Cable TV

InCableNet sets 'record straight' on CAS

MUMBAI: Below is a presentation made by InCableNet to the Federation of Indian Chambers of Commerce clearing up the air on "Some myths propagated on CAS".

MYTH: MSOs do not have sufficient boxes with them

FACT: Almost a million boxes are available for deployment, but less than 20,000 are deployed. All MSOs have an available pipeline that is more than adequate to meet the demand.

MYTH: The boxes are obsolete and costly.

FACT: All the new digital boxes imported are state-of-the-art. They have generally CPUs with 40 to 100 MIPS ratings (better than Pentium chips) and flash memories of 4 to 16 MB. These are generally designed in Europe and manufactured in Far East, by some of the world-renowned companies. As for price, we have managed to get boxes at around USD 60, a price that is the lowest today in the world.

With our demand stirring up the world market, both Indian and overseas manufacturers are geared up to bring down the price down to $50. The Indian demand for higher functionality at lower cost has made the manufacturers to redesign for India better and cheaper boxes. The lower cost has been helped by the government providing duty concessions, which helped in keeping the prices down

MYTH: There is a monopoly of both MSOs and Cable operators

FACT: The fact is that there is heavy competition among MSOs for cable operators. Also, in the last three years several small and medium MSOs have emerged, like Pacenet and Spectranet. These could not have come up in a monopoly environment. Also, each cable operator in a place like Delhi has ability to instantly connect to another MSO's feed. (They do too).Frequent reports of turf wars between operators indicate that there is also competition between last mile operators. In many areas in Bombay and Delhi, a customer or a housing society can subscribe to either of two MSOs.

MYTH: MSO/LCO decides number of channels, price, quality and service standards provided to consumer

FACT: The number of channels available results from a combination of cable capacity (varies from 60 channels to 160 channels); visibility of channels form satellites at a given place (You get Middle East channels in Western India, Far Eastern channels at Chennai and so on). Pricing has been a market-driven matter. This is not uniform across even a city, leave alone the country.

Pricing also relates to the quality of the last mile and the equipment the LCO uses. In some places, the LCO charges a very small amount for very few poorly transmitted channels. Service standards again vary according to the local conditions and the last mile.

MYTH: Multi-System Operator (MSO) is nothing but a wholesaler

FACT: The MSO provides the active distribution means for satellite signals. Without him, the satellite signals cannot reach the consumer. Also, there is heavy investment in technology. Capex spent by MSOs is far higher than what broadcasters have spent. We at IMCL alone have spent upwards of 250 crores in Capex, and have created Metropolitan Fibre Networks that are world-class. Our headends are state-of-art and can tackle any kind of TV Signal available in the world today. Our IT systems today can put to shame all but a few of the most sophisticated cable companies in the world.

MYTH: Broadcasting is a highly competitive and therefore self regulated industry

FACT: There is a cartel of broadcasters-comprising the top three in terms of revenue. They dictate everything to the MSO and LCO. They decide how much they would take from the MSO, and which MSO they would favour. In addition, they tend to arm-twisting often. If the MSO refuses to accept, they black him out. On the other hand, there are some broadcasters who are reasonable, who consult with MSOs and work out the tariffs and positioning.

Some niche channels and some channels when starting out, need proper slots to be visible. These provide carriage fees to MSO. So the Industry is neither uniform nor self-regulating nor competitive. Also, there are vertical monopolies of broadcasters who own fully or control fully large MSOs, leading to favouritism and predatory practices.

MYTH: There is lack of transparency and under-declaration by MSO/LCO.

FACT: Most broadcasters do not reveal their costs of content and their operations make huge profits from advertising by misleading TRP figures. There is no scientific way of measuring TRPs, except by using CAS. The pay channels have a maximum of 15- to 20TRP levels, but expect to be paid 100 per cent of earnings. Using inflated revenues and declarations that are got by arm-twisting; they ask advertisers to pay ever-rising rates for their programmes. By no stretch of imagination can one assume that the whole population of Mumbai or Delhi is watching all the cricket matches or sitcoms all the days, but broadcasters expect to be paid for such imaginary viewership. One of the reasons why broadcasters have been blockading CAS is the fear that the true figures will be out once CAS is in full deployment, and they can no more overcharge the advertisers.

