TRAI Open House Discussion: Broadcasters ask for ‘primary right’ to audit DPOs

In a crucial open house discussion on TRAI’s consultation paper regarding the audit provisions of the Telecommunication (Broadcasting and Cable) Services Interconnection Regulations, key stakeholders voiced strong opinions on the future of audit processes and infrastructure sharing.

Amid ongoing concerns over delayed audits and incomplete reports from Digital Platform Operators (DPOs), there was a consensus on the need for reforms that could balance compliance and the evolving dynamics of the broadcasting sector.

A key issue under consideration is Clause 15(1) of the Interconnection Regulations, 2017, which pertains to the audit requirements for Distribution Platform Operators (DPOs). According to this provision, DPOs are required to conduct an annual audit of their systems, with the audits being performed by TRAI-empanelled auditors.

Radhakrishnan Nair, Secretary of the Indian Broadcasting and Digital Foundation (IBDF), underscored the importance of stringent audit mechanisms to ensure transparency and accuracy in subscriber data reporting.

Nair raised concerns about incomplete or delayed audits by DPOs, which he argued significantly impact revenue generation and system integrity.

The discussion also touched on the potential risks of infrastructure sharing, with Nair warning that sharing critical systems could compromise content security and lead to financial losses. While other stakeholders like Ajay Singh of Hathway Digital supported the current audit structure, arguing that it has reduced legal disputes, all parties agreed on the necessity of ensuring consistent regulatory standards across the sector.

“DPOs often fail to conduct audits, submit incomplete or inaccurate reports, or delay the process, hindering broadcasters' ability to verify subscriber numbers and the integrity of the system used. This lack of transparency negatively impacts broadcasters' revenue as well as the public sector. To address this, broadcasters should have the primary right to audit DPOs,” Nair said during the OHD being held virtually, adding that this will ensure timely and accurate verification of subscriber numbers, data, and system integrity.

“This would also relieve small DPOs of the financial burden of conducting audits,” he said.

Opposing this, Ajay Singh, non-executive director of Hathway Digital Ltd said clause 15(1) of Interconnection Regulation is working “very fine” and must be “retained.”

“There were a lot of issues between the broadcaster and the DPOs relating to this audit which always went to the courts. If you look at the number of cases that have come down after 15.1 came into existence, it is for all to see that there are very rare cases which go to TDSAT these days about the misinterpretation of fact in the audit reports. As far as the contention that the DPOs do not conduct their audit, a very simple question to all the broadcasters here is: then why do they provide signal to them. Please do not provide signal to those DPOs because the law is very clear that you need to do an audit and if they are not doing audit, please do not provide signals to them. So, that is one thing that I wanted to inform. That question is subsequent. So, as far as 15.1 is concerned, sir, it is working very fine. That has to be retained,” Singh said.

The OHD was attended by TRAI Chairman A K Lahoti; Principal Advisor to TRAI, Abhay Shankar Verma and saw participation from multiple stakeholders.

Representing the cable industry, Manoj Chhangani, Secretary General of AIDCF (All India Digital Cable Federation), said that Clause 15.1 should be retained as it is without any amendment.

He, however, suggested that the efficacy of Clause 15.1 needs to be improved.

“A broadcaster has to share the list of MSOs who have not done their audits in a timely manner. Broadcaster should be strictly prohibited from providing any TV signal to the MSOs who are not doing the audits. TRAI should monthly share a report of the non-compliant MSOs on their websites. Regarding small DPOs, we would like to mention that the law should be same for all and there should not be any regulatory disparity,” Chhangani said.

The objective behind this regulation is to ensure transparency and accountability within the DPOs’ operations, allowing for regulatory oversight and compliance with the stipulated standards.

This consultation paper was initially issued on August 9, 2024, and stakeholders were invited to submit their responses until September 6. Subsequently, counter-comments were accepted until September 20. The OHD today will focus on the review of stakeholder feedback and potential revisions to the existing audit regulations.

Comments from stakeholders

Radhakrishnan Nair, Secretary, Indian Broadcasting and Digital Foundation (IBDF).

DPOs often fail to conduct audits, submit incomplete or inaccurate reports, or delay the process, hindering broadcasters' ability to verify subscriber numbers and the integrity of the system used. This lack of transparency negatively impacts broadcasters' revenue as well as the public sector. To address this, broadcasters should have the primary right to audit DPOs.

This will ensure timely and accurate verification of subscriber numbers, data, and system integrity. This would also relieve small DPOs of the financial burden of conducting audits. 

