Regulators

TDSAT sets aside 27.5% inflation-linked hike for addressable & non-addressable systems

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NEW DELHI: The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) today set aside the amendments in two tariff orders, which had sought to put an inflation-linked hike of 27.5 per cent on addressable and non-addressable systems, opening the doors to a re-think on the entire policy of tariff orders.

TDSAT chairman Aftab Alam and member Kuldip Singh said in their order today that the ‘The Telecommunication (Broadcasting & Cable) Services (Second) Tariff (Eleventh Amendment) Order, 2014’ and ‘The Telecommunication (Broadcasting & Cable) Services (Second) Tariff (Thirteenth Amendment) Order, 2014’] were ‘untenable.’

The Tribunal also said it thought the Telecom Regulatory Authority of India (TRAI) “will be well advised to have a fresh look at the various tariff orders in a holistic manner and come out with a comprehensive tariff order in supersession of all the earlier tariff orders.”

“While doing so, it may consider all the agreements and relevant data available with it. It may consider differentiating between content which is of a monopolistic nature as against that the like of which is shown by other channels also.”

“It may also consider classifying the content into premium and basic tiers. It may identify the major cost components so that increase or decrease in such costs may be suitably factored while working out the inflationary hikes. Increase in costs of such components as may be available in indexes such as WPI, GDP deflator etc. can then be applied. While working out the tariffs, the effort should be to encourage a correct declaration of SLR. While carrying out the exercise, it may take the inputs from various stakeholders and give a reasoned order for accepting or rejecting the same. We want to be amply clear that the above are only some suggestions and TRAI being an expert body may arrive at suitable tariffs independently; it is up to it to consider the above and/or any other factors,” the Tribunal said.

The tariff hike was challenged by Home Cable Network, the Centre for Transforming India, Lucknow 9 Cable Network, Good Media News India Pvt Ltd, Sikkim Digital Network and Cable Combine Communication Siliguri.

Later, the Indian Broadcasting Federation (IBF) supported the order as intervener while the other interveners comprising Direct to Home (DTH) operators, Multi System Operators (MSOs) and Association of Cable Operators/Cable Operators opposed the order on the same grounds as the Appellants.

TRAI had allowed a 15 per cent hike from 1 April, 2014. The second installment of 12.5 per cent tariff hike came into effect from 1 January, 2015.

TRAI said the inflationary increases given by it are based on increase in the Wholesale Price Index (WPI). In the Explanatory Memorandum with the Second Amendment to the Principal Tariff Order, it was explained that for making adjustments for inflation Wholesale Price Index (WIP) had been used. It was explained that Consumer Price Index (CPI) was not used as latest information for this was not available and further this related to certain specific consumption baskets. As per the Explanatory Memorandum to the impugned Tariff Order, the WPI has increased by 43.69 per cent and giving a pass through of 63 per cent, an inflation linked increase of 27.5 per cent is allowed.

Appearing for the appellants, advocate Vivek Sareen, who is a former employee of Tata Sky and is therefore from the industry, had argued the case on economic modules from all over the country, which in fact showed that the prices had actually come down according to the GDP Deflator, and therefore the hike was unjust.

Senior counsel for the appellants Arun Kathpalia said the original exercise on which tariff fixation is predicated is not a tariff exercise and therefore all tariffs fixed on that basis are not tariff fixation exercises. He added that the entire increase is arbitrary as it is on an ad-hoc and interim fixation, as such itself arbitrary in the first place. The increase is otherwise also wholly arbitrary and suffers from non-application of mind. He also said the tariff order has been issued in complete violation of section 11(4) and there is no transparency whatsoever in the process adopted by the TRAI.

It was also submitted that despite availability of all the relevant information for price fixation in Digital Addressable System (DAS), TRAI arbitrarily linked ceiling of rates in DAS with analog regime vide 4th Tariff Order dated 21 July, 2010. The upward revision by 27.5 per cent in wholesale price for Non-DAS area will automatically result in revision of the ceiling of corresponding prices in DAS regime. TRAI has created another ad-hoc regime for DAS by linking the ceiling of charges of DAS with analog, it was argued.

TDSAT said, “It was argued that the tariff based on historical costs is one of internationally accepted methods. We find that even that is required to be based on a proper exercise conducted for the purpose. We may note that in the United States following the Cable Television Consumer Protection and Competition Act of 1992, US Congress asked Federal Communications Commission to ensure that rates for basic services tier are reasonable. FCC decided to go for price caps and the first thing it did was to collect data on rates being charged by cable operators operating in competitive as well as non-competitive areas. We can understand the freezing of rates being charged on a particular date as an interim measure but we fail to understand why TRAI did not examine the rates being charged in the agreements at the time of giving inflationary hikes.”

The Tribunal had in May last year asked broadcasters to maintain a separate account for the additional subscription amount that they have collected from distribution platforms as a result of the tariff hike as this would be subject to the outcome of the case.

Sareen had argued that the impugned tariff order had adversely impacted the interest of the addressable platform because the wholesale pricing of the addressable system is based on the wholesale pricing of the non-addressable platform. He said the impugned tariff was heavily tilted towards broadcasters and seriously prejudiced the interest of the consumers, MSOs and stifles orderly growth of the cable and broadcasting sector.

Sareen argued that TRAI ignored the fact that the wholesale pricing of non-addressable system and addressable system are inter related. The wholesale price for addressable platform is derived from the wholesale price of non-addressable system. By its order, TRAI indirectly and in substance increased the wholesale price for addressable platform / DAS notified area. The said increase in the wholesale price for addressable platform is affected in violation of section 11(4) of the Act.   

TRAI completely disregarded the fact that by changing the content pricing and increasing the same by 27.5 per cent with reference to the price existed immediately prior to 31 March, 2014, this would immediately increase the price of content for addressable platform. The authority did not provide any hearing opportunity to the stakeholders including the Appellants to represent its view as a stakeholder in the consultation process.

It was stated that TRAI, in utter disregard of the valuable rights of the stakeholders including the Appellant and the consumers provided under Section 11(4) of the Act, rushed to issue the impugned order thereby increasing the wholesale price for addressable platform by 15 per cent with effect from 1 April, 2014. Thus the impugned order failed to take into account the inputs from such stakeholders.

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