Without Prejudice To The Preliminary Submissions, specific comments of the IBF to the telecom regulatory Authority of India () Consultation Note On Issues Relating To Broadcasting And Cable Services Dated January 15, 2004 (Consultation Note No. 3 of 2004).

a) The norms for fixing rates (or ceiling rates) for cable subscribers/cable operators/ Multi Service Operators for individual pay channels, bouquets thereof, and distribution of free-to-air channels; whether this should be uniform in areas under CAS and non-CAS areas or whether it should be different; other principles for determining the above mentioned rates, including periodicity of revision

*Television Media Provides Intellectual Property:- Television media provides unique programming and content essentially comprised of copyright-able material and other intellectual property. Fixing prices for copyright-able material would be tantamount to regulating prices of copyrights - in effect regulating creativity. The disastrous impact such an action would have not only on the television industry, but also on other media such as print, as well as other creative industries such as fashion, music and literature, is difficult to fathom. In a country that prides itself on the fundamental right of freedom of speech, such restrictions would be destructive and would inevitably stifle creativity.

*Cable Television Is Not A Utility. Cable television is not a utility and therefore commercial issues like rates, periodicity of revision of rates and other commercial matters should not be regulated. Such regulation would particularly be misplaced today when tariffs of some utilities such as telecom are being determined by market forces alone without governmental agency interference. (See 's notification on January 16, 2004).

*Internationally - Governments Are Moving From Regulating To Market Dynamics. Increased regulations in India would also contrast with the continuing international trend towards deregulation in cable television markets around the world. In fact, India itself is working to liberalize more industries and markets.

*Cable Television In India Provides Low Cost Entertainment. Under free market conditions, the cable television market has grown rapidly and provides to the consumer a choice of 30 to 90 television channels containing entertainment, movies, sports, news and other programming at about Rs. 8/- per day per household. The consumer gets approximately 3000 hours of entertainment, news, movies, sports and information. These costs for cable television are among the lowest in the world. Furthermore, the costs of cable television compare very favorably with the costs of other entertainment options available to the Indian consumer. For example, the cost of taking the average Indian family of four to a movie in Mumbai costs as much as Rs. 400. Cable television competes with a large variety of entertainment and leisure options, from movies to sports to the Internet, and its pricing is impacted and limited by that competition. Cable television will have difficulty competing if its prices are controlled while its competitors, such as movie tickets, sports tickets and Internet access, are not similarly controlled. Pricing should be determined by market forces if the television industry in India is to continue its successful development. Otherwise, the quality and variety of programming will significantly decrease. This development will eventually injure all stakeholders, including operators, who will lose cable customers when fewer and fewer good programs and channels compel them to subscribe at all.

*Free Television Is Also Available. For those consumers who cannot afford cable or satellite television, free broadcast terrestrial television channels are available as a free alternative. Even utilities which are more essential to Indian consumers, such as electricity, gas and telephone, do not provide free services to poor customers as does television.

*With 160 Channels Severe Competition Exists For Broadcasters. No one can dispute that significant competition exists among television broadcasters in India who must fight with 160 other channels for viewers, advertisers and both carriage and declaration by cable operators.

*Cable Monopolies Are The Curse. In actuality, the industry will greatly benefit from increased transparency and thoughtful regulation of the most highly monopolistic segment of the industry: cable operator control of territory and households. Without choices, erratic pricing, poor quality service, lack of technical innovation, improper accounting and tax cheating have become common malpractice and will only be curtailed with proper regulation.

*Not Enough Competition For Operators. The government should increase consumer choice in India by encouraging competition among cable operators. Such competition naturally drives down costs for consumers. Where competition has been encouraged and consumers have choices among several different delivery systems (offered by competing cable and DTH operators, as in the UK, the US and many other countries), the cable television industry has been deregulated, and pricing regulations either limited or altogether eliminated.

