TELECOM DISPUTES
SETTLEMENT & APPELLATE
TRIBUNAL
NEW DELHI
DATED 15TH JANUARY 2009
Appeal
No.9(C) of 2006
(M.A. No.
103 of 2007)
MSO Alliance, Industrial
Area, Delhi … Appellant
V
Telecom Regulatory
Authority of India & others ... Respondents
Appeal No.10(C) of 2007
SET Discovery Private
Limited, New Delhi …Appellant
Vs.
Telecom Regulatory
Authority of India & 2 others ... Respondents
Appeal
No.11(C) of 2007
Zee Turner ltd., New
Delhi …Appellant
Vs.
Telecom Regulatory
Authority of India & 2 others ... Respondents
Appeal
No.12(C) of 2007
Star India Pvt. Ltd.,
Mumbai …Appellant
Vs.
Telecom Regulatory
Authority of India & 2 others ...Respondents
Appeal
No.13(C) of 2007
(M.A. No.
155 of 2007)
Intermedia cable
communications Pvt. Ltd …Appellant
Vs.
Telecom Regulatory
Authority of India ...Respondent
Appeal No.15
(C) of 2007
Sun TV network Ltd.,
Chennai …Appellant
Vs.
Telecom Regulatory
Authority of India ...Respondent
BEFORE:
HON’BLE MR. JUSTICE ARUN
KUMAR CHAIRPERSON
HON’BLE DR. J. S. SARMA MEMBER
HON’BLE MR.
G. D. GAIHA
MEMBER
Appeal No.9(C) of 2006
For Appellants Mr. C.S. Vaidyanathan,
Senior Advocate with Mr. Manjul
Bajpai,
Mr. Arun Kathpalia,
Ms. Inklee Roy Barooah,
Ms. Shilpi
Mehta,
Mr. Virender
Singh Thakur, Advocates
For
Respondent No.1 (TRAI) Mr. Vikas Mehta
Mr. Narhari Singh, Advocates
For Respondent No.2 (M/o I&B) Ms. Divya Chaturvedi, Advocate
For Respondent No.3 (STAR) Ms. Mamta Tiwari,
Mr.
Prateek Kumar,
Mr.
Gaurav Juneja, Advocates
For Respondent No.4 (SET Discovery) Mr. Gopal Jain,
Ms. Smriti Mishra,
Mr. Kaushik Mishra,
Mr. Anup
Bhambani,
Ms. Nisha Bhambani, Advocates
For Respondent No.5 (Zee) Mr. Maninder Singh,
Mr. Yoginder Handoo,
Mr. Kunal Sood,
Mr. Mansimran Singh, Advocates
For Respondent No.6 (ESPN) Mr. N. Ganpathy
For Respondent No.7 (Sahara) None
For Respondent No.8 (BBC) None
For
Respondent No.9 (B4U Television)
None
For Respondent No.10 (ETV, Ushodaya Mrs. Neelima Tripathi
Enterprises & Ushakiron
Televison) Mr. Sugam Seth, Advocates
For Respondent No.11 (Sun TV/Gemini TV/ Mrs. Narayani K. Sibal
Udaya TV/ Channel Plus) Ms. Shruti Ranjan,
Ms. Subha Chauhan, Advocates
For Respondent No.12 (Raj Televison None
Network Ltd.)
For Respondent No.13
(MAA Televison Network
Ltd.) None
Appeal No.10(C) of 2007
For
Appellant Mr.
Gopal Jain,
Mr. Kaushik Mishra, Advocates
For Respondent No.1 Mr.
Dinesh Dwivedi, Senior Advocate, with
Mr. Vikas Mehta, Advocate
For Respondent No.2 Mr. Manjul Bajpai, Mr. Arun Kathpalia,
Ms. Inklee Roy Barooah, Ms. Shilpi
Mehta,
Mr. Virender Singh Thakur, Advocates
For Respondent No.3 Mr. Abhinav Agnihotri, Advocate
Appeal No.11(C)
of 2007
For
Appellant Mr. Maninder Singh, Mr. Yoginder
Handoo,
Mr. Kunal
Sood, Mr. Mansimran Singh, Advocates
For
Respondent No.1 Mr. Dinesh Dwivedi, Senior Advocate with
Mr. Vikas
Mehta, Mr. Manish,
Mr. Narhari
Singh,
Ms. Pratika
Dwivedi, Advocates
For Respondent No.2 Mr. Manjul Bajpai, Mr. Arun Kathpalia,
Ms. Inklee Roy Barooah,
Ms. Shilpi Mehta,
Mr. Virender Singh Thakur, Advocates
For Respondent No.3 Mr. Abhinav Agnihotri, Advocate
For Appellant Mr. Ramji Srinivasan, Senior Advocate with
Ms. Mamta Tiwari,
Mr. Prateek Kumar,
Mr. Gaurav Juneja, Advocates
For Respondent No.1 Mr. Dinesh Dwivedi, Senior Advocate with
Mr. Vikas Mehta, Mr. Manish,
Mr. Narhari Singh,
Ms. Pratika Dwivedi, Advocates
For Respondent No.2 Mr. Manjul Bajpai, Mr. Arun Kathpalia,
Ms. Inklee Roy Barooah,
Ms. Shilpi Mehta,
Mr. Virender Singh Thakur, Advocates
For Respondent No.3 Mr. Abhinav Agnihotri, Advocate
For
Appellant Mr. Navin Chawla, Advocate
For Respondent Mr. Dinesh Dwivedi, Senior Advocate with
Mr. Vikas Mehta, Mr. Manish,
Mr. Narhari Singh,
Ms. Pratika
Dwivedi, Advocates
For Appellant Mrs. Narayani K. Sibal,
Ms. Shruti Ranjan,
Ms. Shubha Chauhan, Advocates
For Respondent Mr. Vikas Mehta,
Mr. Narhari Singh, Advocates
ORDER
All the Appeals above, with the exception of Appeal
no. 9 of 2006, have been filed impugning the Telecommunication (Broadcasting and
Cable) Services (Second) Tariff (Eighth Amendment) Order 2007 dated 4.10.2007
of the Telecom Regulatory Authority of India (hereinafter referred to as Authority). Appeal no. 9 of 2006 has
been filed impugning the Telecommunication (Broadcasting and Cable) Services
(second) Tariff (Sixth Amendment) Order 2006 (5 of 2006) dated 31st
July 2006. The relief sought in Appeal no.9/2006 has relation to the provisions
of the Order of TRAI dated 4.10.2007. As such, all the Appeals are being
discussed and disposed of as one batch by this common Order.
2. The Appeals
no.s 10, 11, 12 and 15 of 2007 have been filed by Broadcasters while Appeal no.
13 of 2007 has been filed by a Multi System Operator (MSO). Briefly stated, the
contention of the Appellants in Appeal no.11, 12 and 15 of 2007 is that the
impugned tariff Order is without jurisdiction, perverse and arbitrary. They
allege that the impugned Order has been passed without following the
requirements of transparency as ordained in section 11 (4) of the TRAI Act. It
is also stated that the provisions of the impugned Order are at variance with
the issues raised in the consultation paper dated 21.5.2007 issued by the
Authority. The Appellants allege that the impugned Order has resulted only in
the continuation of price freeze stipulated by the Principal Tariff Order dated
1.10.2004. Their argument is that the Authority has wrongly concluded that
there is no effective competition in the broadcasting market and that even
though the Authority itself favours forbearance as the best option, the
Authority has wrongly prescribed, in the name of lack of effective competition,
a ceiling on the rates that can be charged by the MSOs and Local Cable Operators
(LCOs) from the subscribers. They, therefore,
allege that all these stipulations would cause disorder in the cable market and
adversely affect the subscription revenues of the Appellants. They also
strongly object to the prescription, made in the name of offering choice of
channels to the consumers, that they should offer channels on à la carte basis to
the MSOs and Cable operators. The contention of the Broadcasters is that the
impugned Order is so structured that it is not only discriminatory but is
prejudicial to the commercial interest of the Broadcasters as it enables the
MSOs and LCOs to demand a higher carriage fee from the Broadcasters while, at
the same time, it does not offer any advantage to the consumers. Their
contention is that while the impugned Order takes care of the interests of the
MSOs, it does not address itself to the interests of either the Broadcasters or
the consumers. The contention of the Appellant
in Appeal no. 13/2007 is that while the impugned Order purports to be a tariff Order,
it actually does not fix the prices.
3. The 1st
Respondent, namely the Telecom Regulatory Authority of India, strongly denies
all these contentions and argues that the impugned Order is a holistic Order
meant to take care of the interests of the consumers in the non-CAS areas which
are functioning in a non-addressable mode. The contention of the 2nd
and 3rd Respondents in these Appeals is that the Broadcasters have
been bundling the channels into bouquets and have been insisting that the
MSOs/LCOS should take the entire bouquet and thereby increasing their
subscription revenues as well as advertising revenues through an inflated subscriber
base. They strongly argue that the impugned Order brings about a certain
discipline in the system.
4. We
have heard all the parties at great length. The following issues have emerged
for consideration:
A.
Whether
the impugned Order is without jurisdiction?
B.
Whether
the impugned Order violates the provisions of section 11 (4) of the TRAI Act
and whether the obligation of transparency has not been fulfilled?
C.
Whether
instead of fixing tariffs as stipulated in the TRAI Act, the Order is only in
the nature of interim Order resulting in freezing of prices?
D.
Whether
TRAI had wrongly concluded that adequate and effective competition in the
market is lacking, despite clear evidence of substantial growth?
E.
Whether
the ceiling imposed on the subscription charges to be collected by LCOs from
the subscribers is without basis?
F.
Whether
the classification of cities and towns as well as the slab system stipulated by
the impugned Order is irrational?
G.
Whether
the stipulation that Broadcasters should provide channels on à la carte basis
to the MSOs/LCOs is wrong?
H.
Whether the direction, in the impugned Order,
seeking information from the service providers is inappropriate?
5. Before
we set out to examine these issues, it would be useful to recapitulate the
background for and the salient features of the impugned tariff Order.
6. Section
2 (k) of the Telecom Regulatory Authority of India Act, 1997 as amended by the
Telecom Regulatory Authority of India (Amendment) Act, 2000 defines '
telecommunication service' as follows:
“‘telecommunication
service’ means service of any description (including electronic mail,
voicemail, data services, audio tex services, video tex services, radio paging
and cellular mobile telephone services) which is made available to users by
means of any transmission or reception of signs, signals, writing, images and
sounds or intelligence of any nature, by wire, radio, visual or other
electro-magnetic means but shall not include broadcasting services;
Provided that the Central Government may notify other service to be
telecommunication service including broadcasting services."
7. In accordance with the above
definition, Government of India issued Order S.O.44 (E) notifying the broadcasting
services and cable services to be ‘telecommunication service’ and issued the
Notification No. 39 dated 9.1.2004. Simultaneously, by another Order S.O.45 (E) dated 9.1.2004, the Central
Government entrusted the Telecom Regulatory Authority of India (hereinafter
referred to as ‘Authority’), with
certain additional functions. The Order entrusting
these functions reads as follows:
"(1)
without prejudice to the provisions contained in clause (a) of sub-section (1)
of section 11 of the Act of to make recommendation regarding-
(a)
...
(b)
...
(2)
without prejudice to the provisions of sub-section (2) of section 11 of the Act,
also to specify standard norms for, and periodicity of, revision of rates of
pay channels, including interim measures."
8. Within a week of the entrustment of
these functions, the Authority, who is the first Respondent in this batch of
cases, issued the Telecommunications (Broadcasting and Cable) Services Tariff
Order 2004 [1 of 2004] dated 15.1.2004. It was a short Order and prescribed
that the charges, payable by the cable subscribers to cable operator, cable operators
to MSOs/ Broadcasters, and MSOs to Broadcasters, prevalent as on 26.12.2003
shall be the ceiling with respect to both Free To Air (FTA) and pay channels,
both for CAS (Conditional Access System) and non-CAS areas until final
determination by the Authority on the various issues concerning these charges.