MYTH: TV is like the Print medium and relies on advertising and subscription revenues

FACT: One can choose not to read the advertisements in a newspaper, but on is forced to watch ads for say 30 per cent of the time on movies or cricket telecast on TV, whether one likes this or not. Also, newspapers have been progressively reducing prices, while broadcasters have been increasing prices exponentially. If advertisements subsidise the TV as broadcasters have claimed, then why charge 25 rupees for a channel? The example of Pakistan should be followed, and a charge of 1 or 2 rupees should levied, not 25 rupees.

MYTH: Pricing of individual channels best left to market forces

FACT: The "Market Forces" created by broadcasters today have led to massive problems, with MSOs losing very heavily and subsidising the pay channels. Pricing is set arbitrarily by broadcasters who announce their own arbitrary prices, which are non-negotiable. The action of broadcasters in the matter of CAS channel pricing clearly demonstrates this: they have announced bouquet prices that are half of individual channel pricing in spite of the Government directive that no bouquets should be forced on the public. Moreover, they have not discussed these prices, but just announced the rates. Till today, they have refused to provide the CAS revenue sharing percentage and are unwilling to negotiate & finalise these. This has led to the whole market becoming undecided as to what each player will get.

The statement will become true "if and only if CAS" covers most of the population. We will need to ensure widespread deployment of STB's to ensure true choice for the customer, and hence market demand deciding on the channel pricing. This will never happen otherwise.

MYTH: TRAI's Interim Price Order without consultation has created turmoil and uncertainty in the industry

FACT: This is the best thing that could have happened. It has indeed prevented the broadcasters form forcing one more round of price hikes, which would have actually created a lot of turmoil in the industry. A price rise at this time would have ensured that the payouts by common man go beyond affordability, and also leading to more consumer protests. Also, this would have been seen as fallout of "the CAS Confusion" as people deliberately put it. TRAI need to be congratulated on this bold step.

MYTH: TRAI is not only mandating tariffs but also going to fix revenue-sharing, which is against free market forces and retrograde.

FACT: The confusion created by broadcasters is best removed by removing the chance to confuse- namely arbitrary tariffs, and statements like: I'm reducing the tariff by 35 per cent (so long as you increase your declaration by 100per cent)! There is an interim period when CAS is not fully deployed, during which it needs to nurtured and not killed by infighting between participants. The telecom scene is the right comparison: Initially tariffs were fixed by the regulator, revenue share and other inter-se parameters also fixed until the industry matured. Once it became capable of running under free market forces, TRAI has relaxed the rules, and today, tariffs are no controlled by TRAI. This will come to pass in Pay TV also, once the CAS is in full force.

MYTH: Bundling or Packaging of Channels is a cost-effective delivery mechanism

FACT: Bundling forces customers to take niche channels that they normally would not want or pay for. Also, the kind of bundling offers by broadcasters is coercion, as the individual channel prices are 200 per cent of bundled prices. This also indirectly promotes the niche channels that the broadcasters want to push- all bundled niche channels can claim TRP ratings that they would not otherwise get! This is cost-effective for broadcasters but not for anyone else.

MYTH: MSOs should subsidise the STBs to spread the CAS deployment

FACT: MSOs have already provided heavy subsidies: the current offers today either provide boxes at below cost, and the rental schemes are a major loss-making exercise that have been offered only with a view to popularise CAS. At 499 rupees deposit and 50 rupees per month rental, it will take five or more years to recover the cost of an STB, but the normal life expectancy is only three years for any fast-changing electronics product. The cost of the new CAS systems and the new fibres etc are not accounted for in the current pricing. Today, IMCL has an investment of 110 crores on CAS and set-top boxes, and has not got any money out of this for 9 months, and may not get much for some more time. This works out to a loss of 20crores. Add the subsidy, the loss would go up to 30 crores. This, when we have an expected loss of 30 crores. Hence, a substantial subsidy is already in place, but we are not complaining.

(Disclaimer: While believes in providing a platform for a wide spectrum of opinion on matters of concern to the cable and satellite industry, it is hereby stated that we need not necessarily subscribe to t he views contained in this presentation)

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