In May 2018, the Ministry of Information and Broadcasting had requested TRAI to give it’s considered recommendations on the appropriate levels of entry level net worth of the multi system operators (MSOs) for operationalizing digital cable services across the country. They have cited the reason stating that the current framework is governed as per Rule which speaks only of the financial strength of the applicant for grant of MSO registration without explicitly defining or quantifying it.
Presently, MIB specifies minimum entry level net worth requirement for broadcasters and Head-end In The Sky (HITS) operators. In case of DTH operators though the guidelines do not specify a minimum net worth, there is an entry fee that every DTH service provider is required to pay. These requirements are incorporated in the relevant licensing guidelines issued by MIB. For MSO’s the guidelines do not specify any minimum net worth requirement or an entry fee at the time of award of registration. Only a processing fee of amount of one lakh rupees is the only fee that an MSO is required to pay.
The objective of the consultation paper is to deliberate whether there is a need to fix entry level net worth for MSO? if yes, what should be the value of the net worth required at the time of registration for MSO? Further the paper seeks the comments regarding the documents and method to assess the net-worth of an applicant, if a minimum value is prescribed.
As for other TV service providers, there is no minimum entry level net worth requirement for direct-to-home (DTH) companies, but there is an entry fee of Rs 10 crore. For Headend in the Sky (HITS) platforms, there’s aRs 10 crore net worth requirement. For TV channels, there is a minimum net worth requirement of Rs 20 crore for a news channel (plus Rs 5 crore for every additional channel) and Rs 5 crore in case of non-news channel (Rs 2.5 crore for every additional channel).
So far, the I&B ministry has granted 1,471 MSO licences, out of which 1,143 MSOs were operational as of the end of last year.
As per present rules prescribed for getting a licence for operating as an MSO, any individual or company can do so by paying a processing fee of Rs 1 lakh, which does not present a filter for serious and non-serious players, the federation said.
Issues for consultation paper:
3.1 Do the present rules and provisions as regards eligibility and net worth for MSO require a review or modification? Give your answer with justification?
3.2 If yes, should there be provisions specifying eligibility only for registered proprietorship / partnership firms or it should continue to include individuals or group of individuals as at present? Please elaborate your comments with reasons and facts.
3.3 Is there a need for prescribing an entry level minimum net worth for the MSOs? Please justify your comments.
3.4 If yes, what should be the procedure to check and verify the net-worth in case of individual or group of individuals? Similarly, what should be the mechanism to verify the net-worth as claimed by business entities like proprietor-ship firm, partnership firm, LLP or Company as the case may be?
3.5 Should the net worth requirements for entrant MSO be based on its proposed area of operation? Give your comments with justification.
3.6 If yes, what could be different classification of entrant MSOs based on area of operation? Give your comments with justification.
3.7 What should be the entry level net worth for each of the categories of MSOs if any classification is made on the basis of area of operation? Give your comments with justification.
3.8 In case, license area of MSO’s is classified on the basis of area of operation, what should be the mechanism and criteria to classify existing MSOs? Please comment with proposed process to re-classify.
3.9 Should the minimum net worth required in case of MSOs operating in North east and/or J&K be relaxed compared to other regions? Please provide suitable justification.
3.10 If yes, by how much should the entry level net worth criteria be relaxed? Please give your comments with justification.
3.11 What are the components of the fixed costs incurred by an entrant MSO? Give your comments with justification.
3.12 What are the components of the variable costs incurred by an entrant MSO?
3.13 How do the fixed costs and the variable costs depend upon the scale of the operation that is for the small, medium and large operators?
3.14 Should the minimum net worth required be based upon the average fixed cost incurred by an entrant? If yes, what should be the appropriate criterion? Please explain.
3.15 Discuss if there could be some other criteria in context of costs incurred such as a combination of average fixed and variable costs.
3.16 What is the average cost incurred in establishing a minimum capacity of 100/200/300/500 channels? Should the minimum net worth depend upon the proposed channel carrying capacity of the entrant? Please justify
3.17 If the answer to question 3.16 is in affirmative, what should be the minimum net worth requirement for an entrant MSO willing to provide just the basic service tier of channels? Further, how should the minimum net worth requirement vary with increase in proposed capacity tier?
3.18 Should the minimum net worth depend upon the proposed number of subscribers that an applicant MSO would cater to? Please justify.
3.19 If the answer to question 3.18 is in affirmative, what should be the proposed number of subscribers and the relevant net worth for the same?
3.20 Discuss if any other criterion could be used to determine the entry level net worth of the MSOs?
3.21 Should necessary modifications be made in Cable TV rules in case of individual applicants so as to ascertain his/her net worth more prudently compared to the existing regime?
3.22 Should the individual be permitted to seek MSO registration? If he/she is permitted, what should be the method for calculating and verifying his/her net worth?