*Controlling Channel Prices Will Restrict Consumer Choice. Price controls distort the market's ability to reach price levels that balance out supply and demand. For broadcasters, artificially low prices will deter any further investment in new channels and programming, affecting consumer choice and creating a shortage of quality channels and programming unable to satisfy the demand of consumers. Rate fixing will severely impact the viability of many channels and ultimately reduce competition, in the long term, this will result in higher rates for consumers.

*Regulation Necessary In Cable TV's Retail Segment. Regulators of the cable and satellite television market need to distinguish between the retail market (consumer/subscriber) and the wholesale market (producer/broadcaster). We are not familiar with any country that regulates the business-to-business price in the wholesale market for programming services and television channels that exists between broadcasters and distributors or cable operators. As noted in Annex A, while a small number of countries regulate cable television pricing, these countries only regulate the final retail price to the consumer of particular channels but on the premise that full declaration is made by the Cable Operator. Prices negotiated between businesses are left to market forces, and government regulations are limited to making sure that the market operates in a fair and transparent manner with appropriate commercial and legal remedies available to the parties.

*Better Quality And Choice In Programming Must Be Paid For. Broadcasters need to be compensated as the overall quality of their programming improves and consequently becomes more costly. Therefore, as the cost of providing better and better services increases, so does the market price to buyers/distributors. Consumers/distributors are free to make a decision whether or not the pricing value of the products is acceptable to them, and are therefore free to either accept or pass on the product. Regulating pricing will lead to less innovation for the programmers and the overall quality and variety of programming and other television offerings will either stagnate or decline. Also, less popular programming that is still valuable to society is in many instances subsidized by the higher prices of more popular programs. For example, while children's educational programming may not result in the greatest return for a channel, programmers still provide it since it is important to the public, and a market exists for it. However, the proceeds from other more profitable programming (such as movies or sports) definitely helps pay for it.

*Underdeclaration Is a Known Problem Not Being Dealt With. Any regulation of the cable television market should be accompanied by the regulation and oversight of subscriber declarations of cable operators to their suppliers. All other markets assume complete declaration. Anything less is inequitable and illegal and results in malpractice such as the generation of unaccounted black money and tax revenue losses for the government. The number of subscribers to a cable system is an objective fact. The price per subscriber, however, is a variable that can be varied by the parties and negotiated. As in all other markets around the world, the broadcaster and the cable operator should be negotiating over the price per subscriber that the cable operator pays a broadcaster for a channel, not both the price and the number of subscribers, a practice in India that obfuscates actual pricing. 100% legal declaration will result in a great number of benefits to the Indian consumer including significantly lower prices and improved services from broadcasters, increased tax revenues for the government, and greater technological innovation as a result of the money staying in the system.

*Independent Audit Of Subscriber Base Will Help Transparency. To combat underdeclaration, the primary need for regulation is oversight of an independent audit of the total subscriber base and the fees paid by subscribers in different markets by an independent firm of auditors or a body like the Economic Survey of India.

*Market Segmentation. The cable system currently operates (albeit informally) with a high degree of market segmentation in terms of pricing, and lower subscription rates are charged from the lowest income groups. This differential pricing should probably remain and more efforts should be made to study pricing instead of adopting a solution which may not work. In a free market, prices tend to differentiate between regions based on local market conditions. The market for cable television should operate naturally so that cable operators and their suppliers can adjust prices downward to secure market penetration in lower income areas and can alternatively charge higher prices to recoup costs in more affluent areas.

b) Regulation regarding rates of cable operators, including periodicity of change of monthly cable charges in non-CAS areas and the maximum percentage change to be allowed at any one time

*Cable Operators Rates Will Move Downwards If Faced With Competition. If the government can encourage and stimulate competition among operators and distributors, then viewers will have alternative means of securing multichannel video services, such as through satellite direct-to-home (DTH) broadcasting or additional cable operators that serve the same geographic location. In this case, market forces can be counted on to regulate the rates of cable operators.

c)Principles governing the sharing of pay channel charges between broadcasters, Multi Service Operators and local cable operators

*Free Market Dynamics Should Work. Free market principles should govern the allocation of pay channel charges among broadcasters, multiple system operators (MSOs), local cable operators and the various distributors and middlemen involved in the distribution of cable television services in India.

