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MCOF and its MSO-LMO revenue sharing proposal

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MUMBAI: The struggle to find a solution on how multisystem operators (MSOs) and cable operators (LMOs - last mile owners) will work together in a digitised India continues.  The discussions between Maharashtra Cable Operators Federation (MCOF) and Hathway Cable & Datacom to come up with a workable arrangement had given some hope for a smooth rollout of MOS-LMO revenue shares, and consumer billing in Mumbai. But talks between the two seem to have come to a standstill for some time now. 

Indiantelevision.com has got a hold of the proposed revenue share model which has been hammered out after a lot of thought and conversation: it takes into consideration operational expenses (OPEX) and the capital expenditure (CAPEX) of both the LMOs and MSOs.

“It is as much in our interest as it is in the MSO's to resolve the bottleneck, differentiate amongst subscribers and cater to their needs to optimise the network resources and push ARPUs up in the shortest time,” says MCOF president Arvind Prabhoo.  

According to the proposed revenue sharing structure, the MSO: LMO share for free to air (FTA) channels should be 37 per cent : 63 per cent. For basic pay packages, the price range of which is Rs 150-Rs 250 (excluding taxes), the proposed revenue share is 45 per cent : 55 per cent; for advanced pay channels, which are in the price range of more than Rs 250, the revenue share proposed is 50 per cent : 50 per cent. For special/VOD packages, it is 75 per cent : 25 per cent and for HD channel packages it is 60 per cent: 40 per cent.

“The best way for the industry to not only survive but prosper to its true potential is to work as a pure and true partnership business. MCOF will act as the collection management and settlement entity,” adds Prabhoo.  

The MCOF model assumes that every MSO has two systems in place: the subscriber management system (SMS) and Financial Accounting System (FAS). The SMS hosts the entire subscriber details and is the basis of value chain reconciliation and audit.  

“We have proposed that the MSO use this to generate end-customer bills with full details, factoring the LMO income share and taxes at various levels. These bills would be raised in the name of the LMO network and carry the tagline powered by the MSO,” says Prabhoo.

The billing details, as per the proposal, will be pulled by MCOF and placed on the cloud and each LMO would gain access via the worldwide web using a mobile device or through a desktop.  The collection data is planned to  be captured in real time using MCOF approved technology, which is currently UPASS and updated on the MCOF cloud in real time and at the MSO-end either in real time or on an end of day basis.

“We will work out the tax liability at LMO levels and guide them to use the technology to compile tax returns/challans. We will also reconcile the MSO-LMO accounts taking into account prepaid/post paid, online payments made to the MSO and unpaid customers,” informs Prabhoo.  

Explaining the reason for the proposed revenue share, Prabhoo says, “The LMO has certain base expenses to cover, such as employees, office rent, repairs and replacements of shared infrastructure, audit and tax returns.”

The effective OPEX for an LMO, according to MCOF for 1000 subscribers is Rs 109,500 a month. “The LMO's per subscriber cost comes to Rs 109.5. We need at least Rs 109- Rs 110 to pay the employees and other costs. So this is the minimum and then comes profitability,” he highlights.

The average CAPEX per subscriber is close to Rs 4000. Also, MCOF points that while the subscribers/employee ratio for an LMO is around 400, it is expected to be more than 5000 for a MSO. Thus making the OPEX element much higher for an LMO than an MSO.  

Prabhoo feels that while the MSO is a wholesaler and LMO the retailer, the assumption of equal sharing as envisioned by the Telecom Regulatory Authority of India (TRAI) needs to be rectified and replaced by equitable sharing.

“We have had detailed discussions with the TRAI on this and the matter will be reviewed sooner or later, but for sure it is not correct on TRAI to assume equal sharing by all three stakeholders,” he says.   

The collection cost currently is entirely on the LMO while a good part of the monies flows to MSOs. This, according to MCOF needs to be allocated in the revenue share formula, if not actually computed and reimbursed. “For all practical purposes the LMO's work load will increase as he acts as the marketing arm and administrative support system for the MSOs. Also, another round of set top box (STB) deployment/retrieval/repairs/replacement by HD boxes will entail quite a lot expense.”

MCOF, in the email to MSOs, has also suggested that carriage fees should be clubbed with customer revenues, being a mathematical product of STBs in place and carriage fee per STB.

MCOF has agreed that the UPASS technology, devices and connectivity costs will be borne by the LMOs. Also while integration, payment gateway, electronic processing and settlement system costs are incurred by the MSOs for direct connections or internet services, for any additional integration, the cost can be shared with the LMOs on a pro-rata basis.

The LMOs are also suggesting carriage fee sharing as a loyalty bonus. “This can be mutually worked out,” says Prabhoo.  

The new system will enable the MSO to see and monitor the exact collections made each month by the LMO and also the revenue due to the MSO, excluding taxes. While revenue will be booked in both books as per packages, the LMO will pay the MSO per month for all the collections made during the previous month after deducting taxes and the LMO share within seven days of the invoice being generated by the MSO.

While MCOF is trying to move things forward, what’s stopping the MSOs? “Well! There are talks going on between the promoters of the MSOs. There is no consensus amongst the MSOs and that is what is taking time,” says a Hathway official on condition of anonymity.

According to the official, the proposed revenue share by MCOF is acceptable, with minor changes. “But, all the MSOs operating in the state, have to come to a consensus, which I don’t see happening soon,” he says. The official feels that billing in Mumbai is most likely going to  be delayed further.

SitiCable Network, which also has a presence in the country's financial capital says it may soon conclude on how it will share revenues. “We are negotiating. We may announce our revenue share in a couple of days. Since, we have a small presence in the state, we are seeing what other MSOs are doing there,” explains  SitiCable Network chief operating officer Anil Malhotra.

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