The Explanatory Memorandum annexed to this Order stated that there was
considerable uncertainty about different aspects of the CAS regime and a
detailed examination was required of the various issues, including the rates
for the broadcasting and cable services in CAS and non-CAS areas. Noting that
there were reports of an impending increase of cable charges by the cable
operators, the Authority felt it was necessary to intervene in the matter and
froze the charges as on 26.12.2003, which was the date of a Delhi High Court Order
directing the continuance of implementation of CAS in Delhi on trial basis.
9. Subsequently, as part of its detailed
examination of the issues concerned, the Authority issued two consultation
papers on 15.1.2004 and 20.4.2004. The consultation paper dated 15.1.2004
raised certain issues and sought comments from various stakeholders. On their
receipt, these comments were analysed and a detailed consultation paper was
issued on 20.4.2004, once again seeking comments of all the stakeholders. This
consultation paper, which is a very useful document, dealt with several
issues. Noting that an important
regulatory task has been to ensure that the prices charged to consumers are
reasonable, it dealt with the different approaches to price regulation of
services as also the practice worldwide.
10. The consultation paper of 20.4.2004 noted
that costing of a pay channel requires details of capital and operational
expenditures which is difficult on account of the pay channels being viewed in
more than one country, the content not being a standardised commodity and the
advertisement revenues making it difficult to determine as to what percentage
of the cost should be recovered through subscription fee. Stating that a price
cap form of regulation avoids the problem of measuring and controlling
programming costs, it notes that this form also introduces the problem of
controlling quality. Since a common uniform price cap may not be reasonable,
the consultation paper states that flexibility is provided by the price cap
mechanism. Referring to an exercise
carried out by the Cost Accounts Branch of the Ministry of Finance for working
out the economic cost of delivery of channels in the cable network, the paper
notes that the price for carriage of 60 channels worked out to Rs. 69 to 72 per
household per month. Observing that there is no uniform rate in the cable TV
service in the country and that the rates vary between and also within areas,
the paper states that a common uniform price would be both difficult to
implement and also not reasonable; it states that the flexibility in pricing
enables market penetration in low-income areas. Referring to complaints about
frequent hikes of cable charges, the paper notes that pay channels are
generally offered in the form of a bouquet of channels with the result that if
more channels are introduced within the same bouquet, the subscriber bill may
still go up. The paper also lists out the issues in subscribers opting for à la
carte channels vis-à-vis bouquets.
11. Dealing at length with international practices
on regulating prices, the consultation paper states that in the United States
of America, initially the basic service tier was subject to regulation by local
franchising authorities while the Federal Communications Commission was
responsible for regulating cable programming services tiers, both of them following
a ‘benchmark’ rate based on certain specific factors. Pay channels and pay
programme services were not regulated. Since 1996, small cable operators were
not regulated while others were regulated only subject to effective competition
not existing; effective competition was clearly defined. Since the year 1999,
however, even the Commission's Authority to regulate the rates of cable
programming services was terminated. The practice in other OECD countries also
shows that in most countries, only the price of basic service tier is
regulated.
12. Discussing the revenue sharing between Broadcasters,
MSOs and LCOs, the paper states that these are mutually negotiated and that it
would be difficult to arrive at a specific revenue share formula as the cost of
programmes being broadcast is not standard. It however states that the carriage
cost of each channel can be determined and the split of revenue share between
MSO and LCO can be worked out on the basis of capital employed and operating
expenditure by both the parties.
13. On 1.10.2004, the Authority issued the Telecommunication
(Broadcasting and Cable) Services (Second) Tariff Order 2004 (6 of 2004),
otherwise called the Principal Tariff Order, wherein it stipulated that the
tariff at various levels, namely cable subscriber to cable operator; cable
operators to MSOs/Broadcasters and MSOs to Broadcasters, prevalent as on
26.12.2003 shall be the ceiling with respect to both Free To Air (FTA) and Pay channels.
It however provided that if any new pay channel was introduced after 26.12.2003
or if any channel which was free to air on 26.12.2003 was converted to a pay channel,
the ceiling prescribed above can be exceeded to the extent of the rate of such
channels, but only if these channels do not form part of a bouquet of channels
existing on 26.12.2003. It also allowed for reduction of the ceiling in the
event of number of pay channels being reduced. Consequent to this Order, the
earlier Order of 15.1.2004 stood repealed. The explanatory memorandum to this Order
stated that fixation of prices charged for new pay channels to consumers is
difficult because of large variations of the prices and the difficulty in
linking the prices to the costs. Besides, prices in different parts of the
country are based on different systems using different methodologies for fixing
the subscriber base. The explanatory memorandum notes that these problems will
be resolved if addressability is introduced and that in the interim period,
prices will have to be regulated through the said Order. It also expressed the
hope that the pay channels to be introduced after 1.10. 2004 would have rates
similar to those prevalent on 26.12.2003.
14. Two and a half years later, the Authority
issued, on 21.5.2007, another consultation paper on issues relating to tariff
for cable television services in non-CAS areas. In its preface, the paper noted
that the Order of 1.10.2004 meant a continuation of multiplicity of ceiling
rates operating for different subscribers at a point of time and that in the
recommendation sent to Government of India on 1.10.2004, it was stated that the
regulation of prices is only intended to be a temporary measure till such time
as effective competition takes roots, since the best regulation of prices is
done through competition. It also dealt with the issue of annual increase in
the ceiling rates, agitated before and decided upon by this Tribunal. Keeping
in view the various factors, the paper speaks of the need to revisit the tariff
regulation for non-CAS areas in a holistic manner and sets out the pros and
cons on various issues before posing the questionnaire and seeking comments
thereon from the stakeholders.
15. The consultation paper identified the
following as the experience of various stakeholders:
a)
The
number of pay channels had more than doubled in the span of two and half years
and the channels are offered to the consumers as part of new bouquets.
b)
In
a non-addressable system, the option of choosing a particular channel is not
with the consumer.
c)
Under
the existing tariff regime, the individual consumer lacks control over its
cable bill. The increase in the consumer bill is on account of inflation of 7%
as well as emergence of new pay channels. Although the monthly bill has not
gone up to the extent of the sum of the prices of new pay channels, any
increase is not welcome. Monthly amounts vary in different areas and among different
customers, based on their ability to pay. Non-uniformity in cable bills has
been a cause for complaint against cable operators.
d)
Although
the Principal Tariff Order of 1.10.2004 provided for reduction in monthly
ceiling with reduction in number of pay channels, enforcement of the same at
the ground level has been difficult since the consumer is often not given any
bill.
e)
Because
of the existence of an informal area-sharing arrangement at the ground level,
it is not possible for the consumers to switch cable operators. Spread of DTH
operations in the non-CAS areas is expected to facilitate better choice to
consumers.
f)
Consumers
feel that the channels are changed by MSOs/LCOs without any intimation,
particularly in areas with heterogeneous mix of population.
g)
LCOs
and MSOs complain that while their revenue realisation from subscribers is
frozen, their outgo keeps increasing because of the demand from Broadcasters
for a higher subscriber base. These demands are also a major ground for
disputes. The subscriber base in respect of LCOs and MSOs is dependent on their
ability to negotiate. The existing tariff regime does not place any ceiling on
the subscriber base.
h)
With
increasing number of pay channels, MSOs/LCOs are forced by the Broadcasters to
take large bouquets for which they have no bandwidth in the analogue mode. MSOs
also feel that Broadcasters follow pricing policies which discourage individual
channel selection.
i)
On
their part, Broadcasters feel that the ceiling on tariff is adversely affecting
the flexibility of their business model. They feel that since this is not an
essential commodity, tariff regulation is not justified. They also feel that
there is adequate competition and that there is no justification for tariff
regulation.
16. Taking into consideration the above
perspectives, the consultation paper proceeds to make the following assessment:
a)
There
is no evidence before the Authority that the existing tariff control is
adversely affecting the business interests of Broadcasters. On the other hand,
there has been growth in the revenues of the Broadcasters over the last two
years. Evidently, the very fact that new pay channels are being launched shows
that it makes sound business sense despite the price cap, although it could
also be more to continue their presence in the market in the hope of forbearance in the future..
b)
Increase
in the number of pay channels or bouquets of pay channels leaves little
protection to the consumer against being forced with unwanted channels and
consequent increase in payments.
c)
While
over 70 million cable and satellite households do provide adequate volume, this
alone may not be sufficient for the market to work in the interests of
consumers unless the market becomes adequately competitive. While there are a
number of content aggregators/ providers, the choices offered may not be
equally competitive.
d)
An
analysis of the complaints received from the consumers about violations of
ceiling of charges shows that this was on account of addition of new pay
channels or on account of changes in the negotiated subscriber base. The
complaints from LCOs/MSOs were found to be mainly on account of increased
declaration levels.
e)
While
there are complaints about non-uniformity in cable rates for the same content
or in the same locality, it has also a positive side in that it enables cross
subsidisation across different segments of consumers and has proved to be an
effective tool in retaining the customers from different economic strata.
f)
The problem with the Principal Tariff Order dated
1.10.2004 is the inability to gauge the extent of increase permissible on
account of new pay channels, resulting in easy breaching of the ceiling on
cable charges. Secondly, from the standpoint of LCOs and MSOs, the
re-negotiation of subscriber base renders the enforcement of Tariff Order
difficult.
g)
A
mere presence of the tariff regime may not mean much if it does not really
serve the purpose of protecting the interests of the consumers and is capable
of being effectively implemented at the ground level. What is required is a
framework of regulation that facilitates market forces to work.
h)
The
existing tariff regime for non-CAS areas is not effective as
i.
Bills
are often not given to the consumer and even if given, do not indicate the
apportionment between pay and FTA channels; the existing tariff regime does not
provide a solution to this.
ii.
Monthly
cable bills can go up on account of new pay channels, on which there is no
control and for which there is no choice.
iii.
Consumer
has no information on the interconnection agreements between LCOs, MSOs and Broadcasters
and he is not aware as to which of the channels are pay channels and which are
free to air channels.
iv.
In
the absence of addressability, consumer has little scope of translating his
choice and of reducing his monthly bill.
v.
Due
to lack of effective decentralised enforcement mechanism at the local level,
the consumer does not have an opportunity to get speedy and effective remedy.
17. Discussing the different issues that
could be considered, the consultation paper proposes a uniform ceiling in
tariff of Rs. 250, which is based on a figure of Rs. 176 arrived at by a market
survey commissioned in the year 2004 by TRAI and after adjusting inflation at
the rate of 6% a year for three years. It also proposes the choice of providing
channels on à la carte basis to the MSOs to reflect the popular choice of the
subscribers based on regional preferences.
18. Pursuant to consultations held with
different stakeholders, the Authority issued, on 4.10.2007, the impugned Order
-- The Telecommunications (Broadcasting and Cable) Services (Second) Tariff
(Eighth Amendment) Order, 2007, effective from 1.12.2007. This Order prescribed
that
a)
The
charges payable on 1.12.2007, increased by an amount not exceeding 4%, shall be
the ceiling. Importantly, the Order simultaneously and additionally prescribed a
ceiling on charges payable by the subscribers ranging from Rs. 132 to Rs. 260,
based on the number of pay channels and the classification of cities.
b)
If
any new pay channel is launched after 01.12.2007 or any FTA channel is
converted to a pay channel, the ceiling can be exceeded provided these channels
are on a stand-alone basis or as part of new and separate bouquet. The rates of
such channels must be similar to the rates of similar channels existing on
1.12.2007.
c)
It
also provided that Broadcasters should offer channels on à la carte basis to
the MSOs/LCOs and prescribed the chargeable rates for the individual pay
channels.
d)
The
Order also prescribed that every broadcaster shall furnish certain information
to the Authority.
e)
The
Order prescribed every LCO/MSO/broadcaster shall furnish to every subscriber a
bill every month showing the list of all pay channels and FTA channels being
provided, also duly furnishing written information to the subscriber about
changes, if any, in the channels. It also prescribed that receipts shall be
given for all payments made by the subscriber.