While infrastructure sharing might seem beneficial, it presents numerous challenges. Sharing critical infrastructure like CAS and SMS could compromise content security and, importantly, increase the risk of under-declaration of subscribers, thereby causing losses to broadcasters and to the public sector. This could also reduce DPOs' control over service offering when using another DPO's infrastructure, since it would be dependent on the other DPOs whose infrastructure is being used for quality of its offering.

To mitigate these risks, a cautious approach is necessary, potentially through a regulatory sandbox, to test and understand the implications of infrastructure sharing before any widespread implementation. Further, in any event, any infrastructure sharing should be subject to strict conditions, including technical compliance and safeguards for broadcasters. We reiterate the position taken in our comments to the consultation paper.

Ajay Singh, non-executive director of Hathway Digital Ltd., a multi-system operator operating on a pan-India basis.

With respect to Section 15(1), I was a bit confused when my fellow broadcaster said that due to 15.1 they are not able to do audit and the primary responsibility should be them and due to infrastructure sharing they are suffering losses. 15.1 has been working very well and we need to understand why 15.1 was bought in.

15.1 was bought in primarily for the reasons that assuming that there are 18 broadcasters having around 350 channels and if each broadcaster has to audit, then 18 audits will be conducted and that audit will continue for a whole year. Because every audit takes around 3 to 4 weeks. So, in fact, 18 broadcasters will not be able to audit.

There were a lot of issues between the broadcaster and the DPOs relating to this audit which always went to the courts. If you look at the number of cases that have come down after 15.1 came into existence, it is for all to see that there are very rare cases which go to TDSAT these days about the misinterpretation of fact in the audit reports. As far as the contention that the DPOs do not conduct their audit.

So, a very simple question to all the broadcasters here, then why they provide signal to them. Please do not provide signal to those DPOs because the law is very clear that you need to do an audit and if they are not doing audit, please do not provide signals to them. So, that is one thing that I wanted to inform.

That question is subsequent. So, as far as 15.1 is concerned, sir, it is working very fine. That has to be retained.

The only submission that I would like to make is there should not be any differentiation. TRI is well aware that out of the 850 MSO, DPOs that are registered, TRI itself has tried to reach them and as far as I understand, they have been able to reach only to 300 into 400 multi-system operators and DPOs and out of those also only 15 to 20 are submitting their PMR which is monthly and quarterly basis. So, in case you start giving exemption to them, it will be a reverse.

If they are given any exemption, then there will be a lot of under-declarations, there will be a lot of under-pricing, there will be a price gap that will happen in the market. So, there should not be any exemption to any DPO for conducting audit. It is basically because the audit has been one of the major concerns and if you really ask me, audit has proved to be a boon for this sector.

Otherwise, the situation was far worse before 15.1 was introduced. So, in my opinion, there should not be any exemption given to any DPOs, whether on the basis of volume, numbers or whatever it is.

Manoj Chhangani, Secretary General of AIDCF, All India Digital Cable Federation.

Clause 15.1 should be retained as it is. There should not be any change in that. The challenge is that the efficacy of Clause 15.1 needs to be improved.

Broadcaster has to share the list of MSOs who have not done their audits in a timely manner. Point No. 2. Broadcaster should be strictly prohibited to provide any TV signal to the MSOs who are not doing the audits.

Point No. 3. Tri should monthly share a report of the non-compliant MSOs on their websites. Point No. 2. Regarding small DPOs, we would like to mention that the law should be same for all and there should not be any regulatory disparity. Again, it should be created between any type of DPO. So, the law should be same for all.

Rahul Vats, Chief Regulatory Officer for Bharati Telemedia.

This whole audit regulation, it really presents a very unified and transparent audit framework. As a general principle, the businesses will always say that self-certification of DAS requirements should be enough. However, the Regulation 15.1 mandates an annual audit of the DPOs by TRAI and panel auditors for maintaining compliance and accuracy and I think it should be retained.

This provision also avoids conflicts of interest and ensures consistency across operators and it must continue without any change. The second big point I want to make, Sir, is that there is a need for the TRAI to consider abolition of the redundant 15.2 clause because it adds complexity to the entire value chain and actually introduces subjectivity which can vary from broadcaster to broadcaster. If the TRAI and panel auditors are there, we are assured that the TRAI itself is monitoring the process.

So, there is really no place that beyond 15.1 and beyond TRAI's power, we then mandate and say that broadcaster will retain certain flexibility. So, really 15.2 is redundant and I think that should be considered. Also, as a proof of pudding, I am not aware of any disputes which have not been amicably and mutually resolved between broadcasters and the DPOs.