*Broadcasters Charge Operators For Channels Based on Rising Input Prices And Chronic Underdeclaration. Market research indicates that broadcasters receive as little as 10% of the revenues generated in the cable television business. In most other markets around the world, broadcasters share-net of the distribution margins is at least 50% of those revenues. Broadcasters are forced to increase the rates they charge cable operators for several reasons, including market dynamics and inflation, but most significantly because the malaise of underdeclaration results in stagnant or nominally growing subscription revenues and does not adequately meet the increasing costs of the business. Therefore, the complaints of cable operators regarding prices charged by broadcasters should be treated with a significant degree of skepticism.

d) The principles for laying down limits as to the extent of bundling of pay channels to be allowed in order to ensure that Cable TV viewers have a genuine choice with regard to selection of pay channels, e.g. to ensure that bundling does not discourage selection of individual channels

*Channel Packaging Provides Economies Of Scale And Keep Prices Low And Innovation High. There should be no restrictions on the packaging of television channels by (i) broadcasters to cable operators and by (ii) cable operators to consumers. Bulk pricing of channels through bouquets allows consumers to afford the wide variety of channels they seek, and also permits broadcasters to offer new channels that need time and sufficient distribution in order to develop an audience. Competition will naturally limit ineffectual bundling. Normally, packaging or bundling provides economies of scale for the purchaser so that costs on a per unit (or in this case a per channel) basis are reduced. In this manner, the packaging of channels merely represents a form of volume discounts that is common throughout many industries.

*Free Market Impact On Packaging. In most markets around the world, the free market determines whether packaged pricing or a la carte pricing is preferable to consumers, as such a preference is not always easy to determine in advance. As is known well, although many market analysts originally thought that consumers would prefer to receive mobile telephone and Internet services on an a la carte or user fee basis, most consumers have preferred flat fee subscription services for administrative ease and in order to lower costs. The same principles often apply to cable and satellite television, where in many parts of the world consumers prefer to receive a large package of channels for a fixed price rather than to select fewer channels on an a la carte basis for the same cost. The free market is once again probably the best determinant of what type of packaging works best for consumers.

e) The standard terms and conditions under which set top boxes may be made available (sale/rental) to subscribers in CAS areas and refund of charges deemed inappropriate

*Digital STB's Should Be Mandated. In most countries, the design of set top boxes (STBs) and other details are determined by market forces. The Bureau of Indian Standards (BIS) should lay down rigorous standards for STBs, taking into consideration the inputs from broadcasters and other interested parties. The use of inter-operable digital STBs and more advanced technologies should be encouraged.

"CAS Can Be Successful IF It Is Easy For Consumers To Get STBs. STBs should be paid for by the cable operator because it is ultimately the system's asset which can be shifted from one subscriber household to another. Consumers could then be reasonably expected to pay a monthly rental fee to use the STB. Upon cancellation of the service, the consumer should be able to return the STB to the cable operator. Security deposits are used in some markets and range from zero to the full cost of the STB. Damaged or dysfunctional equipment should be replaced by operators free of charge. Without easy methods to drive adoption of STBs, no wide spread conditional access system will ever be viable.

*Cable Operators Should Own STBs. Throughout the world, broadcasters are not expected to subsidise operator costs for STBs (or system's technological upgrades of any kind), much like operators do not subsidise broadcasters for their high costs of programming for a channel, such as the costs of acquiring and producing blockbuster movies and sporting events. Distributing and managing the signal to the home is the cable operator's entire raison d' etre in any event; there is no direct nexus between the customer and broadcaster. The operator must provide the STB to the consumer at a low rental fee (essentially at cost) in the hope of recovering long term subscription revenues from that customer.