19. The above Tariff Order is accompanied by
an explanatory memorandum which, unlike the explanatory memorandum to the Principal
Tariff Order, is very exhaustive. This explanatory memorandum gives the
rationale for various provisions in the impugned Order. It sets out that the
response of the stakeholders has been on the following lines:
a)
The
Broadcasters have made out a case of forbearance;
b)
The
MSOs/cable operators favoured availability of channels on à la carte basis.
They also favoured the continuance of regulation and a corresponding need to
determine the connectivity levels and revenue sharing among LCO/MSO/broadcaster
c)
While
very few consumers responded to the consultation paper, the consumers’ view was
that the regime of regulation should continue for some more time.
The
explanatory memorandum then proceeds to set out the Authority's examination of
various issues and the conclusions arrived at.
20. We have set out in detail the background
and the context in which the impugned Order has been issued so as to facilitate
a detailed examination of the various issues raised by the Appellants. Before
we proceed to examine the issues raised by the Appellants listed at para 4
above, we must deal with some basic issues raised by the learned Counsel for
the 1st Respondent, Mr. Dwivedi.
21. The first issue raised by the learned
counsel, Mr. Dwivedi, is regarding maintainability of these Appeals. His
contention is that the appellants are all companies and are not natural
citizens of India. Accordingly, the provisions of Article 19 (1) (a) and (g) of
the Constitution do not apply, as do not the provisions of Article 19 (6). Since,
following from the above, the element of unreasonableness does not apply, Article
14 of the Constitution also cannot be invoked. The counsel for
Respondent relies on the judgements in the case of State Trading Corporation of
India V. the Commercial Tax Officer and others [AIR 1963 SC 1811]; the State of
Gujarat and another V Shri Ambica Mills Ltd and another, the Arvind Mills ltd
and another, the Asarva Mills Ltd and another, the Ashok Mills ltd. and others
in [(1974) 4 SCC 656]; Indo-China Steam Navigation Company Ltd V. Jasjit Singh,
Additional Collector of Customs, Calcutta and others [AIR 1964 Supreme Court
1140].
22. Mr. Dwivedi also argued that the scope of
judicial review by the Tribunal should be focused only on
a) Whether any
provision of law has been breached?
b) Whether the
impugned Order is totally irrational and whether it is based on material which
is totally irrelevant?
c) Whether the Order
subserves the objective of the Act?
23. The
learned Counsel for the 2nd Respondent- IndusInd Media communications
Ltd. and 3rd Respondent- Hathway Cable & Datacom Pvt. Ltd.- in Appeals
no. 10/2007, 11/2007 and 12/2007, Mr. Kathpalia, however strongly disagreed
with contention of the counsel for the 1st Respondent on the issue
of maintainability. The counsel stated that most writ petitions that are filed
by companies, either under Article 226 or under Article 32, raise the issue of
violation of Article 14 of the Constitution.
Unlike Article 19, which is available only to citizens, Article 14 is
available to any ‘person’, including a juristic person. The counsel stated that
any person can come to the Tribunal under section 14 (b) of the TRAI Act, under
which any Order/Direction/Decision of the Regulatory Authority is assailable.
Pointing to the provisions of section 14 A (7) of the TRAI Act, the counsel
stated that the extent of consideration of any case by the TDSAT is unfettered
and to say that the Tariff Order could not be challenged is incorrect. He
stated that the present case before the TDSAT relates to an ‘Order’ of the Authority
and it is wholly inadmissible to state that this Tribunal cannot review the Order
of TRAI except on issue of procedure. His argument is that if this stand is
approved, the service providers will not have any forum for relief.
24. The learned
counsel for the Appellant in Appeal no. 11 of 2007, Mr. Maninder Singh, argued
that the present Appeal is under section 14 A (2)of the TRAI Act and is not a writ
petition either under Article 226 before a High Court or under Article 32 of
the Constitution before the Hon'ble Supreme Court and hence the principles
regarding the scope of judicial review which have been laid down by the Apex
Court in such cases have no applicability whatsoever to the original and
appellate jurisdiction of this Tribunal. On the contrary, he argues, the Tribunal
is obliged to go into each of the aspects raised by the Appellant/s in
challenging the validity, rationality and correctness of the impugned Order.
According to him, any argument on the plea of restricted judicial review
jurisdiction is, in fact, a submission to this Tribunal not to discharge its
adjudicatory function in deciding the present Appeal on merits and goes against
the law laid down by the Apex Court in Cellular Operators of India and others Vs.
Union of India and Others [(2003) 3 SCC 186)]
25. We have
carefully considered the issues. Section 14 A of the TRAI Act reads as follows:
(1) "The Central Government or a State Government or a local authority
or any person may make an application to the Appellate Tribunal for adjudication
of any dispute referred to in clause (a) of section 14.
(2) The Central Government or a State
Government or a local authority or any person aggrieved by any direction,
decision or order made by the Authority may prefer an appeal to the Appellate Tribunal.”
26. From
the above, it is clear that the power to approach this Tribunal is available
to, inter alia, any person. This includes both natural as well as
juristic persons. The TRAI Act is a special Act and the language of the statute
is clear. Besides, this Tribunal is the only forum available for seeking
redressal against the Orders of the Regulatory Authority. It is well-known that
the service providers, be it in Telecom or in Broadcasting, are generally corporate
entities and it surely cannot be the intention of the lawmakers that such
entities cannot seek redressal before this Tribunal. The appellate jurisdiction
of this Tribunal is much wider in scope than Writ jurisdiction. We do not
therefore accept this contention of the counsel for 1st Respondent.
27. Insofar
as the issue of the jurisdiction of the Tribunal is concerned, the matter has
been very clearly settled by the Supreme Court in Cellular Operators Association case
cited supra. In this case,
the Apex Court held as follows:
"8.
.......There is no dispute with the general proposition that when an Appeal
is provided under a statute against the decision of an expert body,
notwithstanding the absence of any restriction for the exercise of that appellate
power, the appellate court would be reluctant to interfere with the findings
and conclusions of the expert body unless it is so warranted either on the
ground that the finding of the expert body is perverse or is based on no
evidence or suffers from any glaring infirmity on account of which no
reasonable man could come to that conclusion. ….. Chapter IV containing Section
14 was inserted by an amendment of the year 2002 and the very Statement of Objects
and Reasons would indicate that to increase the investors’ confidence and to
create a level playing field between the public and the private operators,
suitable amendment in the Telecom Regulatory Authority of India Act, 1997 was
brought about and under the amendment, a Tribunal was constituted called the
Telecom Disputes Settlement and Appellate Tribunal for adjudicating the
disputes between a licensor and a licensee, between two or more service
providers, between a service provider and a group of consumers and also to hear
and dispose of appeal against any direction, decision or order of the
Authority. The aforesaid provision was absolutely essential as the
organisations of the licensor, namely, MTNL and BSNL were also service
providers. That being the object for which an independent tribunal was
constituted, the power of the Tribunal has to be adjudged from the language
conferring that power and it would not be appropriate to restrict the same on
the ground that the decision which is the subject matter of challenge before
the Tribunal was that of an expert body. It is no doubt true, to which we will
advert later, that the composition of the Telecom Regulatory Authority of India
as well as the constitution of GOT-IT in April 2001 consists of a large number
of eminent impartial experts and it is on their advice, the Prime Minister
finally took the decision took the decision, but that would not in any way
restrict the power of the Appellate Tribunal under Section 14, even though in
the matter of appreciation the Tribunal would give due weightage to such expert
advice and recommendations. Having regard to the very purpose and object for
which the Appellate Tribunal was constituted and having examined the different
provisions contained in Chapter IV, more particularly, the provision dealing
with ousting the jurisdiction of the civil court in relation to any matter in
which the Appellate Tribunal is empowered by or under the Act, as contained in
Section 15, we have no hesitation in coming to the conclusion that the power of
the Appellate Tribunal is quite wide, as has been indicated in the statute
itself and the decisions of this court dealing with the power of a court,
exercising appellate power or original power, will have no application for
limiting the jurisdiction of the Appellate Tribunal under the Act. ...
11. .... As has been
stated earlier, the jurisdiction of the Tribunal under section 14 cannot be
held to be a supervisory jurisdiction, in view of the language of the statute
as well as the fact that it is the only forum for redressing the grievance of
an aggrieved party in as much as the appellate jurisdiction to this Court is
only on a substantial question of law and the jurisdiction of a civil court for
filing a suit is also ousted. It has already been held by us that the Tribunal
has the power to regulate any dispute but while answering the dispute, due
weight has to be given to the recommendation of TRAI... A bare comparison of
the provisions of Section 14, which confers jurisdiction on the Tribunal and Section
18, which confers jurisdiction on the Supreme Court, would unequivocally
indicate that the Tribunal has much wider jurisdiction than the jurisdiction of
this Court under Section 18, as this Court would be entitled to interfere only
on a substantial question of law, which arises from the judgement of the Tribunal
and not otherwise. "
28. In
the same case, and through a separate but concurring judgement, Hon’ble Justice
Sinha observed as follows: "Sub-section (7) of section 14-A confers a wide
jurisdiction upon the Tribunal. The Tribunal being an expert body is entitled
to exercise its appellate jurisdiction both on fact as also in law over a
decision or order/decision/direction of the Authority. Its power to examine the
correctness, illegality or propriety of the order passed by the Authority as
also in relation to the dispute must be held to be a wide one."
29. Justice
Sinha went on to quote the US Supreme Court in Permian Basin Area Rate Cases
where the US Supreme Court held as follows: "..the responsibilities of a
reviewing court are essentially three. First, it must determine whether the
commission's Order, viewed in light of relevant facts and of the commission's
broad regulatory duties, has abused or exceeded its Authority. Second, the
court must examine the manner in which the commission has employed the methods
of regulation which it has itself selected, and must decide whether the each of
the Order’s essential elements is supported by substantial evidence. Third, the
court must determine whether the Orders may reasonably be expected to maintain
financial integrity, attract necessary capital, and fairly compensate investors
for the risks they have assumed, and yet provide appropriate protection to the
relevant public interests, both existing and foreseeable." The Hon’ble
Justice further quoted the case of Universal
Camera Corporation v. National Labor Relations Board, where it is stated
that "the board's findings are entitled to respect; but they must
nonetheless be set aside when the record before a court of Appeal clearly
precludes the board's decision from being justified by a fair estimate of the
worth of testimony of witnesses or its informed judgement on matters within its
special competence or both."
30. The Hon'ble
Justice Sinha also cited the case of Union of India v. Dinesh Engg. Corpn.
[(2001) 8 SCC 491] where the Supreme
Court held that "there is no doubt
that this court has held in more than one case tha where the decision of the
authority is in regard to a policy matter, this Court will not ordinarily
interfere since these policy matters are taken based on expert knowledge of the
persons concerned and courts are normally not equipped to question the
correctness of a policy decision. But then this does not mean that the courts
have to abdicate their right to scrutinise whether the policy in question is
formulated keeping in mind all the relevant facts and the said policy can be
held to be beyond the pale of discrimination or unreasonableness, bearing in
mind the material on record."
31. It is
clear from the above that the matter relating to the scope of review by this Tribunal
of the Orders /directions/decisions of TRAI has been clearly settled by the
Apex Court and that this is not confined to the limited scope of judicial
review as argued by the learned Counsel for Respondent. We therefore reject
this argument of the Counsel for 1st Respondent. In the light of
this, we do not feel it necessary to go into the other judgements cited by the
learned counsel for 1st Respondent.
32. Having
rejected both the preliminary objections, we now proceed to examine the merits
of the various contentions raised by the Appellants. In doing so, we would be
keeping in view the background of the impugned Tariff Order and examine whether
this Order meets the objectives sought to be achieved and whether the terms of
the Order are reasonable besides also examining the question of the adherence
to the various provisions of the Telecom Regulatory Authority of India Act,
1997.
33. Our
attention has been drawn extensively by the counsels for the Appellants to the
tariff Order dated 1.10.2004 on the ground that the impugned Order is only an
amendment of the Principal Tariff Order. In the process, the counsels have
attempted to call in question some of the elements of the Principal Tariff Order.
