Revenue share formula was considered by TRAI because Telecom Disputes Settlement and Appellate Tribunal (TDSAT) had ordered it to do so. TDSAT gave this order in response to a petition that was filed by M/s. Siti Cable Network. Siti objected the Regulation dated 24.08.2006 of TRAI that provides the entire Basic Service Tier fee to the Cable Operator and no share from that fee is payable by the Cable operator to the MSO. It wanted TRAI to undertake a specific exercise of determining the ratio of revenue share for the Basic Service Tier Fee - to be divided/shared between the MSO and the affiliate cable operators - having regard to the relevant factors such as infrastructural and running costs etc. being depolyed by the MSOs for providing signals of Basic Service Tier channels to the affiliate cable operators.
Subsequently, there was another appeal against the revenue share model before TDSAT by M/s. Pawar Cable and others. They claimed that the cable operators only get 25% of the revenue from pay channels.
After going through the facts evealed by the stakeholders, TRAI came out with an order in its meeting on 13th April 07. It stated that Rs77 paid for FTA channels would exclusively be meant for the LCOs. Annoyed at this decision, Zee group's cable company WWIL has decided to appeal to the Telecom Disputes Settlement Appellate Tribunal since they consider this order is not fair. WWIL and other MSOs argue that LCOs are getting a huge, two thirds of the total revenue from the combined tariffs for FTAs and pay channels. Besides the Rs77 charges of FTA that goes completely to the LCOs, they also get a 25% share out of the revenue of pay channels. For this reason the MSOs are left with just 15% of the total revenue from one household. Arvind Mohan, executive vice president of WWIL said that it is the MSOs who make all expenses for setting up headends, purchasing and giving STBs on rent but receive the money back incrementally over five years. He strongly censured this action of TRAI asking that “is this revenue sharing justified???” WWIL favoured its right to get 40% of the FTA revenue saying that offering quality services not only requires major capital expenditure but also the day to day expenses.
After TRAI received the viewpoints of the stakeholders, it discussed three issues. Firstly it talked about the share of MSOs and cable operators out of the subscription charges for basic service tier. On this matter, TRAI said that only one MSO had objected the TRAI ruling of 30% share from pay channels to MSOs, out of the 26 approved MSOs. Secondly, TRAI did not consider LCO's claim that they ought to get share out of the carriage fee that completely goes to the MSOs if they had to share the FTA revenue. TRAI also discussed about the share of MSOs and LCOs out of the 55% that they will jointly receive from the pay channels.
TRAI realized a significant point that since FTA channels will continue to be broadcasted in analogue mode therefore the carriage fee probably will still remain as a trend. Carriage might even increase when the FTA channels may desire to have their channels encrypted digitally. So, TRAI's opinion gives an impression of its understanding that digitalisation unlocks new opportunities of revenue for the MSOs from its value added services.
TRAI genuinely studied the viewpoints of the stakeholders and found that nothing goes totally against the revenue sharing formula and this formula does not require any change at this point of time.
COFI president Mrs. Sharma observed that implementation of CAS had just begun in the notified zones of three metros catering to only about a million subscribers. Since, it is just the trial phase so it is too premature to review the revenue share formula and the interconnect agreement at this stage as all necessary parameters are not available to reach a viable solution. The TRAI decisions have been accepted only to give CAS implementation a good start, changes in which can be made later on. This would ultimately turn out to be good both for the industry and the consumers. She said that MSOs are already treated well by giving them the carriage fee, revenue from value added services, ads on local channels etc for which they use the LCO networks to reach the subscribers. The LCOs have to cope up with various cost burdens. Building, operating, and maintaining a network of fiber optic cables/co-axial cables to thousands of subscribers, maintenance of local complaint cell, distribution and collection of bills generated by MSOs using their own staff and many more expenses are to be handled by the LCOs.
COFI holds the opinion that distribution of revenue between MSOs and LCOs must be decided taking care that the MSOs run citywide digital networks using single headend and fibre optic cables to cover a city thereby serving more subscribers than they were catering to in 2003. Last mile networks are still using the co-axial cables and because of their small size they cannot use fibre optic cables and neither increase their network size to reduce the cost. Cost of digital headend equipment as well as fibre optic cables has also reduced many folds. Revenue sharing formula should be developed keeping in mind the need for separate formula for CAS and non CAS areas, cost per subscriber separately for MSO and LCO network, carriage to be paid by MSOs to the LCOs for carrying their local channels, sharing of advertising revenue from local channels. The overall point is that the government's decision of Rs77 for FTA as against the Rs180 worked out by COFI in 2003 that should come from one home, has been accepted just to initiate CAS systematically. Consideration of revenue sharing formula is too early and must be thought about only after CAS is implemented in all the three metros completely.