*Trai's Role. In the telecom sector, does not set the pricing of telephone equipment. 's function and its focus should be confined to establishing and regulating service-related quality and performance only.

f)The conditions under which consumers may return set top boxes sold or rented to them by service providers and ask for a refund

*Consumers Should Be Able To Return STBs Freely. As noted in Sec. (e) above, consumers should be able to return set top boxes if they move or cancel their cable service and to receive a refund of their original security deposit upon the return of their STB.

*STB Returns Essential To Competitive Market. Unless the equipment is given to consumers free of charge, the ability of consumers to get refunds from cable operators is important to the development of a competitive market with new competitive delivery platforms. Consumers need to be able to easily return the STB of one cable operator and to obtain the equipment of another operator when it switches services so that successful operators are rewarded and problem operators are punished in the marketplace.

g) The compensation to be paid by cable operators to viewers who have ordered pay channels if transmission is interrupted for more than a specified portion of prime time (e.g. 10%) in a month or in the case of a sports channel, a similar portion (10%) of the time during an important sports event. The principles for sharing this compensation between broadcasters, Multi Service Operators and local cable operators.

1. A Technical Evaluation Of Cable Systems Is Necessary
The cable industry should monitor technical and reliability standards of cable systems, but it should avoid making an immediate decision on service interruptions until all the facts are reviewed. Regulators could look for guidance at the refunds provided for interruptions of electric utility or telephone services and any similar services to determine what refunds would be justified. If competition exists, the marketplace will punish cable operators that are not reliable providers of their service.

2. Interruptions Can Be Because Of Many Causes
(i) Bad Weather, Rain, Disturbance by Crowd in case of a Sports Channel.
(ii) Cable Cut, Power failures at Cable Operator's end.
(iii) Suspension of Services by Content Providers to MSOs due to non payment or non fulfillment of agreement.
(iv) Dispute between Cable Operator and Consumer.
(v) Dispute between MSOs and Cable Operators.
(vi) Sun Outage

3. Cable Operator Must Be Responsible To The Customer
In any case, any interruption in the transmission of pay channels should be solely the responsibility of the Cable Operator since the Service Contract(s) is between the Cable Operator and the consumer. The question of sharing of such costs by the MSO / Broadcaster could arise only in the eventuality of a contractual failure by the MSO / Broadcaster to deliver the signals of the channel, in such a scenario, the costs should be shared between the MSO, Cable Operator and Broadcaster equally. However, Broadcaster / MSO shall not be responsible for sharing of any such costs if the signals are not delivered as a result of satellite failure or Sun Outage or on account of contractual defaults by the MSO / Cable Operator.

4. Minimum Threshold For Technical Reliability
If such a regulation is adopted, the criteria for a refund should include both a minimum number of hours for the service outage in a given time period, such as month, and a minimum number of consecutive hours in which the service outage lasted.

5. Alternative Remedies. should also consider other remedies, including establish summary financial penalties and even suspending licenses of cable operators who repeatedly fail to meet minimum technical standards

h) The principles to be followed for laying down the standards of quality of service to be provided by the cable operators / Multi Service Operators / Broadcasters and for ensuring the quality of service and conduct of periodic survey of such service provided by the Cable Operators / Multi Service Operators / Broadcasters so as to protect the interests of the consumers of Broadcasting and Cable Services.

*Trai Should Set Up Complaints Redressal System And Punish Errant Operators. Consumers should be able to make complaints to , which will investigate the local cable operator's signal and technical quality. The number of complaints filed could trigger an investigation. The quality of the transmission should meet certain technical criteria, which often becomes problematic in the last mile connection. If the signal is not acceptable, then the cable operator should be required to invest in improvements or risk losing its license.

*Standards in Other Countries - Regulators in other countries, such as the FCC in the United States, have established minimum technical reliability standards, and the standards and remedies used in those countries could be reviewed to determine whether they may be applicable in India.