We would like to, at the outset, make it clear that while the Principal Tariff Order
can come in for consideration to serve as a background for the impugned Order,
that Order by itself is not called into question in the prayers for relief in
any of the Appeals.
34. We now
come to the various grounds on which the impugned Order namely the
Telecommunication (Broadcasting and Cable) Services (Second) Tariff (Eighth
Amendment) Order, 2007 has been impugned, and the issues that have been listed
in Para 4 above.
35. The Appellants
in 11/2007 and 15/2007 have assailed the impugned tariff Order dated 4.10.2007
on the ground that it is without jurisdiction. Their contention is that the TRAI
Act clearly lays down the provisions under which the Authority can perform its
functions -- recommendatory and non-recommendatory. The impugned Order is
issued under the provisions of section 11 (1) (b) and section 11 (2) of TRAI Act
which empowers the Authority to notify the rates, but the impugned Order goes
on to issue directions which can only be issued under section 12 (4) and
section 13 of the TRAI Act. They also contend that the Authority cannot
discharge its functions under section 11(1) (b) by issuing an Order under
section 11(2) of the Act. Refuting this contention, the Respondent points out
that regulation of tariff has several dimensions and à la carte requirements is
one of them. Their contention is that the entire Order should be viewed in a
holistic manner, since this is what the Order seeks to achieve.
36. The
impugned Order dated 4.10.2007 reads as follows:
“No 1-1/2007-B
&CS.-- -- In exercise of the powers conferred by sub-clauses (ii), (iii),
(iv) and (v) of clause (b) of sub-section (1) and sub-section (2) of section 11
of the Telecom Regulatory Authority of India Act 1997 (24 of 1997), read with
notification of the Government of India, in the Ministry of Communication and Information
Technology (Department of Telecommunication), No. 39, --
(a) ...
(b) ...the Telecom Regulatory
Authority of India hereby makes the following Order further to amend the Telecommunication
(Broadcasting and Cable) Services (Second) Tariff Order, 2004 (6 of 2004),
namely: -
1. (1)
This order shall be called the Telecommunication (Broadcasting and Cable) Services
(Second) Tariff (Eighth Amendment) Order, 2007.
……………….”
37. The
powers and functions of the 1st Respondent, the Telecom Regulatory Authority
of India, are given in chapter III of the TRAI Act. Section 11(1) (a) refers to
the functions of the Authority to make recommendations, either suo motu or on request from the
licensor. Section 11 (1) (b) relates to the functions which the Authority is to
discharge. Section 11 (1) (c) relates to levy of fee and other charges while Section
11 (1) (d) relates to administrative and financial functions. Section 11 (2) of
the Act states that the Authority may notify the rates at which the
telecommunication services within India and outside India shall be provided
under this Act. Section 12 of the Act empowers the Authority to call for
information and conduct investigations, while section 13 empowers the Authority
to issue such directions to the service providers as may be necessary for
discharge of its functions under Section 11 (1) of the Act. From a reading of all the sections, it is
clear that the Authority has the power to fix tariff as well as to give
directions to the service providers. The question however is whether in doing
so, the Respondent has rightly cited the relevant provisions of the Act so that
they have legislative Authority. It is seen from a reading of the Order that it
was issued in exercise of the powers under sub-clauses (ii), (iii), (iv) and
(v) of Section 11(1) (b) and Section 11 (2) of the Act. Admittedly, the Order
purports not only to fix the tariff but
also issues certain directions regarding the manner in which the channels are
to be supplied to the MSOs. This is a
power vested in the Authority under Section 13 of the Act. Similarly calling
upon the service providers to provide information is a power vested in the Authority
by virtue of Section 12 of the Act. These provisions of the Act have not been
invoked while passing the impugned Order. To this extent, the Order suffers
from weakness. We would however not like
to take a very technical view of such omission, although it is expected of a
statutory Authority, such as TRAI, that it would take due care while passing an
important Order such as this.
38. Another
contention of the Appellants is that the impugned Order has been passed without
the Authority having observed the obligation of transparency imposed upon it by
Section 11 (4) of the TRAI Act. The Appellant's contention is that in arriving
at the impugned Order, and particularly in fixing the ceiling on the
subscription rate, TRAI had relied on undisclosed market studies/survey, the
details of which have not been disclosed in the consultation paper. According
to the Appellants, this vitiates the tariff fixing exercise as it violates
section 11 (4) of the TRAI Act. Their argument is that the data must be
disclosed as well as the manner of arriving at the decision. Section 11 (2) is
controlled by Section 11 (4) and since these are legislative powers conferred
upon the Authority, they must be exercised properly. According to the counsel
for Appellants, violation of Section 11 (4) cannot be cured, even if the
documents are now furnished.
39. Refuting this contention,
the learned counsel for 1st Respondent stated that this argument is
borne more out of prejudice than on fact and that the 1st Respondent
had already indicated in their reply filed in December 2007 and January 2008
that the reports are available for perusal on request and that the reports of
two agencies -- Media Partners Asia and FICCI -- are available in public
domain. According to the counsel, none of the Appellants approached the Authority.
He further argues that the exercise of tariff fixation under section 11 (2) is
a legislative function, during which process, the Authority is required to look
into the comments of the various stakeholders and such other relevant material
as may be available to it to come to a final determination. His case is that
after receiving the comments of various stakeholders, nothing prevented the Authority
from referring to other relevant material available. The surveys and studies
relied upon by the Respondent in arriving at a decision were such documents. He stated that the Authority had put all factors
before the stakeholders for alternative solutions but that the Appellants did
not give any suggestions. So, the Authority had to rely on the available data. According
to him, the consultation paper was meant to give a broad indication but does
not give any scheme because the regulator was not prejudging the issue. Various
indices such as ARPU, slab system etc. were mentioned in the consultation
paper. After receiving suggestions from various stakeholders, a decision may be
taken which is entirely different. He stated that as long as reasons for
arriving at a decision were recorded, it satisfies the test of transparency.
According to him, Transparency does not mean that the Respondent has to give all
the documents to the stakeholders because the Authority itself was not in the
know of what documents it was going to rely on. Referring to the observations
of the Hon’ble Supreme Court in BALCO employees’ union (Regd) v. Union of
India, [(2002) 2 SCC 333], he pointed out that transparency does not
mean the conduct of government business while sitting on crossroads in the
public and that it would only require that the manner in which the decision is
taken is made known.
40. In order to examine this issue, we refer to
the consultation paper issued on 21.5.2007. We find that chapter 2 of the
consultation paper discusses in detail the issue of overall ceiling of bills
and also indicates a figure of Rs.250 for 65 channels including 30 FTA
channels. It also poses the question whether there should be a single overall
ceiling on monthly cable charges or whether there should be different ceilings
in urban and non-urban areas and the quantum of overall ceiling as well as the
periodicity at which this should be reviewed. Based on the comments received,
the Authority proceeded to fix the ceiling. Without examining, at this stage,
the correctness or otherwise of the ceiling, suffice it to say that the Authority
does not appear to have followed the procedure in an open manner. It is clear
from the Explanatory Memorandum that the documents in question formed a
significant basis in the Authority arriving at the decision. The documents,
relied upon by the Authority while finalising the ceiling, were not available
to the stakeholders prior to the issue of the impugned Order. It is not correct
on the part of the 1st Respondent to blandly state, as it did in
December 2007, after the Appellants raised the issue, that these documents are
now available on the website or for the asking. Strictly, it is irrelevant if
these documents are available after the Order has been issued and is impugned.
How are the Appellants to know which documents the Authority is going to rely
upon other than what was indicated in the consultation paper and the gist of
stakeholders’ comments put on the website? In fact, it is not the Respondent's
contention that the documents are not relevant for consideration by the
stakeholders. The very statement, after the event, that these documents are now
available in public domain would amount to an admission that these documents
ought to have been made available. The
counsel for Respondent states that it is not necessary that every document
relied upon by the Respondent is made available in advance to the world at
large. But it is also not the contention of the Respondent that these documents
were made available to the Respondent itself after the receipt of comments of
the stakeholders. In fact, the study by Media Partners Asia was commissioned by
the Respondent. Since this study report was given in January 2007, and was available
to the Respondent even at the time of issue of consultation paper, it ought to
have been made available to all the stakeholders or at least referred to in the
consultation paper so that those interested would have accessed the document.
There is reasonable ground, therefore, to infer that the Respondent did not,
wittingly or unwittingly, make this document available but relied upon it at a
later stage. It is true that in the case of BALCO
employees union case, cited supra, the Apex Court held that
transparency does not mean the conducting of the government business while
sitting on the crossroads in public. But in that very paragraph, the Apex Court
also stated that "at every stage,
the matter was looked into by the IMG and ultimately by the Cabinet committee
on disinvestment. The system which was evolved was completely transparent. It
was made known. …. whatever material was
received was examined by the high power committee known as the IMG and the
ultimate decision was taken by the Cabinet committee on disinvestment."
It is against this background that the Apex Court observed as indicated in that
case. In the instant case, however, the documents that were available with the Authority
were not indicated in the consultation paper. To that extent, we agree with the
contention of the Appellants and hold that the principle of transparency,
ordained under Section 11(4) of the TRAI Act, has been violated by the Authority.
41. We now come to the question whether, as
alleged by the Appellants, the impugned Order is only in the nature of
continuing the price freeze rather than tariff fixation. The learned Counsels for Appellants in Appeal no.s 10,11and 12 of 2007,
M/s Gopal Jain, Maninder Singh and Ramji Srinivasan traced the various Orders
that were issued pursuant to the notification no.39 dated 9.1.04. According to the
counsels, all the tariff Orders issued since January 2004 have only remained
interim Orders. Even the impugned Order
is only in the nature of a price freeze since it has frozen the prices as
existing on 1.12.2007 and not fixed any specific rate. They argue that Section 11 (2) gave the Authority
power to ‘fix’ tariff but not to paralyse the system. The counsels for Appellants
pointed out that barring some ad hoc increase, the actual task of tariff
fixation has never been undertaken by the Authority. According to them, inflation
does not form part of tariff fixation, and that the Authority is trying to do
everything other than tariff fixation.
42. The
learned counsel for 1st Respondent submitted that power to fix
tariff includes making the tariff in such a way that it can be implemented.
Explaining the tariff Orders, the counsel referred to clause 2 (f)of the
Principal Tariff Order dated 1.10.2004 which defines the term
"charges" and clause 3 dealing with tariff. He traced the evolution of the tariff Orders.
The Order dated 15.1.2004 was essentially an emergency Order to prevent prices
from being increased suddenly. The Order of 1.10.04 stipulated that the charges
as on 26.12.03 will be the ceiling with respect to both free to air and pay
channels. However, since the sector was witnessing a rapid growth, TRAI had to
come out with some regulatory mechanism and so left a window of opportunity, by
way of proviso to clause 3, for growth of the channels. The counsel stated that
consequently, the 2004 Order created two classes of service providers --
existing Broadcasters/ MSOs/ LCOs, who were governed by the freeze Order and
subsequent service providers were not governed by the freeze Order. Since the
major growth occurred after 1.10.04, a majority of service providers were
outside the freeze Order. The proliferation led to a situation where every time
a new channel was introduced, the subscriber price went up because of the
proviso to clause 3 of the 1.10.2004 Order. It is primarily this fact that led
to a review of the October 2004 Order. In the impugned Order, TRAI changed the
date from 26.12.03 to 1.12.07 so as to bring the post-04 service providers into
the tariff regime. Also TRAI wanted to go beyond the freeze order mechanism and
fix a proper and rational tariff.
43. The learned
counsel further mentioned that the salient feature of the Order dated 1.10.04
was that TRAI froze the market rates, which brought about a semblance of orderliness
while at the same time leaving a window for growth which was regulated by the
proviso. This has regulated the Broadcasters but did not bind the MSOs and LCOs.
