Report on Tariff issues related to Cable TV services in non-CAS areas submitted to the Hon’ble Supreme Court of India in pursuance of its Orders dated 13th May, 2009 passed in Civil Appeal Nos.829-833 of 2009 by Telecom Regulatory Authority of India (TRAI) New Delhi: July 21, 2010 Mahanagar Doorsanchar Bhawan Jawahar Lal Nehru Marg New Delhi- 110 002 1 Table of Contents Page Nos. Glossary of Terms 3 Chapter I: Introduction 5 Chapter II: Industry Scenario 25 Chapter III: Tariff 58 Chapter IV: Carriage and Placement Fee 121 Tariff Order 137 Annexures Annexure I Orders of Hon‟ble Supreme Court 156 Annexure II Tariff regulation in the broadcasting and cable 182 sector Annexure III List of events/steps taken by TRAI since 190 13.05.2009 for completion of the tariff exercise for Non-CAS areas Annexure IV Summary of issues raised in the consultation 198 paper Annexure V List of Pay TV Channels and their prevalent 202 rates Annexure VI Television receipt capacity Vs number of 208 channels received: non-CAS Households 2 GLOSSARY OF TERMS ARPU : Average Revenue Per User BSNL : Bharat Sanchar Nigam Limited B2B : Business To Business transaction CAG : Consumer Advocacy Group CAS : Conditional Access System C&S : Cable and Satellite CBET : Central Bureau of Excise and customs, service Tax CMS : Centre of Media Studies CODA : Cable Operators and Distribution Alliance COFI : Cable Operators Federation of India Cr. : Crore d2h : Direct To Home service of Videocon DTH Operator DD : Door Darshan DTH : Direct To Home EBITDA : Earnings Before Interest, Taxes, Depreciation and Amortization FICCI : Federation of Indian Chambers of Commerce and Industry. FTA : Free To Air GEC : General Entertainment Channel HD : High Definition HH : House Hold IBF : Indian Broadcasting Federation ICO : Independent Cable Operator IMCL : IndusInd Media and Communication Limited INR : Indian Rupees IPTV : Internet Protocol Television IRS : Indian Readership Survey JV : Joint Venture LAAs : Local Advertisement Avails LCO : Local Cable Operator MRP : Maximum Retail Price 3 MSO : Multi System Operator MTNL : Mahanagar Telephone Nigam Limited N/A : Not Applicable NBA : News Broadcasters Association Non-CAS : Non-Conditional Access System NCTA : National Cable and Telecommunication Association NRS : National Readership Survey NSSO : National Sample Survey Organization p.a : Per Annum SD : Standard Definition STB : Set Top Box TAM : Television Audience Measurement TDSAT : Telecom Disputes Settlement Appellate Tribunal TRAI : Telecom Regulatory Authority of India TRP : Television Rating Point UT : Union Territories VoD : Video on Demand WP : Wholesale Price of channel WWIL : Wire and Wireless India Limited 4 CHAPTER I: INTRODUCTION Background 1.1 The present exercise by the Telecom Regulatory Authority of India (TRAI) has its genesis in a judgment of the Hon‟ble Telecom Disputes Settlement and Appellate Tribunal (TDSAT) dated 15.01.2009 wherein, while setting aside a Tariff Amendment Order issued by TRAI, viz., the Telecommunication (Broadcasting & Cable) Services (Second) Tariff (Eighth Amendment) Order 2007 dated 4.10.2007, the Hon‟ble Tribunal directed TRAI to study the matter afresh in the light of its observations in the said judgment and issue a comprehensive order covering all aspects including the issue of subscription base in a non- addressable system. While considering the appeal filed by the Telecom Regulatory Authority of India [Civil Appeal No(s).829-833 of 2009] against the said judgment of the Hon‟ble TDSAT, the Hon‟ble Supreme Court passed the following order on 13.5.2009 :- “…….. In super session of the order passed by this Court on 13.04.2009, the following may be read: By the impugned order, TDSAT has directed TRAI to study the matter afresh and issue a comprehensive order covering all aspects including the issue of subscription base in a non-addressable system. Learned senior counsel appearing for the TRAI stated that a revised study would be completed within a short period after hearing the parties at the earliest. The TRAI may however consider the matter de novo as regards all aspects and give a report to this Court by 11th August, 2009. All parties are directed to co-operate with the TRAI so as to enable them to file a report at the earliest. 5 The TRAI shall also consider the feasibility of putting a cap on carriage and placement charges. ……………..”. 1.2 The Hon‟ble Supreme Court has, vide its subsequent orders dated 11.08.2009 and 18.01.2010 allowed TRAI an extension of time till 30th June, 2010 to file its report. Copies of the orders passed by the Hon‟ble Supreme Court from time to time in the said appeal are annexed and marked as Annexure-I (Colly.) to this report. As stakeholders were seeking meetings with the Authority even till 28th June, 2010, the exercise could not be completed before 30th June, 2010. Therefore, an application praying for grant of extension of time till 21st July, 2010 was filed before the Hon‟ble Supreme Court on 30th June, 2010. 