The implications of Digital TV transmission
This was one of the rare times that both cable operators and Direct to Home (DTH) players were willing to speak on the same platform. It was at DNA Conversations. And the issue binding them together is: what will the implications of the new laws on digital transmission mean for all of them.
After almost six years of deliberation and doubt, the Telecom Regulatory Authority of India (TRAI) finally appeared willing to bite the bullet. On 31 April, 2012, the TRAI issued an order specifying the modalities which it would allow for the implementation of the Cable Television Network (Regulation) Amendment Act of December 2011.
The 2011 Act makes it mandatory for television networks (both DTH and cable networks) to switch over from analog to digital transmission for the whole country. The TRAI, set down a time-frame: All the four metros (Mumbai, Delhi, Kolkota and Chennai) had to make the switchover by 1 July 2012. The rest of the country would have to effect the changeover by 2014.
Predictably, the announcement led to both panic and confusion. Many houses had analog set-top boxes. Who would pay for the changeover from an old set-top box to a new one? What if they did not effect the switchover? Would the free to air (FTA) channels still be available to households without a set-top box?
If customers were confused, industry was both happy and shocked. Here was some progress in transmission related legislation – finally – that would lead to more transparency. But the joy was queered by the government – both at the centre and at each state – pitching in with their plans to levy taxes which would fill their respective coffers. There were technical absurdities as well.
To discuss this DNA called in a panel of experts from the industry. The panelists included Milind Karnik, President, Finance, & Company Secretary, Hathway Cable & Datacom Ltd; Anil Khera, CEO, Videocon Digital DTH Service; Jagjit Singh Kohli, MD & CEO, Digicable Network (India) Pvt Ltd; Anil Kumar Malhotra, COO, Sales & Operations WWIL [Wire & Wireless India Ltd]; Ravi Mansukhani, MD, Incable [Indusind Media & Communications Ltd]; Harit Nagpal, MD & CEO, Tata Sky Ltd, and President of the DTH Association; and RC Venkateish, CEO, DISH TV (on phone from Delhi).
The discussion, moderated by DNA’s RN Bhaskar, explored the reasons for bringing in this law. It also looked at some of the challenges that would have to be faced, and the opportunities that would soon get unleashed.
Given below are edited excerpts:
DNA: Let’s begin with a simple question. Why was digitisation necessary?
Nagpal: It became necessary because the situation was akin to having a retailer is selling soap but the money he picks up from the consumer for the soap he has sold, does not get passed on to the manufacturer of the soap. So the manufacturer of the soap continues to make the soap and continues passing it on to the retailer, while the retailer sells it to the customer and keeps the money for himself. The government on whose land, the soaps were being sold, was not being paid or not being paid fully either. The system needed transparency – how many soaps had been sold, what should the customer pay, and who should part of the money collected go to.
An analog transmission system does not offer that facility. Digital does. It allows anyone to see who the customer is, what is he consuming, how much is he consuming, and so on. This information was essential. So that is the manufacturer’s side of the story.
The customer’s side is that technology has advanced. The customer needs to be able to choose what he wants to buy, in the packages he wants to buy, to be able to buy the whole or part of the package. Does he want to use interactive services or one way service only? Does he want to record, forward, rewind and many more technologies that will come about in the future, all possible only on the digital platform. They are not possible on the analog platform. So there is a manufacturer’s side and a consumer’s side of the story.
Plus the customer wants good channels. He complains that he has 100 channels, but not the ones he wants to see. The fact is that the producer of the soap, if he is not getting any money back from the customer, he has no incentive to invest more to make the soap more exciting in terms of colour, perfume, etc. The same thing happens here. If the money goes back into the system, then the infrastructure, the content quality, will get better. So that is again for the customer.
Karnik: I agree that the consumer has a right to choose. With analog cables, you took a line, and paid for whatever was beamed through it. Now with digital, you have packages and obviously you will select what you want to see, you want news, you want entertainment, sports, etc, and you will pay for it. This choice will be transparent to the network. You don’t have to depend on the word of people that their channel is the most desirable and enjoys the highest TRPs. All this now becomes more transparent. This will allow revenues to multiply. And obviously revenue to the government will also multiply.
Nagpal: Our last estimate said that in the next 10 years, we are likely to get around Rs.5,500 crores by way of incremental taxes for the government.