3.23 Which documents need to be furnished at the time of registration in order to justify the given net worth requirements for all other 3 cases, i.e., body of individual, partnership firms, companies?
3.24 Comments on the contents of proforma on the basis of which net worth for the new entities is to be calculated?
The national body of digital cable companies All India Digital Cable Federation (AIDCF) has recommended a minimum net worth of Rs 20 crore for cable TV service providers for operating in any region in response to a consultation paper floated by the regulator.
“The financial strength will outrightly give the regulator/information and broadcasting ministry an insight into the seriousness and sustainability of an MSO and also its strength to comply with…regulations framed by Trai,” All India Digital Cable Federation (AIDCF) has said.
All India Digital Cable Federation (AIDCF) submitted that TRAI /MIB should define a minimum net worth eligibility for grant of MSO License. Therefore present rules and provision requires modification. It may be noted that grant of License though is the first step towards starting operations as a MSO, it involves setup of infrastructure on a colossal scale for making it operational. The MSO operations has to be qualitatively sound to be in compliance with the parameters detailed by Hon’ble TRAI vide various regulations more specifically the regulations and guidelines shaped for the benefit of subscribers and lack of financial strength will have a negative bearing on the same.
On documents requirement, it said: “For verifying the net-worth in case of individual or group of individuals the details/documents such as income tax return of last three years, property tax payment details if any, copy of inheritance documents such as succession certificate etc., Banker’s Certificate, DP Service Provider portfolio, CIBIL reports can be sought by the Regulator.”
On networth, AIDCF said: “There should not be any further categorization for fixation of networth. We can take a cue from the net-worth and guidelines prescribed for the TV Broadcasters wherein irrespective of the size and shape of the company or the guarantee of viewership the net-worth eligibility is uniform for all of them.”
Indian Broadcasting Foundation (IBF) submitted that as MSOs are facing stiff competition with quality services being provided by DTH operators, OTT and other service providers, ‘net-worth’ becomes the key for determining the financial standing of MSOs and their capability to provide continued services at par with the other service providers in the industry. Moreover, setting up of a benchmark for an entity to become eligible to register itself as a MSO with the MIB will also pave the way for providing level-playing field amongst various DPOs (i.e., DTH and HITS platforms), since, barring MSOs, the above identified DPOs have to invest huge sums of money to even become eligible to apply for license to make its platform operational.
It added: “MIB needs to revisit the eligibility of functioning and operational areas of MSOs. Licenses would have to be granted district and state wise and nationally to the various categories of MSOs. The minimum net-worth requirement could be the only solution to ensure that the technology / infrastructure deployed by MSOs are at par with that of DTH and HITS operators since, the objective of orderly growth of the broadcasting and cable service sector can be achieved by fostering competition by creating a level-playing field for all DPOs when it comes to obtaining license for commencement of service. As per the CP, only 77% of the MSOs granted licenses by the MIB are current operational reflecting the non-serious players making foray into the field.”
IBF said: “For existing MSOs, who have pan-India licenses, these licenses will have to be revoked and fresh licenses needs to be issued depending upon their choice of area of operation subject to meeting the net-worth requirement. The introduction of net-worth requirement would result in the elimination of non-serious players. Further, it is necessary that the classification (at district level, state level and national level) is applied uniformly for all MSOs to ensure level-playing field.”
DEN Networks, Hathway Digital, GTPL Hathway, IndusInd Media and Communications, and Siti Networks have also favoured an entry level net worth for the players.
MSO Hathwaytoo said that the absence of financial checks is one of the reasons for the non-orderly growth of the sector. Many MSOs said that MSOs have to make investments including head ends, conditional access, subscriber management system, and set-top-boxes.
RJio suggest minimum Networth not to be linked Area of Operations:
Reliance Jio Media submitted its counter comment and said that their minimum net worth for MSO should be Rs 18 crores. It said the figure of Rs 18 crores has been calculated keeping in mind the basic CAPEX requirement for getting an MSO off the ground.
It added: “This net worth amount also considers that the Multi System Operator (MSO) would have a channel capacity of 300 and a minimum of 50,000 subscribers which is the minimum number of viable subscribers for the MSOs to sustain in the business. This requirement is for headend, CAS and SMS system which would comply fully with the quality of service norms laid down by the TRAI for the setup of an MSO.”
Reliance Jio Media said that classifying MSOs based on their area of operation would not be of much use since the CAPEX required for setting up for MSO infrastructures like headend, SMS and CAS would be substantial. The components which are variable in this picture are channel capacity, number of STBs network costs. “Therefore, minimum CAPEX requirements will be similar for all MSOs irrespective of the area of operations, and hence the area of operations will not be a suitable criterion to determine minimum net worth criteria requirements.”
Calling classifying of MSOs based on their area of operation as a backward step, Jio said CAPEX requirement should become the parameter to determine the net worth in this case.