For them, the only limitation was the market. Likewise, the new subscribers
were also not eligible to be covered by the ceiling. Consequently, this segment
i.e., MSO, LCO and new subscribers had to be brought within the system. There
was also a threat of increasing prices. So, the regulator froze the rates as on
1.12.2007 and, at the same time, evolved a ceiling to provide for those coming
into the system after 1.12.2007, so that they will also be on the same footing
as those that came in before. So the 2007 Order, according to the counsel for Respondent,
is not another freeze Order but something which has both a ceiling as well as
slabs. The cut-off date of 1.12.2007 applies to both the pre-26.12.03 operators
and post-2004 operators.
44. Referring
to the explanatory memorandum, the counsel stated that a cost-based study could
have been attempted. But a cost-based study or market study having been
opposed, market place was the only option which was the reason why the
regulator froze the prices at that level; this was the price level which the
market was charging. The Counsel referred to the proliferation of channels and
to clause 4 (d) of the Tariff Order, and stated that one of the objectives of
the Tariff Order 2007 is to nudge subscribers towards digitalization i.e. to
have a set-top box. The counsel for Respondent
stated that the impugned Order would be in force till effective competition was
realised. He indicated that
cost-based pricing is not possible. Further, the prices were so different that
the regulator did not know which price to adopt and so, in public interest, the
historic rate was adopted. He also stated that the key to appreciation of facts
is to see the objective and to examine whether the objective has been achieved.
He referred, in this context, to the judgement in Mafatlal Group Staff Association
and others v. Regional Commissioner, Provident Fund and others (AIR 1994 Supreme
Court 2271, at page 2275).
45. The
counsel for Appellants in Appeal no. 9 of 2006 generally supported the argument
of the counsel for Respondent and stated that there ought to be flexibility in
regulation making process and that it can only be by stages, involving certain
experimentation. In economic policy, flexibility to the policymakers is
assumed.
46. We have
carefully considered the arguments of all counsels. For a proper appreciation,
it is necessary to go into the statutory provisions as well as the background.
Section 11 (2) of the Telecom Regulatory Authority of India Act, 1997 reads as
follows:
"11. Functions of Authority -- (1) ...
(2) Notwithstanding anything contained in the Indian
Telegraph Act 1885 (13 of 1885), the Authority may, from time to time, by order,
notify in the Official Gazette the rates at which the telecommunication
services within India and outside India shall be provided under this Act
including the rates at which messages shall be transmitted to any country
outside India:
Provided that the Authority may notify
different rates for different persons or class of persons for similar
telecommunication services and where different rates are fixed as aforesaid the
Authority shall record the reasons therefor”.
Section 11 (1) (d) of this Act reads as follows:
"(d) perform such other functions including such
administrative and financial functions as may be entrusted to it by the Central
Government or as may be necessary to carry out the provisions of this Act:
provided that ……..."
47. As
indicated in Para 7 above, by virtue of a specific Order, the Central
Government entrusted certain additional functions to the Authority, which Order
reads as follows:
ORDER
New
Delhi, the 9th January, 2004
S.O. 45 (E). - In
exercise of the powers conferred by clause (d) of Sub-clause (1) of Section 11
of the Telecom Regulatory Authority of India Act, 1997 (24 of 1997)
(hereinafter referred to as the Act), the Central Government hereby entrusts
the following additional functions to the Telecom Regulatory Authority of
India, established under Sub-section (1) of Section 3 of the Act, in respect of
broadcasting services and cable services, namely:-
(1) Without prejudice to the provisions contained in clause (a) of Sub-section
(1) of Section 11 of the Act, to make recommendation regarding –
(a) the terms and conditions on which the
"addressable systems" shall be provided to customers
Explanation - for the
purpose of this clause, "addressable system" with its grammatical
variation, means an electronic device or more than one electronic devices put
in an integrated system through which signals of cable television network can be
sent in encrypted or unencrypted form, which can be decoded by the device or
devices at the premises of the subscriber within the limits of authorisation
made, on the choice and request of such subscriber, by the cable operator for
that purpose to the subscriber,
(c) the
parameters for regulating maximum time for advertisements in pay channels as
well as other channels.
(2) Without
prejudice to the provisions of Sub-section (2) of Section 11 of the Act, also
to specify standard norms for, and periodicity of, revision of rates of pay
channels, including interim measures.
[F.No. 13-1/2004 –
Restg.]
P.K.Tiwari
Dy. Secy (Restg.)
48. The learned
counsel for Respondent drew our attention to clauses 2 (f) and 3 of the Principal
Tariff Order dated 1.10.2004 which read as follows:
“2. Definitions:
(f) " Charges"
means and includes the rates (excluding taxes) payable by one party to the
other by virtue of the written/oral agreement prevalent on 26th December
2003. The principle applicable in the written/oral agreement prevalent on 26th
December 2003 should be applied for determining the scope of the term
"rates"
3. Tariff:
The charges, excluding taxes,
payable by
(a) Cable subscribers to cable operator;
(b) Cable operators to multisystem operators/Broadcasters
(including their authorised distribution agencies); and
(c) Multisystem operators to broadcasters (including their
authorised distribution agencies)
prevalent as on 26th December 2003 shall be the ceiling with
respect to walk free to air and pay channels.
Provided that ……”
49. Reading
all this together, it follows that what is to be determined is the charges
payable by different persons at different levels. It is true that this is an
exercise involving study of costing of different elements, which is why it has
been entrusted to an expert body such as TRAI. And, the Authority has on
15.1.2004, and purely as an interim measure, imposed a price freeze. This was
followed, as indicated above, by the consultation paper dated 20.4.2004 which
was formulated keeping in view the comments of different stakeholders received
in response to the earlier consultation paper of 15.1.2004. The consultation
paper of 20.4.2004 explores different methodologies in arriving at a suitable
price. But, the Order of 1.10.2004 continues to rely on the prices as on
26.12.2003, which imposes a ceiling for existing channels and expects the new
channels to have similar rates to those of similar channels existing as on
26.12.2003. In other words, while the consultation paper started with the
promise of arriving at an appropriate ‘tariff', the same did not materialise.
As we stated in Para33, while this is the background, we are concerned here
only with the Order that is assailed before us.
50. The
consultation paper dated 21.5.2007 starts with the premise that there is need
to revisit the issue of tariff regulation for non-CAS areas in a holistic
manner, and that it would be useful to take stock of ‘this tariff regime’ (the
one flowing from the Order of 1.10.2004). Chapter 2 of the consultation paper
deals with the experience from the perspective of different stakeholders. As
can be seen from Para 15 above, none of the stakeholders, be it
subscribers/LCO/MSO/broadcaster was happy with the tariff regime. Under the
circumstances, we would expect that an expert body such as TRAI, charged
specifically with the task of tariff fixation, and as part of its duty to regulate
the industry, would arrive at a tariff based on data. The TRAI has at its
disposal the necessary means -- statutory, administrative and financial -- to
call for information and study the various aspects. In fact, one can understand
that in issuing the Order of 1.10.2004, the Authority did not have sufficient
time to study the matter, which is no doubt complex, and arrive at a logically
fixed tariff. And that, therefore, it went again by the historic prices,
perhaps since it had to issue an Order quickly in an otherwise unregulated
scenario. But this ground is not available in 2007, when the Authority had
ample time to study the matter in depth. As already mentioned, the consultation
paper of 21.5.2007 starts with the promise of taking a holistic look at the
tariff regime but does not examine the possible options. It advocates the
imposition of a ceiling for the cable charges (cable subscriber to cable
operator) and in so far as the tariff at other levels of distribution namely,
between broadcaster and MSO and between MSO and cable operator, it arrives at a
judgement that such a ceiling is impractical, leaving the matter to continue to
be decided by way of negotiation between the parties, within the framework of
the guidelines issued by it on determination of subscriber base. In the
impugned Order, the Authority stipulated that the charges existing as on
1.12.2007 would operate at all levels subject to a ceiling of Rs. 130 to Rs. to
Rs. 260 which is fixed as the ceiling. There is nothing in the explanatory
memorandum accompanying the impugned Order to indicate that the Authority had,
through due diligence, reached a conclusion that the price as on 1.12.2007 was
reasonably appropriate. Because, in Para 2.27 of the consultation paper, the Authority
itself states that while one possibility is to go by historical prices, the
question is which of the innumerable (emphasis supplied) historical
prices operating in the current non--CAS regime could be considered as
representative, given the fact that these vary widely across regions/economic
strata. The explanatory memorandum accompanying the impugned Order does not
also give any clue to the mind of the Authority. In para 3.18, the explanatory
memorandum points out that MSOs and cable operators stated that in order to
enable them to deliver the required number of channels to the subscribers at or
below the ceiling rates, it would be necessary to bring the Broadcasters within
the ambit of the proposed tariff regime in an appropriate manner so as to
enable them to source the content at the right prices. It also states that the Authority
finds considerable merit in these suggestions. Yet, there is no indication of a
tangible Action in this regard.
51. In the
light of this, we conclude that the impugned tariff Order is not an exercise in
tariff fixation as is ordained by section 11 (2) of the Act, in so far as it
relates to fixing the prices as on 1.12.2007. Similarly there is no cogent
explanation for adoption of 4% as the rate of inflation except stating at Para
4.2 (i) of the explanatory memorandum that it is the same increase 'allowed'
(not fixed) by the Authority vide its Tariff Amendment Order dated 29.11.2005. A
perusal of the explanatory memorandum to the Telecommunication (Broadcasting and
Cable) Services (Second) Tariff (third amendment) Order 2005, (8 of 2005) dated
29.11.2005 shows that it was based on the then existing annual rate of
inflation including for the week ending 5.11.2005. Now, nowhere is there an
exercise by the Authority to examine whether this rate of inflation holds good
even in October 2007 when the impugned Order was issued.
52. Thus,
we hold that in adopting the rates existing as on 1.12.2007 and a rate of 4% thereon,
the Authority merely went by convenience of arriving at an easy decision rather
than straining itself to be founded on facts and figures. To that extent, we
hold that the exercise carried out by the Authority is not the one envisaged
under section 11 (2) of the Act, under which it has issued the impugned Order.
53. The learned
Counsel for the 1st Respondent, Mr. Dwivedi, drew our attention to
the observation made by the Hon’ble Supreme Court in the Mafatlal Group Staff Association case, cited supra. The relevant portion reads as follows: "while judging the validity of such schemes,
one should not pick out an individual instance -- not representing the
generality of the situation -- and make it the basis. One has to take an
overall view, i.e., whether it is beneficial to the class concerned as a whole
or not." We have carefully gone through the judgement. The case cited
relates to an entirely different circumstance and the facts in this case are at
variance with those therein. While the generality of the observation cited is
no doubt relevant, the question here is not one of an individual or rare
instance.
54. We now
come to the next ground on which the Appellants have assailed the impugned Order,
namely that the ceiling imposed on the subscription charges to be collected by
LCOs from the subscribers is without basis and that the classification of
cities and towns as well as the slab system stipulated in the impugned Order is
irrational.
55. The
first ground on which the Appellants, other than Appellant in Appeal no.
13/2007 have assailed the impugned Order in respect of the pricing is that there
should not have been any regulation of pricing in the first place and that,
instead, there should have been forbearance. They argue that the regulator
himself had conceded that the best regulation is by the market, and that the
regulation by way of the tariff Order of 1.10.2004 was only by way of an
interim measure, and that the Authority had itself stated that it would be
withdrawn as soon as there is evidence of effective competition. In the context
of admittedly high growth, both in terms of channels as well as platforms, they
argue that the case was ripe for forbearance. The counsels for Appellants
argued that it is now unjustified on the part of the Authority to state that
there is not enough competition to warrant deregulation/withdrawal of tariff
freeze. The Counsel for the 1st Respondent argued that while it is
true that there have been developments subsequent to the Principal Tariff Order
of 1.10.2004, this has still not resulted in a level of competition where it
can be said that the subscriber's interests are fully taken care of by the
marketplace. He refers to paras 3.7 and 3.8 of the explanatory memorandum
wherein it has been indicated that competition will exist only when a channel
can easily substitute for another channel, which is often not the case since each
channel has certain uniqueness about it. Secondly, since only a small share of
the cable homes are served by DTH services, the last mile cable operator enjoys
a virtual monopoly.
