Out of focus

The New Tariff Order is unhelpful for broadcasting

The Telecom Regulatory Authority of India’s (Trai’s) directive to broadcasters to implement its New Tariff Order 2.0 (NTO 2.0) by August 10 is a case of poor timing and betrays a misunderstanding of how competitive markets function. The order places such onerous restrictions on the fees which channels can charge that the broadcasting industry runs the danger of relying disproportionately on advertising rather than subscription revenue. NTO 2.0 has effectively capped channel prices at Rs 12 by decreeing that any channel above that price cannot be part of a bouquet. It has also said the sum of a la carte channels forming part of a bouquet can’t exceed one and a half times the bouquet price.

While this structure may enhance affordability for consumers, it restricts pricing flexibility for broadcasters, which typically derive the bulk — as much as 93 per cent — of their revenues from bouquets. The pre-pandemic economic downturn had already taken its toll on the broadcasting industry, with some 15 channels closing over the past year, causing the loss of thousands of jobs. Many more channels are expected to follow suit after the NTO 2.0 order comes into force. Four channels have announced they would discontinue operations. Broadcasters have said limiting the discounts on bundles and fixing the prices of popular channels will force them to increase the prices of smaller channels. Ironically, an order that was meant to help consumers lower their cable/DTH bills will result in a distinctly consumer-unfriendly outcome of reducing choice in the long run.

Beyond contradicting basic market economics, Trai’s order also raises questions about its timing. First, it comes just when broadcasters are suffering the impact of falling advertising revenues owing to the Covid-19-induced disruption and need all the leeway they can get. Second, the issue is sub-judice. Originally notified in January this year, NTO 2.0 had been held in abeyance after some broadcasters moved the Bombay High Court on the plea that the order amounted to price control. Although the court did not stay the implementation of NTO 2.0 in writing, it verbally told both parties not to go ahead with anything right now till the judgment was out. Trai agreed before the court that it would not take any coercive action. In May, Information and Broadcasting Minister Prakash Javadekar assured broadcasters that the regulator would honour this informal stay order. In fact, the regulator also approached the court recently, requesting a judgment at an early date. 
 

Given all this, it is unclear why the regulator should do an abrupt volte face instead of waiting for the court judgment. Trai’s explanatory statement said the order was being imposed “to promote orderly growth of the sector and to balance the interests of service providers and to safeguard the interest of the consumers”. Since these conditions obtained seven months ago, it is hard to see why Trai could not wait for the deleterious effect of the pandemic to abate. It may soon discover presiding over a regulatory-induced shrinkage of the broadcasting industry amounts to little more than an unforced error.