Mansukhani: What Harish and Milind have brought out are basically transparency and choice. But it goes much beyond that.
The major story was India shining. Everybody came to India. All the channels saw this huge middle class potential, knew that digitalization that would happen sooner or later and looked at huge revenues. Today, we have over 800 channels that have permission to downlink to India; we carry around 450 channels.
But, there is no space. There is no spectrum. And that made it unviable for new channels because of the huge costs involved in what we call “carriage and placement” and what is termed as marketing and distribution expenses. And whether it was a capacity constraint on DTH because of lack of transponders or lack of frequencies on analog cable, it became imperative if this business had to expand that you must turn digital.
Of course with everything coming in and vying for customers, your content started getting better and better. So you were spending more on your content and therefore you wanted more out of the ground. And on top of cost of the content you had this distribution cost. That got people screaming. Then the MSOs [multi system operators] went to the government and said we want transparency because of the leakage. But then the news channels and the niche channels went to the government and knocked on their doors. Voila! We have digitisation.
Then there is technology which has been moving really fast. Today is the age of convergence. The government is planning a unified license. It wants one service provider to provide you everything. It can only be done in a digital era and so that is where we are heading.
You have seen this happening on the entertainment front as well. Instead of paying Rs50-60,000 per print of the movie, quick entertainment demanded digital feeds instead. If you want to hit the market all over the country, you cannot afford to pay Rs 60,000 per print. Economics comes in to play. There is no way you can recover such costs plus the transportation. A digital feed costs one-tenth the sum. People in the tier 2 and 3 get to see it at the same time. You get a better viewing experience. The print has not been moved out. But digitisation has gained. I don’t think anyone could really stop it. It became a huge juggernaut.
Khera: I would see it as a natural progression moving from analog to digital. You are opening up bandwidth, and providing better quality transmission. And I think that more and more digitisation will lead to more and more content coming into the country. The consumer will be getting more choice. You have a metering device attached for the first time to your services. Because now there is encryption for all content. So it is good for everyone, as everyone has transparency. There is investment coming into the business. People will get better content, better quality and the right to choose.
Kohli: There are some hard facts which must be noted. We can all talk about progress in terms of technology, in terms of choice to the consumer because they will benefit. But the truth is that this [digitisation] has happened only because of the broadcasting lobby, mainly consisting of the news broadcasters. They wanted it and therefore it is happening.
The cable industry has been wanting it for ages. In fact, the CAS [Conditional Access System] Act was passed in 2002. Digitization was to happen then. It got aborted. Then in 2003 we went to court and got CAS rolled out in January 2007. Again it got aborted after the first phase, despite the fact that there were absolutely no problems with the rollout. A huge hype and hoopla was created: “Oh my God! There is disaster; there is chaos. People will suffer; there will be a blackout; people will be out on the roads.”
So, despite the fact that CAS made sure that only pay channels are encrypted and FTA channels were to be continued to be given in analog mode, there was no blackout. And the experience in Chennai, which is the only city which has gone 100% CAS,most of the pay channels have become FTA.
This is the learning. Broadcasters did not want it. Pay channels did not want CAS. So they managed to scuttle it, and that is the hard truth.
Now they have brought it in a new form, which is DAS [digital access system]. There is only one basic difference between DAS and CAS. Both are digital. In CAS, the fundamental difference, which matters to news broadcasters, is only pay channels were to be encrypted and given through the box. Whereas in DAS, every channel, whether FTA or paid has to be given through a box.
So now the pay channels are in the same boat and they don’t suffer if the number of boxes are not there.Obviously, no one will tolerate a 100% blackout and people, if at all they get one channel, will be getting the pay channels as well. So now they [news broadcasters] will get best of both worlds. They will get to secure their ad pie as well as increase their subscription pie. Consistently, through all these years, they have been shouting, “they have been cheated”, “there is under declaration”, etc. So this is the real truth.
Everything else is a colouring, when we say “ok, this is good”, “this is progress”, “people are getting choices” and “the government will get tax”.
Venkateish: Digitization will bring in its wake numerous benefits for most of the stakeholders, be it consumers, broadcast channels or MSO’s, but most of all it will open a huge and ongoing tax stream for the Government, due to the transparency and addressability brought about by the system.