56. The
consultation paper of 21.5.2007 deals with the issue of forbearance and states
that volume alone may not be an indicator of adequate competition and states,
in para 2.12 thereof, that the touchstone of effective competition is whether
there are enough players, whether the conditions exist in the market to enable
a few players to use their dominance; whether all the stakeholders have
sufficient knowledge to play an effective role in driving the market forces;
and whether fear of loss of advertising revenue on account of increased
subscription charges is enough to deter price increase. While admitting, in the
explanatory memorandum to the impugned Order, that there has been a steady increase
in the new channels, the Authority holds that there is not adequate
competition. The Authority refers to the explanatory memorandum annexed to the
Tariff Order for cable services in CAS area dated 31.8.2006, wherein it was stated
that historically there has been lack of effective competition and lack of
choice to the subscribers. It is stated therein that the cable TV industry is
characterised by fragmented cable operators and a few dominant Broadcasters and
large MSOs. During the course of his arguments, the learned counsel for the 1st
Respondent mentioned about the rapid growth of the cable industry in the last
two and half years.
57. We have
carefully considered the arguments of both the sides. We do not wish to
substitute our judgement to that of the Authority in this matter. Introduction of forbearance or otherwise is a
matter of judgement by the Authority keeping in view the various factors. We however
find the argument of the 1st Respondent, the Authority, that
forbearance is not being introduced in the context of lack of effective
competition, curious. On the one hand, the Authority admits that the number of
channels as well as the number of cable subscribers has grown significantly. It
is admitted that number of cable TV subscribers has gone up to 78.4 million in
2007 from 50.31 million in 2003. Similarly, the number of MSOs is said to be
6000 and the number of cable operators 70,000. Yet, going by the touchstone of
the criteria listed by the Authority in the consultation paper, a conclusion
was arrived at, that effective competition is lacking. If one were to go
strictly by the criteria listed therein, it would always be difficult to arrive
at a definitive conclusion about effective competition. The terms used therein,
whether there are enough players; whether the conditions exist in the market to
enable a few players to use their dominance; whether all the stakeholders have
sufficient knowledge to play an effective role in driving the market forces;
and whether fear of loss of advertising revenue on account of increased
subscription charges is enough to deter price increase, are so subjective that
it does not permit of any rational analysis. To this extent, we hold that while
introduction of forbearance or otherwise is within the competence of the
judgement by the Authority, it must be based on more rational analysis than
what was attempted.
58. The
next ground on which the price arrived at by the Authority has been assailed is
about the ceiling of charges being determined at the level existing on
1.12.2007. The Appellants have stated that this fixation ignores the fact that
the programming of channels is a dynamic process and that the prices need to
relate to the cost of programming, and that the Tariff is hampering the interests of the Broadcasters
in as much as it would cause serious loss to them. The Respondents counter this
argument. Both the counsels have argued that the Broadcasters have not shown
any figures to prove their point. The 1st Respondent’s contention is
that the so-called "freezing" of cable tariff is already contained in
the Principal Tariff Order, and that it would continue even if the impugned
tariff Order is set aside. Besides, TRAI changed the date from 26.12.03 to
1.12.07 so as to bring the post-04 service providers into the tariff regime. The
counsels further argued that the very growth of the broadcasting industry is a
clear indication that the Broadcasters are not at a loss. The Counsel for 2nd
and 3rd Respondents argued that contrary to what is being argued by
the Broadcasters, the costs for Broadcasters are actually coming down. The Appellants’
contention that the costs are going up is belied by the fact that expenditure
of Zee Entertainment in the year 2008 is less than that of 2007 by as much as
19% and that the operating income itself grew by 508% even as the costs of
goods and operations had gone down by 31%. It is also pointed out that the very fact that
the carriage arm of Zee Turner (Appellant in Appeal 11/2007) namely WWIL, is incurring
losses shows that the Broadcasters are making profits while the MSOs are losing.
59. We find
that the documents sought to be relied upon by the Counsel for the 2nd
and 3rd Respondents relate to the period before the impugned Order.
In any case, It is difficult in an Appeal like this, to determine whether one
of the parties involved is actually incurring loss and if so the quantum.
Suffice it to say that the explanatory memorandum to the impugned tariff Order
does not give adequate reasons as to why the prices have been frozen at the
level of 1.12.2007. We have already dealt with this aspect in paras 50 and 51
above. We would like to reiterate
that the Authority would have done well to analyse the possible effects of the
decision on various service providers before issuing the impugned tariff Order.
60. A
significant feature of the impugned tariff Order is that it has, by way of clause
2 (f) and schedule I to the said Order, fixed a ceiling on the price chargeable
by the local cable operators from the cable subscribers. This ceiling varies
with the number of channels as well as the area in which the cable subscribers
live, and ranges from Rs.130 to Rs.260. The contention of the Appellants is
that in a non-addressable system, where the mode of transmission is analogue, and
the capacity to carry signals is limited to 65 or 70 channels, the impugned Order
raises several issues.
61. Firstly, it does not serve the interests
of the consumer because it is not open to the MSO/cable operator to carry a
single extra channel to go into the next slab, where he would realise extra
revenue ranging from Rs. 15 to Rs. 40. Explaining this, Mr. Ramji Srinivasan,
learned counsel for appellant in Appeal no. 12 of 2007, states that if an
MSO/LCO were to give 20 pay channels (in addition to FTA channels), he would
charge Rs. 160 in ‘A1’ and ‘A’ class cities and Rs.130 in ‘other areas’; but if
he were to give 21 pay channels (i.e., one channel extra), he can charge Rs. 200
or Rs.160 respectively, thereby gaining extra revenue of Rs. 40/30 for this
channel. The position is likewise, in respect of other slabs. But the subscriber
who does not have the power to pay as per the number of channels he is viewing,
ends up paying a very high price for this extra channel. In reply, counsel for
the 1st Respondent pointed out that an MSO or a cable operator
cannot automatically migrate to the next slab by adding only one channel. It is
explained that there are two ceilings levels in the impugned tariff Order --
one relating to the charges existing as on 1.12.2007 and the other given in
schedule I. Where an MSO/cable operator was charging a certain amount on
1.12.2007, addition of another channel will entitle him to charge extra only to
the extent of the rate of that channel but does not permit him to migrate to a
slab in the schedule I. The Counsel for 1st Respondent also contended
that the price regime given by the impugned tariff Order enables the
subscribers to know whether they are being overcharged and in case the number
of channels being supplied to them is less, it would enable a reduction in
their monthly cable bill. He, therefore, states that this Order is very much in
the interests of the consumers.
62. Secondly,
it is contended by the Appellants that according to the Authority, the charges
per channel in a non-CAS area should be higher than that of a CAS area because
in the latter, thanks to addressability, the actual number of subscribers is known.
But by virtue of the impugned Order, the position is reversed and the rates per
channel in a non-CAS area become lower than those in a CAS area. The Counsel
for Appellant in Appeal no. 11/2007 refers to the Explanatory memorandum to the
interconnect regulations dated 10.12.2004 which states that "… it should normally be expected that
price in an addressable system would be lower than in a similar non-addressable
system". He pointed out that since a sum of Rs. 77 is being charged
for 30 FTA channels, when the balance amount (ceiling minus Rs.77 for 30 FTA
channels), stipulated in schedule I to the impugned Order, is distributed among
the number of pay channels, the per channel cost works out to Rs. 2.40 to Rs.
4.15 which is lower than the sum of Rs. 5 per channel fixed by the Authority
for CAS area. Thus, he argues, this approach of the Authority is at variance
and in clear conflict with its own tariff for CAS areas. The counsel for 1st
Respondent states that the Appellant is trying to mislead the Tribunal. In its reply,
the 1st Respondent stated that this argument of the Appellant is
based on the premise that in non-addressable systems, it is difficult to
correctly assess the number of subscribers on account of under-declaration. His
argument is that this problem of under-declaration is between the MSOs/LCOs and
the Broadcasters and is not an issue between cable operators and consumers. It
is argued that it is possible that the rates charged by Broadcasters from MSOs
and by the MSOs from cable operators may be higher in non-CAS areas as compared
to CAS rates but the same analogy cannot be applied to rates charged by cable
operators from consumers. In fact, because of the practice of cross-subsidisation,
at the consumer level, the rates may be higher or lower compared to CAS rates.
Reference is made to para 4.3 (iv) of the explanatory memorandum to the
impugned tariff Order where it is stated that some of the MSOs are giving
discounts in CAS areas and these discounts are taken into account while fixing
the price at the subscriber levels. It is argued that, after taking into
account these discounts, the rates for a package of 30 FTA and 30 pay channels
is Rs. 182 while the ceiling specified in the tariff Order for non-CAS areas is
Rs. 200. The Respondent also states that it is not correct to compare CAS rates
with non-CAS rates in other cities, since CAS has been introduced only in four
metros. While noting the contention of the Respondent, it appears to us that it
is in conflict with what was stated in the explanatory memorandum to the Order
dated 31.8.2006 which has been brought to our attention. The Respondent has not
satisfactorily explained this divergence of views at two different points of
time. Secondly, and more importantly, the issue at hand is the basis on which
the price slabs have been fixed. We will be dealing with this in the next few paragraphs. Another argument of the Appellant is that the
consequence of stipulating a price ceiling at the retail level amounts to
fixing an average price of pay channels at each level, which is wholly
arbitrary, since each of the pay channels is unique in terms of content and cannot
be subjected to uniform pricing. The Counsel for Respondent argues that the
same position existed even prior to the issue of the Order.
63. Thirdly, the Appellants question the
manner in which the price ceiling has been determined. The counsel for Appellant in Appeal no. 10/2007 strongly criticised the
lack of an attempt by the regulator to even attempt an analysis of the costing
but instead relying on historical prices. Referring to para 2.27 of the consultation paper dated 21.5.2007, he
argued that what is supposed to have been done in 2004 cannot be considered to
be valid even in 2007-08, particularly when the regulator states that this
exercise is to review the tariff regime in the light of the developments of last
two years.
64. Fourthly, the counsels for Appellants
argued that the classification of cities, on the lines adopted by the
government for the purpose of house rent allowance (HRA) is arbitrary. There is
no material or rationale for the classification of cities. Classification of cities adopted by the
regulator is an attempt by TRAI not to do its homework. Instead of
considering indices like the consumer price index or any other index, the
regulator has taken recourse to the house rent allowance for government
servants, which is not appropriate. Central Government employees form a
minuscule percentage of the country's population and this cannot, therefore, be
a guiding criterion for price fixation. Besides,
this classification did not figure in the consultation process and explanatory
memorandum cannot rectify this. The counsel for 1st Respondent
stated that para 4.3 of the Explanatory memorandum answers three questions --
the need for slabs, the rationale for classification cities on the basis of
HRA, and the rationale for ascribing a particular rate to each class. He
justified the classification on the ground that the tariff had to be
transparent and something that can be understood. The HRA classification
relates to the questions raised in the consultation paper of 21.5.2007. He also
stated that while everybody asked only for forbearance, no one really suggested
an alternative to the HRA classification. He also stated that one advantage of
the HRA classification is that in big cities, the house rent is high because of
people's capacity to pay. Thus, it had some nexus with what was sought to be
achieved and this was the only classification possible and that alternative to
this approach would have meant fixing city-wise tariff. The counsel also stated
that the regulator had to devise a scheme whereby the slabs were minimal and
fixing city-wide ceilings would be a gigantic task. The learned counsel also stated that, during the
consultation process, while Broadcasters asked for forbearance, the MSOs asked
for a country-wide ceiling of Rs. 200 as can be seen from para 3.3 of the
Explanatory memorandum. The regulator took average of three studies that were
conducted and worked out an average of Rs. 168. Multiplied by 80 million cable
homes, it gave the total off take and this was tried to be fitted into a
structure as close as possible to the existing rates and that was how a figure
of Rs. 152 was arrived at; adding 4% to this gave the figure of Rs. 158. The
DTH and CAS rates were Rs. 275 and Rs. 252 respectively. Based on these, the
ceilings for different cities were fixed.
