NTO 2.0: Why TRAI’s attempt at overregulation is bad for consumers
exchange4media co-founder Nawal Ahuja explains why NTO 2.0 implementation could force users to pay more, defeating TRAI's objective of 'easing consumers' pain'
Days after notifying the amended New Tariff Order (NTO) in January 2020, the then Telecom Regulatory Authority of India (TRAI) chairman RS Sharma, who is also the chief architect of the NTO regime, had said that the “entire exercise of NTO 2.0 is to ease the customer's pain”.
Ever heard of a regulatory body anywhere in a free economy fixing prices of phone calls, or automobiles to help consumers?
The developments of the last week belie the noble assertion expressed by the then TRAI chief. If anything, NTO 2.0 will end up increasing consumers' woes as large broadcasters decide to sell their driver channels on à la carte basis and not as part of the bouquet, as was the norm uptill now.
And considering the plethora of options available before the viewer today, the pay-TV industry will also have a difficult time stopping the migration of customers to other platforms.
As many channel packages become costlier than annual OTT subscriptions packs, the dice could gradually get loaded in favour of OTTs. The pay-TV industry is already grappling with the migration of subscribers to OTT and DD Free Dish at the upper and lower end of the funnel, respectively, and NTO 2.0 will likely accelerate that churn.
Badly hit by NTO 1.0, niche channels now have no place to hide as the subscription wallet gets redistributed owing to the increase in prices of popular channels. While GEC, movie, sports, and kids genres will manage to get their share, niche genres, even Non-GECs might find the going even tougher.
Increasing prices is not a decision filled without serious pitfalls, though. And Broadcasters also have a lot to ponder upon. As consumers realign their channel selection, will the reach of their popular channels take a hit? This has consequences for both the subscription and advertising revenue streams. Already, pay-TV subscription numbers have not seen significant growth in the recent past, and this price hike might make matters worse as subscriber growth could head south for the first time.
The overzealousness of the TRAI to regulate pay-TV pricing will also force large TV networks to invest more into scaling up their OTT business. Unlike the pay-TV market, the OTT market is unregulated as there is no restriction on pricing. Broadcasters will start aggressively investing in acquiring customers for OTT, which will encourage some viewers to cut the cord and shift to OTT. This might have a short-term impact on the bottom line, but it will future-proof the business of large TV networks.
DPOs the other important player in the ecosystem will be severely impacted as they might not be able to fully pass on the tariff hike to the consumers. While DPOs have a steady revenue stream in NCF besides commission on selling bouquets/à la carte channels and placement/marketing fee, the very thought of losing subscribers to OTT and DD Free Dish will make them lose sleep.
Frequent changes in pay-TV regulation has also meant that cable TV companies are not able to fully focus on building their broadband business, which is the next big opportunity in the era of a growing digital economy.
DTH operators have tried that route with limited success. Being larger and more organised than Cable operators, DTH players might be in a better position to absorb some of the cost increase on to their books, though it will impact their profitability adversely. Just when the DTH companies had started to see light at the end of the tunnel, the TRAI has put paid to their plans.
Though initially sceptical, broadcasters wholeheartedly embraced NTO 1.0. Despite their initial reservations about the impact of NTO 1.0, networks went all out to ensure that the NTO 1.0 was successfully implemented on the ground. After some teething issues, DPOs managed the gargantuan task of migrating millions of pay-TV customers to NTO 1.0 regime.
After being short-changed for many years, the broadcasters finally started receiving their due share of subscription collections from the consumers. Subscription revenue of most pay broadcasters saw an uptick. Having invested thousands of crores in digitising the analogue cable market, the cable and DTH platforms also saw an improvement in their finances.
Most of the DPOs turned around and became profitable as content costs became pass-through. DPOs became true intermediaries between the broadcasters and the consumers. Under NTO, the consumer bills have got split into two components — NCF to DPOs and subscription fee to the broadcasters.
Even as the service providers benefited from NTO 1.0, customers saw their monthly TV bills go up significantly. Introduction of Network Capacity Fee (NCF), a new item introduced as part of NTO 1.0 and collected by DPOs, also contributed to the inflation in TV subscription bills.
Faced with consumer backlash, TRAI blamed broadcasters for the rise in prices. The regulator alleged that broadcasters were not passing on the benefits of NTO to the consumers. It alleged that 'perverse' pricing (keeping à la carte price deliberately high so that bouquets can be sold at a high discount) by broadcasters has derailed NTO 1.0.
Ignoring the pleadings of the industry to allow NTO 1.0 to settle down before bringing about any new amendments to the tariff regime, the TRAI went ahead and began the consultation process for amending the NTO which finally culminated in NTO 2.0 getting notified on the first day of 2020. The amendments in the NTO were based on the premise that consumers are being forced to take bouquets due to the high à la carte price of popular channels.
The matter went to the Bombay High Court, which finally ruled in favour of TRAI while setting aside the second twin condition. The agitated broadcasters have approached the Supreme Court against the Bombay HC judgement, which they say will open the doors for frequent regulatory interventions by the regulator to control pricing in 'public interest'. TRAI has already hinted that it may review the forbearance on à la carte pricing if the situation goes out of hand.
Two of the biggest changes in the NTO, which have far-reaching consequences for the broadcasters, are the downward revision of the MRP cap to Rs 12 from Rs 19 and the introduction of twin conditions to create a linkage between à la carte and bouquet prices. By introducing the twin conditions and reducing the MRP cap, TRAI had hoped to browbeat the broadcasters into submission. However, by pulling popular channels out of the bouquet rather than reducing the rates to Rs 12, the broadcasters have demonstrated that they are not shying away from a fight.
Will NTO 2.0 benefit the consumer as TRAI wanted? Seems highly unlikely. Will continuous regulation, overzealousness by the regulator benefit the industry or the consumer? Again, seems highly unlikely.
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