1.3 The Telecom Regulatory Authority of India has completed the exercise in accordance with the aforesaid directions of the Hon‟ble Supreme Court and the present report is being submitted before the Hon‟ble Supreme Court. The report is based on an extensive study of the sector with the help of a reputed consultant engaged for the purpose, an in-depth appraisal of the problems facing the analog cable distribution platform in the country and an analysis of stakeholder views expressed during a detailed consultation process, involving all the segments of the value chain in the cable distribution sector i.e. broadcasters, aggregators, multi system operators, the cable operators, consumer advocacy groups and other stakeholders. Entrustment of broadcasting sector regulation to TRAI 1.4 The Telecom Regulatory Authority of India (TRAI), a creature of the Telecom Regulatory Authority of India Act, 1997, is a statutory body established, primarily, to regulate “telecommunication services”. Section 11 of the TRAI Act has entrusted the Telecom Regulatory Authority of India (the Authority) with specific functions relating to all 6 telecommunication services. The detailed enumeration of those functions may not be relevant for the purposes of the present exercise; suffice it to mention that under the said provisions, the Authority has the mandate, inter alia, ---- (a) to make recommendations on important aspects relating to licensing, etc. (recommendatory functions); (b) to ensure that the service providers comply with the terms and conditions of their licence, that there is effective interconnection between service providers and to set quality of service parameters and enforce them (regulatory functions); (c) to set tariffs for the services (tariff setting function). Section 2(1)(k) of the TRAI Act defines “telecommunication service” in the following words: (k) “telecommunication service” means service of any description (including electronic mail, voice mail, data services, audio tex services, video tex services, radio paging and cellular mobile telephone services) which is made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature, by wire, radio, visual or other electromagnetic means but shall not include broadcasting services; *[Provided that the Central Government may notify other service to be telecommunication service including broadcasting services.] [* Proviso added by the amendment in 2000] Even though the proviso to section 2(1)(k) had been inserted in the TRAI Act, 1997 by the amendment in January, 2000, the Central 7 Government had no occasion to notify any other service (including broadcasting service) as “telecommunication service” under the said proviso till end 2003. 1.5 Regulation of the Cable Television Industry in India had started with the promulgation of the Cable Television Networks (Regulation) Ordinance, 1994 on September 29, 1994, which was converted into the Cable Television Networks (Regulation) Act (hereinafter “Cable Act”) on March 25, 1995. The Act contained detailed provisions for the registration of cable television networks, the Programme Code and the Advertisement Code to be followed by cable operators, the compulsory transmission of Doordarshan channels by cable operators, non- interference with telecommunications systems by cable networks, etc. The Act also contained provisions defining offences relating to the cable networks and prescribing penalties for those offences. However, the Cable Act, as enacted originally, did not have any provisions relating to regulation of rates to be levied by cable operators from the viewers nor did it contain any provisions for differentiating between Free to Air (FTA) and pay channels. 1.6 The Cable Act was amended by Parliament in the year 2002 and section 4A was inserted in the said Act, which envisages transmission of programmes of pay TV channels only through addressable systems [popularly referred to as Conditional Access System (CAS)] in States, cities, towns or areas as may be specified by the Central Government by notification and from such date or dates as may be specified. The amendment was aimed, inter alia, at - (i) empowering the Government to mandate through notification, in a phased manner, installation of addressable systems for viewing pay channels; 8 (ii) enabling viewers in such notified areas to view "free-to-air" channels in the existing receiver sets without having to go through the addressable systems; (iii) enabling the subscriber, without having to change the receiving set, to view only those channels which he chooses to view from amongst those offered by the cable service provider and to pay for only those channels he chooses to view; (iv) empowering the Government to prescribe, from time to time, the maximum amount to be paid by the subscriber to the cable service provider for the “basic service tier” consisting of the bouquet of notified “free-to-air” channels and to determine the number of channels to be included in this “tier” and the maximum cost for the same in different States/cities/areas of the country, from time to time.