65. Fifthly,
it is argued that as a result of this Order, all the people in a given city are
brought into one category, whether they are subscribers in a well-to-do
locality or a poor locality, and that this eliminates the element of cross
subsidisation inherent in the earlier practice and also mentioned by the
regulator as a positive element.
66. Sixthly, the Appellant in Appeal no. 13/2007
points out that the relationship between Broadcasters and an MSO is always
based on a negotiated subscriber base. There is always a demand from the Broadcasters
for the subscriber base to be hiked periodically. Since the charges that can be
collected from subscriber is now limited by virtue of the ceiling, any hike in
the subscriber base and consequent increased payment to the Broadcaster would
necessarily have to be borne by the MSO, thus imposing a higher burden on him.
Counsel for Appellant stated that in the Broadcasting industry, the price is
negotiated and the subscriber base is fixed accordingly; this aspect has not
been attended to by the regulator, leaving this as an incomplete exercise. The Counsel
for the Appellant also argued that earlier, the cable operator could
cross-subsidise different segments. But this facility has been taken away by
the impugned Order. Because of the tariff Order, the LCO cannot charge more
than Rs.260 per month in an ‘A’ class city. But in a slum area, where the LCO
was charging say Rs. 50, he cannot charge more than 4% of Rs.50 i.e. a total of
Rs.52. This is leading to a totally chaotic situation and removes the earlier
principle of cross subsidisation. He pleads that the market regulation should
either be from the top i.e., based on the cost to the Broadcasters and going
down to the consumer or it should go from bottom up; but what TRAI has done is
a half-baked exercise. Referring to Para 4.2 (ix) of the explanatory memorandum
to the impugned tariff Order, he points out that TRAI ‘hopes‘ that the Broadcasters
would honour the arrangement and states that in a commercial matter, there cannot be a
question of ‘hope’ and that this is an instance of the Authority exercising its
power in an arbitrary fashion. He also states that to determine the subscriber
price only, without any reference to costs or sharing pattern is against basic
economic principles.
67. The
counsel for the 1st Respondent argued that the basis for Schedule I
is not the costs (of which there is no record) involved in the Distribution
chain but the capacity of consumers to pay. When the regulator initially froze
the market rates, the market was based on the capacity to pay. He stated that
the regulator had tried to tackle the price issue in two ways -- (a) by
freezing the market rates and by bringing in the post-2004 providers
/subscribers and (b) by placing a ceiling on them. The counsel for Respondent
argued that there is nothing on record to show that any of the service
providers is facing a loss because of the impugned Order. Even the only argument of Appellant in Appeal
no.13/2007 is that the à la carte measure is half baked. Exercise of tariff
fixation involves so many factors that need to be harmonised while at the same
time ensuring that public interest at large is subserved. He contended that the
rates fixed by the regulator are reasonable and correspond to the market rates
and that all the three classes --pre-03, post-04, post- 07 -- are brought on
par.
68. As
regards the price determination, the counsel stated that there were only two
alternatives -- cost-based pricing and historical pricing. Cost-based pricing
was not possible and insofar as historical prices are concerned, it meant the
prices prevalent in the market. Here, the rates were varying and there was no
one representative price. And hence the prices were frozen in 2004 and 2007. He
also stated that the regulator tried to ensure that Broadcasters also get their
due share from the subscription fees, as can be seen from para 4.1 (iii) of the
explanatory memorandum and para 2.27 of the consultation paper of 21.5.2007.
69. We propose
dealing with all the arguments together, since the subject matter is the
correctness of the price ceiling fixed in the schedule annexed to the impugned
tariff Order. As regards the contention that the price fixation under the Order
does not serve the interests of the consumer, we are of the view that setting a
price, per se, is a matter of policy
and cannot be said to be against consumer interests. The question is whether
such fixation is reasonable to all concerned. Any price fixation affects not
only the consumers but also the entire distribution chain i.e., cable
operators, MSOs and Broadcasters. The very preamble to the TRAI Act reads as
follows: "To provide for the
establishment of the Telecom Regulatory Authority of India and the Telecom Disputes
Settlement and Appellate Tribunal to regulate the telecommunication services,
adjudicate disputes, dispose of appeals and to protect the interests of service
providers and consumers of the telecom sector, to promote and ensure orderly
growth of the telecom sector and for matters connected therewith or
incidental thereto" (emphasis supplied). The function of TRAI in issuing the tariff Order
therefore is to ensure that in the process of regulation, the interests of all
concerned are considered and an orderly growth is assured.
70. The two
principal aspects of the issue under consideration are whether the ceiling
fixed is appropriate including the manner of classifying the cities; and
whether this harmonises with the interests of all concerned. It is admitted
that the rates fixed are based on historic prices i.e., prices prevailing in
the market. The Counsel for 1st Respondent himself has stated that the
Authority took average of the three studies that were conducted and arrived at
an average of Rs. 168, multiplied this by the number of cable homes, and fitted
the entire revenue into a structure as close as possible to the existing rates.
The manner in which the figure of Rs.168 was arrived at has also been discussed
at length and has been strongly contested by the Appellants, on the ground that
the concerns raised were not made available to the stakeholders. Be that as it
may, the studies conducted by the Authority also showed that there is a wide
variation in the charges at different places ranging from the Rs.149 in Kochi
to Rs.322 in Shillong, as indicated in Para 3.9 of the explanatory memorandum
to the impugned tariff Order. It is not clear from the records nor has it been
brought out by the Respondent, either in the pleadings or arguments, that the
studies have taken note of the variations across various tiers of cities/
economic strata, in arriving at the figures notified in Schedule 1. In other
words, the figures that were arrived at and notified as Schedule 1 are, at
best, assumptions made by the Authority. In classifying the cities too, the Authority
appears to have taken recourse to the classification of Ministry of Finance for
the purpose of house rent allowance, on the ground that it equally reflects the
subscribers’ capacity to pay. It is quite obvious that the house rent allowance
classification used by the Ministry of Finance is for the purpose of Central
Government employees. By no stretch of imagination can it be inferred that the
capacity to pay of people at large, living in a given city will be the same as
that of the Central Government employees. It also does not meet the contention
of the Appellants that in a normal market situation, different segments of
society are charged at different rates and there is an element of cross
subsidisation. In para 2.22 of the consultation paper of 21.5.2007, the Authority
itself had recognised this aspect. Yet, the impugned Order does not allow for
any such cross subsidisation. The contention of the Respondent is that in so far
as persons already covered, the ceiling fixed with reference to 1.12.2007 will
operate. At the same time, for the rest, including for new subscribers who may
be belonging to the lower economic strata, the ceiling figure will apply,
although it is open to an MSO/cable operator to supply channels at a lower cost.
These figures have apparently been arrived at from the average figure, which
itself is an average of the high and low. Now, the economics of distribution will
obviously not work out if the low is retained as such and if the high is
brought down to the level of average. This is in addition to the problem of the
rates being pegged at historic levels with a minor adjustment regarding
inflation. Obviously, operating this at the ground level would be difficult
particularly when the Authority itself admits in para 3.9 of the explanatory
memorandum that "the mere
availability of power to regulate and intervene at any time by TRAI has not
proved to be a deterrent and has not prevented market aberrations of the type
mentioned above". In such a situation, we would expect that the Authority
will lay down a figure which is reasonable, which can easily be implemented and
which satisfies the various levels in the distribution chain. The Respondent
has also not been able to meet satisfactorily the charge of the Appellants that
in fixing a ceiling based on the number of channels, they are unwittingly
giving scope to the local operator to pick up channels which are less
expensive. In a non-addressable scenario where the subscriber has no choice of the
channels he views, the impugned Order would act as a deterrent to the
development of good quality channels. We are inclined to agree with this
contention of the Appellants. There is every possibility that resultantly, MSOs
will try and access the channels at the cheapest price and this would in turn
drive the Broadcasters to seeking a greater share of their revenue from
advertisements. Already, there is enough dissatisfaction that viewing time is
being occupied more and more by commercial advertisements, and this situation
could only worsen. It is necessary for
the Authority to keep in view that its function is also to ensure orderly
growth which includes quality growth. We find that the exercise undertaken by
the Authority falls short of these requirements. Accordingly, we hold that the
price ceiling fixed including for different tiers of channels/cities is
arbitrary and irrational.
71. Another
feature of the impugned tariff Order is clause 3C, which contains a Direction
to every Broadcaster to offer all its channels on à la carte basis to the
MSO/cable operator. It also lays down the rates at which each of the pay
channels will be charged vis-à-vis the bouquet. The counsels for the Appellants
argue that this Order is irrational, arbitrary, and deserves to be set aside.
Their contention is that in so prescribing, the Authority failed to appreciate
that there is a virtual monopoly of MSOs and cable operators in their
respective areas. In a non-addressable system, the under declaration of the
number of subscribers is extremely high and there is no mechanism to determine
the actual number of subscribers viewing the channels, which is why the bouquet
arrangement is resorted to. Hence, it is not possible for the Broadcasters to
offer the channels on à la carte basis. If implemented, it will cause severe
financial prejudice to the Broadcasters. The Counsel for Appellant in Appeal
no. 11/2007 stated that Subscription revenue constitutes about 52% of the total
broadcasting revenue of Zee network. The impugned Order will further reduce the
already under declared subscription revenue. The sharing of the subscription at different levels has been partially
and marginally addressed without addressing the viability of the same, which resulted
in much litigation on the mutually agreed subscriber base. When the consumer
group could not give any solution, it is pertinent to mention that the
Regulator has to device its own way for the purpose of arriving at a practical
and workable solution. This has not been
carried out with sound reasoning or costing partially the components of various
inputs driving the industry.
72. Another
contention of the Appellants is that this recommendation of TRAI is actually
contrary to its earlier decision when it had rejected the same request received
from the MSO Alliance in their Telecommunications (Broadcasting and Cable)
Services (Second) Tariff (Sixth Amendment) Order 2006. In the explanatory
memorandum attached to the 2006 Order, TRAI had recorded that the consumer
organisations have stated that the choice to the operator would only be a
‘farce’ given the scenario of area monopolisation at the last mile level and
that the amendment would only give leverage to the MSOs. After analysis, it
felt that this concern could be better addressed through introduction of
addressability and spread of digitalisation. In their reply in Appeal no. 9 ©/2006,
TRAI had submitted that that it is not technically feasible to provide choice
either to the LCO or to the consumers to select individual channels. The Appellant’s
case is that the ground situation has remained unchanged since the Order dated
31.7.2006 and that the impugned Order, directing the Broadcasters to supply
channels à la carte to the MSOs, is irrational.
73. The Appellants
also argue that by enabling the MSO/cable operator to choose the channels, the Authority
is encouraging the carriage fee regime and is facilitating the MSOs to seek
exorbitant carriage fee. They contend that the impugned Order imposes a double strain
on the Broadcasters to provide channels on à la carte basis to MSOs/cable
operators without any mechanism to ensure that they get the subscription money
for actual number of subscribers in a non-addressable regime.
74. The
counsel for 1st Respondent submitted that the Appellant’s contentions
are baseless. Merely because à la carte choice cannot be made available to
consumers in non- CAS areas does not mean that à la carte transaction between Broadcasters
and MSOs will not be beneficial to consumers. As indicated in the explanatory
memorandum, the attempt is to prevent ‘perverse pricing’ of bouquets vis-à-vis
individual channels. It has been the practice in the industry that bouquets are
formed such that they contain only one or two popular channels and the
MSOs/cable operators are forced to take the entire bouquet and they have to pay
as if all the channels in the bouquet are being watched by the entire
negotiated subscriber base, while only the popular channels have high
viewership. In the process, the entire cost of the bouquets is borne by the
subscribers who are not in a position to choose individual channels because of
the non-addressable system. This is done by the Broadcasters in order to
enhance their revenue from advertising, which is actually the major part of
their revenue. It is to prevent this that the à la carte system has been
brought in. The Respondent’s case is that the question whether the benefit
arising out of the financial saving from the à la carte choice of channels
would be passed on to consumers by MSOs/cable operators could not have been
answered satisfactorily in the previous regime but that the situation has now
changed because the Authority has decided to impose a reasonable ceiling on the
amount that can be charged from the subscribers and that this will compel the
MSOs and cable operators to pass on the financial benefit to subscribers. It is
also stated that the competition from the DTH operators will act as a further
check to ensure that benefits are passed on to subscribers by MSOs and cable
operators.