Audit specific submissions which you have made which I will try to cover during the questions you are asking. One last point because Ajay also mentioned about it. This whole thing about infrastructure sharing, Sir, very briefly, I think any sector and TRAI has led as a regulator to talk about efficiency, bringing gains to the customer.

So, today it is really not understood why if I can possibly share technically the infrastructure, why it should not be allowed to me between DTA, between IPTV or any other platform. So, that I am sure the TRAI will consider. Coming specifically to your question, Sir, as far as question number one is concerned, as I briefly covered, we should retain 15.1, we should remove 15.2. 15.1 should be retained as it ensures compliance and accuracy in reporting.

We also applaud the authority because this has really taken away a lot of mess which was there earlier in terms of the relationship between broadcasters and the DPOs and has really sorted the way out. I mentioned about 15.2 and why it is not so important anymore. Also, it goes beyond the mandate of TRAI from 15.1. Also, really there has been no case where 15.2 has been really used in that sense.

If we are in a trust-based regime, I think there is no rationale for giving two options for audits. We really should stick to option number one. As far as the streamlining of the audit process is concerned, Sir, I think we should be really looking at aligning the audit period to the financial year rather than the calendar year.

Simply because businesses today run and relationships and commercial agreements run on a financial year basis sometimes. It will also ensure a lot of consistency in the financial reporting and compliance requirements. Also, the audit frequency I think should be really reduced to once in two financial years because if you are really on the road, or we should have a certification one year and audit one year, that is another way you can really look at it.

However, we should keep flexibility for exemptions and grace periods during the stabilization phases of any new services. In terms of modification to the audit framework, Sir, the requirement of pre-signal audit I think should be removed to avoid delays. Systems already are audited as per the process and really no requirement to have duplication in terms of pre-signal checks.

One small point, Sir, on financial penalties. I think the financial disincentives for non-compliance, I think they really act as hindrances to sectoral growth. As a regulator, maybe it is time for TRI to re-look at it.

And also the broadcaster's pricing stability. So, TRI should really look to fix a minimum validity period for the agreements between broadcasters and DPOs. This is a point which we had made earlier also in the consultation which happened around six months back.

And I think this really disrupts the ecosystem. So, I think there should be some consistency in terms of what period you are entering into agreements for. That is one request.

Also, the applicability to all DPOs. It should be universally applicable on all. I really feel there is no rationale for any exemption.

Audits ensure transparency, accuracy and fairness. And the rationale for auditing all DPOs is that it should be regardless of size. And it creates a level playing field and maintains high content security standards also.

There is a case for reducing the compliance burden, sir. I talked about reducing the audit frequency. Maybe increasing the number of auditors.

It really helps the entire process to get more efficient. And really look at simplifying the audit process standardized templates. We have made detailed submissions on that.

Girish Buttan, Head, Legal and Regulatory Department, Siti Networks, too supported clause 15(1) and opposed broadcaster-driven audit of DPOs.

“We have to see, is there any need for this well-established system to redo all the things. If the things, the provision and the system are giving us the proper and wonderful results. And as very well said by Mr. Ajay Singh that the dispute between MSO and Broadcast have been reduced after 15(1).

“If the system is going very well, then there is no need to do away with anything since the system is well-established. But the thing is, the provision is fine. Problem is the implementation,” he said.

He further added that the need of the hour was to take action against erring DPOs.

“No one is taking action against defaulting DPOs. Neither a broadcaster, nor TRAI we have seen any action being taken against those guys who are not non-implementing these provisions for that system or this audit. If the provision is not being implemented properly, it loses its importance. So our suggestion is 15(1) to be retained,” he said.

He also said that if they are defaulting continuously two times or three times, their license should be cancelled. He added that the clause 15(2) which allows broadcasters to audit if they are dissatisfied, “is being misused.”

"The language suggests that broadcasters can audit if they believe the report is incorrect. However, if the MSO’s professional auditor confirms the report as correct, how can this opinion be formed? There should be a clear rationale, and specific points for clarification should be provided. It seems auditing has become routine, but we propose removing the phrase 'in the opinion of the broadcaster' in Section 15.2, as it is becoming coercive.

“If an MSO’s report is mostly correct with one exception, the broadcaster shouldn’t audit everything. Section 15.1 should be retained, and Section 15.2 modified. As for exemptions for small DPOs, they would create imbalance. Larger MSOs could avoid audits by taking licenses in smaller areas, undermining the digitization process. Therefore, no exemptions should be given to small DPOs,” Girish said.