However in all this the Government seems to have neglected entirely the legitimate concerns of DTH operators, who have actually brought the country to the threshold of the digital revolution by digitising 45 million households at a huge investment of over Rs.20,000 crore. Despite this major contribution, the DTH industry remains crippled with high taxes and license fees totaling nearly 32% of revenues.
It is necessary for the Government to recognize this and to provide relief. In the recent Union budget, instead, taxes were further increased.
It is time the Government took a practical view on the subject as, after all, it expects the industry to invest a further Rs30,000 crore to achieve its mandate of digitisation.
DNA: What are the challenges that you see that this switchover will confront? Some actions are being challenged in courts. There are issues on carriage charges, whether there should be a limit on ads.
Nagpal: I must admit one thing though. It was long overdue. I seriously did not expect to see digitisation happen within my life time. I am glad that it is. Do not forget that in the week that this bill got passed by the Parliament, there were at least 3 or 4 bills that got rejected by the Parliament, including FDI, retail and insurance. Of course, the guys had done their homework well and aligned all the stakeholders properly. So that was a huge heroic effort per se.
DNA: Was that the government persuading the industry, or the industry persuading the government?
Nagpal: I don’t know who did it. I think the government did a good job of aligning all the stakeholders. That was one piece. The second is that, the biggest worry we had and why it took such a long time, the tariff order finally came out 10-15 days ago.
The stakeholders were so diverse. There were broadcasters, MSOs, LCOs [Local Cable Operators], the consumers, DTH operators, the government. And everyone’s interests have to be kept in mind. The moment you start -- and it’s like a star. You start pulling this end and the other three get short changed. So, in that event we were actually wondering, these guys were taking 4 months. We were worried and we wondered, will they be able to come out with something.
I even went out and said once, why don’t they just issue something, because whatever they come out with is going to be debated, contested any which way.
So whether you release it in January or in April, it will go through three months of contesting. So why wait? But strangely, and I am pleasantly surprised at it, the tariff order that has come out, provides a frame work in which people can operate. The order is not prescriptive, which is very unlike most orders that we have seen.
Most others define the limits, the rates, the upper, the lower, etc. I am sure every stakeholder, whether the consumer, the DTH operator, the broadcaster, the government has got one point of view, which he or she doesn’t agree with in this tariff order. But for every one such point you see there, you see 11 things which are positive or are acceptable to you. So you say, “OK, fine! There is this little thing. I will go to the regulator, I will put forth my point of view and try to get a resolution.”
I think the regulator in this case definitely deserves a pat, and congratulations.
There are a few issues we have, as DTH operators. For example: There is this tariff specification, which says the rate has to be 1.5 times versus 3 times. We are quite hopeful and have drawn up a letter raising it with TRAI. We know this is a minuscule part of the whole pie and we know if we logically present it with data to them, there will be some middle path that we will be able to find. Similarly, the news broadcasters have raised the issue of carriage fees.
There is an issue in terms of the prescribed 500 minimum channels for the MSOs. Now for a DTH operator who is a national player versus an MSO who is a regional player, if the regional player gets 500 channels, then the DTH has to carry 700. This is because the DTH player has to carry the 500 of Andhra and 500 of Punjab and 500 of Haryana and 500 of Maharashtra. So, I have to carry 700. But, as yet, the transponder capacity and the bandwidths are completely controlled by ISRO [Indian Space Research Organisation, a government of India undertaking], which has failed the country completely on several counts.
First, on producing the satellites.
Then for not filing for space, and filing for spectrum, Filing for parking slots! Even the parking slots, they don’t have adequate satellites for them. While the whole world was doing this, the guys at ISRO did not.
Thirdly, if we get these satellites from outside for those parking slots even on a temporary basis, the whole bureaucratic process takes about one and a half years.
Obviously, for a person who has got a satellite, who has multiple demands in America, Russia, Africa, etc, he is not willing to wait for your bureaucratic processes.
So ISRO has completely failed this industry and must have open skies. Every time we go to ISRO and ask for some leeway, they say ‘No’ in the interest of national security. Come on guys…
DNA: How are other countries doing it?