75. Adverting
to the argument of the Appellants that the impugned Order would result in
exorbitant and unregulated carriage fee regime, the counsel for 1st Respondent
stated that this allegation is without basis. The total number of channels to
be carried by the MSOs/LCOs will continue to be determined based on consumer
demand, business feasibility and technical capacity of the network, all of
which remain the same prior to and after issue of the impugned Order. The Respondent
stated that the issue of carriage fee being regulated was found to be not
feasible at this stage and could be considered once there is considerable
spread of digitalisation.
76. Hailing
the impugned tariff Order as a visionary decision, the Appellants in Appeal no.
9 of 2006 submitted that neither the consumers nor the operators could choose
individual channels and the Broadcasters resorted to ‘Hard bundling’, meaning
thereby that they would put all their channels into one or more bundles and
sell them en bloc, leaving no choice
to the operators. The result is that the consumer is forced to pay for all the
channels of the broadcaster even though he may not be viewing the same. Their
contention is that this is done in order to ensure advertisement revenue in
respect of all the channels, adopting the viewership of the driver channel to
all the channels. The learned counsel for Appellant, Mr. Vaidyanathan, stated
that about 80% of the revenue of Broadcasters is from advertisement, which is
why the Appellants are challenging the regulation (according to the Counsel for
Appellants, of the total revenue of Rs. 10,000 crore, Rs. 8000 crore comes from
advertising and Rs. 2000 crore from subscription revenue). He stated that the
real situation will be known to the advertisers if à la carte choice is given
to the MSOs. Secondly, since bouquets are occupying most of all the cable space
in the analogue mode, choice à la carte will enable MSOs to bring in new
channels. According to him, this is a right available to the Appellants under Article
19 (1) (a) of the Constitution. He argues that if there is restriction on new
channels being introduced, the freedom of expression is affected including the
right of every subscriber. He says that the freedom of expression involves a
corresponding right on the part of the subscriber not to be compelled to take a
bouquet of channels. Adverting to the other Appellants’ argument that the MSOs
cannot be the representative for the subscribers choice, the learned counsel
states that it cannot be a case of all or none but has to be in a phased
manner. While the subscribers will have the choice once CAS is implemented, it
would however take time. A phased implementation and some experimentation is
necessary in economic policy.
77. Speaking
on behalf of the 2nd and 3rd Respondents in Appeal no.s
10, 11 and 12/2007, the learned counsel Mr. Kathpalia pointed out that in the
absence of this choice, the MSOs are forced to carry channels which are never watched
by a subscriber. He pointed out that no single family or even locality would be
watching each of the channels which form part of a bouquet. Admitting that it
is not possible for the MSOs to send appropriate bundle of channels separately
to each LCO, he stated that the choice of channels by the MSO will be better
than that of the broadcaster.
78. We have
considered the matter carefully. There are essentially two issues. (A). whether
the direction to give channels à la carte to MSOs will translate into better
choice of channels for consumers? (B). whether this arrangement will result in
the MSOs being able to demand a higher carriage fee?
Appeal no. 9 (c) of 2006 was filed by a group of MSOs
under the style and name of MSO Alliance and another MSO against the decision of
TRAI communicated in Para 3.6 of the explanatory memorandum to the Telecommunication
(Broadcasting and Cable) Services (Second) Tariff (Sixth Amendment) Order 2006,
(5 of 2006) dated 31.7.2006 wherein TRAI decided against the proposal of the
MSO Alliance that the tariff Order of 1.10.2004 be amended to delete the
provision for new channels being part of the new separate bouquets of at least
that they should have a choice to between à la carte and bouquet. The decision
of TRAI was taken in the light of three factors -- that à la carte pricing
could be more expensive due to higher distribution costs and that it could, in
the absence of addressability and the current disparities in market power, lead
to a situation where the MSOs are forced to take all the new channels and that
too at a higher price; the consumer organisations had indicated that the choice
to the operator would only be a ‘farce’ given the current scenario of India
monopolisation at the last mile level and the amendment would only give
leverage to the MSOs; and thirdly that in the context of the then existing
regime, it would lead to three sets of regulation regime whose implementation
would be difficult. In the reply affidavit filed in that case, besides
reiterating the concerns of the consumer organisations, the first Respondent, TRAI,
clearly stated that à la carte choice of channels in a non-addressable system
is not feasible. This was in October 2006. The Authority had raised the issue
once again in the consultation paper dated 21.5.2007; para 2.25 of the
consultation paper reads as follows:
"2.25
The
existing non-CAS tariff Order of 1.10.2004 as amended by an order of 31.7.2006
does not provide an option to an MSO to choose a channel. This could be cited
as a bottleneck in not providing all the popular channels. A related issue that
arises is whether the MSOs who are technically equipped to receive channels on
à la carte basis should be given the option to choose individual channels. This
may enable the MSOs to choose channels, which may reflect the popular choices
of the subscriber based on regional preferences. This may also prevent the
subscribers from being burdened with the new pay channels to some extent. But the problems of disputes over
subscriber base and the consumer not getting a choice to choose individual
channels may however continue to remain in the absence of addressability."
(Emphasis supplied).
79. In
response to the issue posed in the consultation paper, the stakeholders gave
different views. While the Broadcasters and MSOs took divergent stands, the
consumers too did not unanimously/totally support the proposals. The
explanatory memorandum to the impugned tariff Order deals with this issue at
length in paragraphs 3.20 to 3.26. In para 3.24, the changed situation has been
explained through two factors -- that the Authority has now decided to impose a
reasonable ceiling, which will compel the MSOs and cable operators to pass on
the financial benefit of the subscribers; and that the growing competition from
DTH operators will act as a further check to ensure that the benefits are
passed on to subscribers by the MSOs and cable operators. Para 3.25 explains
that the earlier concerns regarding differential tariff regimes no longer exist.
80. In our
view, two principal factors still remain. Firstly, the argument that choice of
channels by MSO/LCO does not translate into subscribers’ choice is still valid.
It is not the case of the Authority that the ground situation has changed
dramatically and that the last mile monopoly has disappeared. To our specific
query, counsels of both sides confirmed that even prior to the issue of the
impugned Order, MSOs were receiving bundles of channels from the Broadcasters
and in turn re-bundling them into their own bouquets, what was otherwise known
as ‘soft bundling’. They were doing so as they had to limit the number of
channels to 70 because of the capacity limitation in the analogue mode. The
counsels also indicated that even today, none of the MSOs has taken à la carte
choice. We are not convinced by the argument that the prescription of a ceiling
on the cable charges at the subscriber level will translate into the MSOs and
cable operators passing on the financial benefit to subscribers. It is quite
likely, as pointed out by some stakeholders, that the MSOs may fill their cable
capacity with lower-priced channels and demand higher charges both from the
broadcaster, by way of carriage fee, and from subscribers for making available
the better channels. There is no regulation in the impugned tariff Order to
protect the subscriber from the vagaries of the MSO/cable operator. Besides, as
indicated by the Authority in the explanatory memorandum, there are 6000 MSOs
and 70,000 cable operators serving 78 million homes of which only a small
percentage is covered by DTH/CAS. In other words, each MSO covers about 12,000
cable homes. While it can be argued that a choice of channels by an MSO, in the
form of bouquet, is better than that of the broadcaster, it is unlikely that it
will adequately reflect the choice of all consumers, even as a group. Secondly,
in a non-addressable scenario, which is what characterises most of the cable industry,
the problem of under declaration by the cable operators/MSOs persists, and the
concern of the Broadcasters in this regard cannot be brushed aside. In fact, a
significant percentage of the disputes in the broadcasting sector are on
account of the subscriber base, a fact recognised by the Authority in Para 3.27
of the explanatory memorandum annexed to the impugned tariff Order. It is
essential that this issue is addressed squarely. The Authority would be well
advised to review its decision indicated in Para 3.29 of the explanatory
memorandum of having decided not to determine the levels of connectivity
between the stakeholders. Since digitalisation and addressability are bound to
take some time, it is essential that the Authority, set up to regulate the
industry, finds a way to address the issue.
81. We, therefore, hold that while the
idea of making à la carte choice of channels available to them is desirable, it
must be backed up by adequate safeguards both to the consumer as well as to the
broadcaster. As we indicated above, it is the responsibility of the Authority to
regulate the industry such that consumers as well as service providers are
adequately secured even as orderly growth is ensured.
82. Another
issue on which the Appellants are aggrieved is clause 4 (para 7) of the
impugned Order wherein direction is given to every broadcaster to furnish
certain information to the Authority. The grievance is twofold: that the direction
cannot be issued under a tariff Order; and that considerable information,
including confidential information, is sought which imposes additional burden
on the Broadcasters and violates their commercial confidentiality. The Authority
has stated that this information is essential to maintain transparency. Since
this is part of routine regulatory functions of the Authority, we do not wish
to go into the matter except suggesting that the Authority may have a second
look regarding this issue.
83. In
conclusion, we hold as follows:
1.
On
the issue of whether the impugned Order is without jurisdiction, we do not wish
to take a too technical view of the omission of relevant provisions of law
while issuing the impugned Order; we however feel that a statutory Authority,
such as TRAI, should have taken due care while passing an important Order such
as this.
2.
On
the issue of whether the impugned Order violates the provisions of section 11
(4) of the TRAI Act and whether the obligation of transparency has not been
fulfilled, we hold that the principle of transparency has been violated by the Authority.
3.
On
the issue of whether instead of fixing tariffs as stipulated in the TRAI Act,
the Order is only in the nature of interim Order resulting in freezing of
prices, we hold that the impugned tariff Order is not an exercise in tariff
fixation as is ordained by section 11 (2) of the Act, in insofar as it relates
to fixing the prices as on 1.12.2007.
4.
On
the issue of whether TRAI had wrongly concluded that adequate and effective competition
in the market is lacking, despite clear evidence of substantial growth, we hold
that while introduction of forbearance or otherwise is within the competence of
the judgement of the Authority, it must be based on a more rational analysis
than what was attempted.
5.
On
the issue of whether the classification of cities and towns as well as the slab
system stipulated by the impugned Order is irrational, we hold that the price
ceiling fixed in Schedule I to the Tariff Order, including for different tiers
of channels/cities is arbitrary and irrational.
6.
On
the issue of whether the stipulation that Broadcasters should provide channels
on à la carte basis to the MSOs/LCOs is wrong, we hold that while the idea of
making à la carte choice of channels available to them is desirable, it must be
backed up by adequate safeguards both to the consumer as well as to the
broadcaster.
7.
On
the issue of whether the direction, in the impugned Order, seeking information
from the service providers is inappropriate, we hold that this is part of
routine regulatory functions of the Authority; we do not wish to go into the
matter.
84. With
these findings, we set aside the Telecommunication (Broadcasting & Cable)
Services (Second) Tariff (Eighth Amendment) Order 2007 dated 4.10.2007 of the
Telecom Regulatory Authority of India. We direct the TRAI to study the matter
afresh in the light of our observations and issue a comprehensive Order
covering all aspects including the issue of subscription base in a
non-addressable system. We expect the Authority to complete this Study in six
months for which they may call for such relevant information as is required
from the service providers. We also direct all the service providers that
non-cooperation in this exercise including non-furnishing of information will
be viewed as a violation of this Tribunal’s orders.
85. We
would once again like to make it clear, by way of abundant caution, and as
already mentioned in Para 33 above, that none of the Appeals under
consideration seek to impugn the Principal Tariff order dated 1.10.2004; even
if they did, it would not be admissible since that Order has been in force for
the last four years. As such, the judgement in this case does not in any way,
affect the operation of the Tariff Order dated 1.10.2004.
86. The
Appeals are disposed of accordingly. No costs. M.As also stand disposed of.
........................J
(ARUN KUMAR)
Chairperson
.........................
(J.S. SARMA)
Member
.......................
(G.D. GAIHA)
Member