* Self-Regulation is The Solution - Self-regulation ensures that consumers remain loyal customers. Building a satisfied and loyal customer base will allow the cable operator and content provider to grow their business while making additional investments in the market that will ultimately provide new innovative services to consumers.

i) Measures to increase competition, promote efficiency and encourage wider consumer choice in the operation of Broadcasting and Cable services so as to serve consumer interests and to ensure the availability of services in rural and remote areas

* Full Declaration Is The Solution - Regulators must make it mandatory for operators to give full declarations of the subscribers to their cable systems. This will drive prices for each channel down to lowest levels. Any attempt to regulate prices without complete declarations will only mean encouraging underdeclaration and related malpractice. In any event, once underdeclaration is controlled and competition introduced, prices will roll downwards and service will improve.

* Independent Subscriber Bases Audit - As noted in Section (a) above, should establish a system for independent audits of subscriber bases.

* Properly License Cable Operators - Regulators must arrange for proper licensing of at least two or three cable operators in every territory against specific objective criteria for receiving an operator's license.

* Provide Tax Incentives For Adoption of New Technologies - The development of new technologies and service options can be encouraged by the government by offering tax incentives for early adoption of new technologies and the building of improved infrastructure. This will help create additional entertainment and information options for consumers, including additional content services, internet services, and telephony delivered over state-of-the art facilities. The most efficient method of delivering service to remote or rural areas is Direct-to-Home (DTH) and MMDS satellite services because in general the cost of extending cable infrastructure to rural areas can be prohibitive. Tax incentives and government subsidies can be targeted toward these underserved rural regions.

j) Measures for the development of Broadcasting and Cable services technology (including Direct-to-Home and Broadband) and any other matter related to this industry, in general

* Deregulate and Regulate the Industry With the Consumers in Mind - A deregulated environment encourages capital investment, which in turn means more quality services for consumers. An unfettered marketplace, free from restrictions on rates, advertising time and the pricing of STBs will lead to more variety and quality programming for consumers at prices that are fairly determined by the market. Just as important setting mechanisms to control underdeclaration and piracy will ultimately benefit consumers by making the entire industry more transparent and less monopolistic.

* Establish Standards for Technology and Services - should review the BIS in the light of evolving technologies and prescribe the establishment of standards (to the extent they at present do not exist or have not been completed) by the respective expert bodies for:

i) Set-Top Boxes
ii) Subscriber Management Systems
iii) Call Centres for complaints and the redress of consumers' grievances
iv) Technical quality of transmission of audio and video signals
v) Cable and infrastructure quality used by cable operators
vi) Encryption systems

* Combat Piracy - Additional resources need to be directed towards combating piracy and cable signal theft. These civil and criminal violations of Indian intellectual property laws have been hampering the development of new technologies by denying economic benefits to the creators of content and thereby creating disincentives to continue creating new products and services for the public. These problems are particularly acute for the few countries such as India who lead the world in the production of entertainment content. Without the proper enforcement of the law, new media technologies will not develop and the television industry's growth will stagnate and decline.

k) Advertisements on TV channels

(i) the maximum advertising time to be permitted per half-an hour on free-to-air channels along with other conditions that are required to be imposed

(ii) the further regulation of advertising on pay channels in reference to tariffs for the channels

(iii) whether the restrictions at (i) & (ii) above should apply to both CAS and non-CAS areas uniformly or whether differential treatment is called for

* The Need For A Dual Revenue Stream of Subscriptions and Advertising. Free to air channels depend only upon advertising revenues. Most pay television channels depend on a dual revenue stream of subscriptions (the fees paid to them by the cable operators) and advertising to survive. Advertising is crucial to the sustainability of both free to air and pay television broadcasters. Advertising revenue allows the broadcaster to reinvest in its programming which, in turn, draws more viewers to the channel. As the potential viewing audience grows, so does the investment in programming, not only by providing significant growth for the cable operator, but also by ultimately providing a greater viewing experience for the consumer. As more services enter the market, there is increased competition for viewership and channel positioning. Advertising revenue allows the broadcaster to continue making investments in its channels that are necessary to remain competitive and viable. Revenue models of Regional Channels - are dependent on limited markets and can any restrictions on advertising and or subscription revenues can drive them out of the market.

