital clauses are removed. Hence, this won’t bring any major changes as far as the consumers are concerned.

It defeats the whole purpose of this tariff order which is to encourage and make possible for consumers to avail channels on a-la carte basis. The basic aim of this tariff is that broadcasters come out with realistic and reasonable a-la-carte rates which has a logical relation to the bundling price instead of going totally out of line where the consumer and operator is concerned.

Also, out of the 100 channels in the base pack 26 are mandatory Prasar Bharti channels. There will be rush among the broadcasters to get into the remaining 74 slots but it is highly unlikely that the Distribution Platform Operators (DPOs) would put the most followed channels in such base packs owing to high costs. Chances are they would attempt to make such base packs as “unattractive” as possible so that consumers opt for a-la-carte and bouquet options.

In all likelihood, it can be said that the consumers would be the primary victim in this. The only significant gain for consumers through this entire process was that they could pick and pay for channels they wanted. With no restrictions on a-la-carte price or its discounting, it will not be wrong to say that the broadcasters may have lost the battle but they seem to have won the war.

However, on a positive note, if the TRAI wins its appeal in the Supreme Court, the prices of popular channels will have to be brought down by at least 50%, which will make it possible for consumers to stop relying on bouquets and bring down their monthly bills.

KEY HIGHLIGHTS ON THE ISSUE SO FAR:

On October 30, 2018 Supreme Court dismisses Star India’s appeal in Star India Private Limited v Department of Industrial Policy and Promotion & Ors.
With TRAI not appealing the 15 percent clause as dismissed by the Madras High Court, the clause of 15% discount cap on bouquet compared to a-la-carte price continues to stand rejected.
Base pack capped at Rs 130 by TRAI.
In response to the fixed price of base pack, broadcasters like Sony, Star India, Zee converts it’s free to air channels to paid ones.
From the RIO agreements declared by Sony, ZEE, Star India, most followed English and Hindi Channels have been priced at a much higher price( mostly above Rs 10) as compared to other channels which are not so popular. All premium channels have been priced at the maximum price i.e Rs 19. Very evidently, this decision of the Broadcasters is an attempt to coerce cable and DTH operators to not include popular channels in their base pack owing to high costs. If the base pack looks “unattractive” to consumers, they would obviously go for a-la-carte pricing and bouquet options.
Also, with no restriction on the discounts that can be given in bouquet pricing, broadcasters continue to give discounts as high as 50%.
The situation doesn’t seem to have changed much from the viewpoint of consumers. With channels which are most in demand being priced at Rs 19 and huge discounts being provided in bouquets, the consumers would naturally tend to go for the bouquet option. Consumer cannot “pick and pay” for the channels even now which was the main purpose behind the TRAI order.
Cable operators and DTH players are likely to approach authorities because the channels which are now converted to paid, will continue to be free on DD’s Free Dish. According to TOI reports, the Pune Cable Operators Association ( PCOA) will move the Bombay High Court against the TRAI mandate.
TRAI has filed a fresh petition in the Supreme Court on the issue of 15 percent cap.
We can now only hope for TRAI to wins this, because only then the prices of popular channels can be brought down by at least 50%, which will finally make it possible for consumers to stop relying on bouquets and bring down their monthly bills.
As reported by Economic Times, the hearing is slated in January, when the Court reopens after the winter vacations.