NTO 2.0 verdict: Who wins what?

The verdict has generated a mixed response from industry

KOLKATA: One of the major issues that has dominated the pay TV ecosystem in India is in constant conflict between stakeholders and the sector regulator, the Telecom Regulatory Authority of India (Trai).  With the Bombay high court pronouncing its verdict on the amended new tariff order matter, one of the long-fought battles between the two may have come to an end. It upheld the constitutional validity of Trai’s NTO 2.0 but set aside the second clause of twin pricing conditions. The court's decision is receiving mixed reviews from senior industry executives.

On Wednesday, the division bench of Justices Amjad Sayyed and Anuja Prabhudessai passed judgement on several petitions filed by broadcasters and industry bodies like the Indian Broadcasting Foundation (IBF). The bench stated that the challenge to the constitutional validity of the 2020 rules and regulations of Trai does not hold any water. At the same time, it termed one of the twin conditions arbitrary according to which the maximum retail price of an a-la-carte channel could not be more than one third of the maximum rate of a channel in the bouquet.

“We welcome this verdict of the honourable Bombay high court on amendment in tariff regulation. The full implementation of the amendment will bring more transparency in industry and give more choices and power to the customer. We are hopeful that this will get implemented soon. It is good for all stakeholders in the industry value chain,” GTPL Hathway cable TV head & chief strategy officer Piyush Pankaj said.

Others in the business are not so sure because they believe it will definitely lead to a decline in subscription revenues. Considerably, major broadcasters have not already witnessed a fall in subscription revenue after partial implementation of NTO 2.0.  But they fear that after this verdict, there will be a faster movement towards a-la-carte from bouquets thus leading to lower ARPUs.

One of the senior executives with a leading broadcaster said squashing the second twin condition can be looked at as a big win for broadcasters. This clause had the potential to effectively hamper broadcasters from packaging their channels as they had to bundle similarly priced offerings together as part of the bouquet. 

However, the grounds that it has been struck down on are not very solid, another senior executive added. This battle was unnecessary and a fight for power, he noted, especially given the cost. Moreover, very few broadcasters were looking at pushing high pricing for channels anyway. Even these broadcasters also cannot go for high pricing now due to changed market dynamics in the last one year due to pandemic. As Trai still has substantive grounds to reclaim whatever has been lost, they might look at rechallenging it, the executive noted.

“We believe there is a high likelihood of this being contested in the supreme court by Trai as the entire reasoning of getting the NTO 2.0 was to cap discount and move to selective viewing which the NTO 1.0 did not fulfil,” Elara Capital VP research analyst (media) Karan Taurani said in a note.

“We continue to believe that the negative impact of NTO 2.0 is highest for Star whose bouquet prices have a higher discount factor and lowest for Sun TV whose discounting of bouquet vs ala carte is already at very low levels, which will lead to continued outperformance for Sun TV on subs revenue front despite NTO 2.0. On the other hand, this order is low to moderately negative for Zee,” stated Taurani.

Back in 2018, Madras high court had also set aside the capping of discounts to 15 per cent mentioned in the Tariff Order and Interconnection Regulations of 2017. However, the battle reached the supreme court where the regulator won the case. Within a year of implementation of the regulation, the authority brought changes which irked broadcasters starting the second battle. Now are we in for the third?

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