* Broadcasters Know That With Too Much Advertising They Will Lose Audience - Around the world, in the most successful cable television environments, market conditions and self-regulation through industry associations are the norm for regulating television advertising. Any content provider that puts an egregious amount of advertising on its channel will be punished by losing viewers and therefore its value to the cable operator that carries its signal and to the advertisers trying to reach a broad audience. The flow of advertising revenues in fact serve as an effective proxy for the popularity of a television channel, and a shortfall in advertising revenues serve as a quick barometer that particular programming is no longer popular with viewers.

* Advertising regulations should have no relation to the pricing of channels. Otherwise, the government would be seeking to limit the revenues and profit potential for the venture when only the market should be the determinant. Restrictions in terms of tariffs vis-à-vis advertising time would be particularly unfair in India because the broadcaster is not getting the actual payment of subscription charges due to it given the prevailing system of chronic underdeclaration in the industry. Accordingly, to meet exorbitant programming costs, transmission costs and other associated costs, all pay television channels in India are heavily dependent on advertising revenues. Restrictions on advertising time would take away the cross subsidy that advertising revenues provide to subscription rates, and a rapid rise in subscription rates would be essential to balance the loss caused by restrictions on advertising sales.

*If advertising were to be regulated in the media, newspapers that cost Rs. 2 to Rs. 3 would cost at least Rs. 40 to 50 just to recover the cost of newsprint. A severe setback indeed for the citizen's freedom of speech and expression. Newspapers could not survive without the dual stream of advertising and subscription revenues. Similarly, television provides entertainment, news, sports, information, education, and other programming at marginal rates because of the enormous subsidy that revenues from advertising provides to subscription rates.

* The international trend has been to eliminate such restrictions or to let the market decide. Restrictions on advertising are usually limited to the regulation of false and misleading advertising and to bans on alcohol and tobacco ads. In those countries that do maintain other regulations on advertising, the regulations generally involve time limitations on the total amount of commercials, but the regulators generally place the same restrictions on terrestrial broadcast channels, basic cable (referred to in India as "free-to-air") channels and pay channels. In the UK, the limit is in fact more restrictive (7 minutes per hour as opposed to 9 minutes per hour on average in a day) for terrestrial broadcast channels than for pay channels. If restrictions were established in India, any advertising time limitations on pay channels would logically dictate equivalent or even greater restrictions on Doordarshan and FTA channels.

* Restrictions on Advertising time will inhibit growth of the Advertising pie and growth of Indian Industry. The Broadcasting Industry in India is growing at an exponential rate. It has also become the largest segment of the entertainment industry in the country. It's role in supporting the advertisement industry and the cascading effect of increased demand for goods and services for the rapid growth of the economy needs hardly any emphasis. Inspite of rapid growth in recent time, the investment in advertising and brand building in India is still one of the lowest in the world, both on per capita basis or as proportion to the GDP. Ad-spend in even in our neighbouring countries like South Korea, Taiwan, Malaysia, Indonesia etc. is more than India's. In case of China, while in 1993, it was 11 per cent lower than India in terms of GDP ratio, it leaped to 21 per cent higher than India by 1998. We have still lot of ground to cover. Total ad-spend in 2004 is estimated to be Rs. 12,000 crore [Rs 120 billion] (TV's share being Rs. 4,378 crore), a growth of 15 per cent against 10 per cent growth in 2003. It is estimated that by 2010, the size of TV and Entertainment Industry will jump to Rs. 70,000 crore, up from Rs 16,600 crore presently and India will become second biggest global and satellite market after China. The regulator has to guard against creating any roadblocks in this buoyant sector, whether temporarily or on a permanent basis, lest the momentum achieved is retarded.