Nagpal: The whole world is doing it. When we go to satellite guys outside the country, they laugh. They say “Boss! India? I am not touching it.” So the entire communication industry is suffering because first you didn’t file. Then when you file you can’t produce satellites to fill that spectrum you have. And you won’t allow anyone from outside. Anyone coming in has to go through some 17 committees. So you have got to free it up, which is what we are telling our regulators.
On the one side you force them to put 500 channels and on the other side you bind me saying you are not allowed.
But we are sure we will be able to get across this point of view.
So this is not a complaint, it is a suggestion. I think the whole ministry and the regulator have been moving in a very constructive manner if you ask me, over the last few months. I have been very pleasantly surprised by these few movements. With so many stakeholders it is difficult.
Malhotra: The TRAI has given you a framework in which to operate. And probably whatever the issues you have left out and have not yet addressed will be done.
Unfortunately a lot was promised when this entire exercise was undertaken that there will be fiscal incentives, some compensation given in terms of taxations, etc, which has not happened. Though everybody says transparency will bring revenue to the government; and that the government’s concern for consumers will ensure that its tax structure will get rationalized.
For FTA they have mandated Rs100 is the maximum you can charge. In the state of Maharashtra, Rs45 is the entertainment tax on cable connection, which you are saying should not cost more than Rs 100. And add service tax to that and you are approximately paying around 60% by way of taxation, for something, which is of essential value to the consumer.
Khera: That is a valid point. How much do you collect from a customer? Rs100 youcollect from a customer. Rs45 for metro city you pay to the government for a connection. And 12.3% service tax as well. Then you pay 50% to the broadcasters.
Malhotra: No, you don’t pay anything to the broadcasters for FTA. But the question here is, if the government is going to tax you 60% for something which is called a basic service and is free to air, this DD Direct is not taxed for providing a similar service, how can we talk about being open and transparent in giving tax declarations. So there should be rationalization as well. Where is that happening?
Nagpal: I completely agree. In fact this is a category that is so heavily taxed.
In fact, there are 3 stakeholders in this category. The first is the broadcaster who is producing the content and wants to be paid back little more than what the cost of his content is. The second is the government, who is allowing you to do business in the country.
Therefore, logically, it is the claimant for tax. And the third is the entrepreneur, which is either and MSO or the DTH platform, who is investing ahead of its time, hoping to reap some returns on its investment in the long term.
All three will benefit once the industry matures. All 3 need to have a little bit of patience while the kid is growing up.
Now, the broadcaster and the DTH platform/MSO, are commercial guys who can sit across the table and talk logically and come to some sort of conclusion somewhere.
Unfortunately, the government has started taxing this industry, by almost opening up a dictionary looking for words on the basis of which it can start taxing. So I pay entertainment tax in the state, which one day is Rs15, the second day is 15%, then Rs45. It differs from state to state it differs. The same political party does not have the same policy across the country.
Khera: There is competition in all the states. Who charges the highest.
Nagpal: So the state does the entertainment tax. The Centre charges the service tax. The boxes that are imported, there is duty on them. And this is in addition to the license fee that I pay the government.
Malhotra: In fact I was pointing out to the anomaly that the FTA service by the government, which is the taxing authority here, they say they will give 100 or 200 channels free of cost, and for which they say you will be taxed, as you are providing a service as an individual. Why?
Mansukhani: Why are you complaining? I mean you have to help those excesses of the government. That is the only way to do it.
Nagpal: But why just this industry?
Mansukhani: This is taxes over the basic rate. Rs100 is the basic rate. Rs45 is the entertainment tax. Then you have service tax. So you are paying Rs60 excess. You are collecting Rs160 from the consumer and giving Rs60 to the government. You get Rs100, which you share 45% with the operator, whoever is servicing the last mile. But that is on the FTA package.
Malhotra: And on top of that, the government is advertising Rs100. But then the customer who is paying 160, will ask the service provider, when it was said 100 why you charging me more. But, the government is not saying 100 including tax. And to the consumer it appears very high.
Nagpal: I think the core problem is double taxation. It is the right of the government to tax, we completely agree. But don’t tax me twice for the same thing. There is a state charging the tax. Decide between the two of you, is it a state subject or is it a central subject.
Kohli: Also the reasonableness of the tax. In fact since we are talking about Mumbai, Rs45 is the highest incidence of tax.
Nagpal: There are 3 states, which are really atrocious in tax levies. One is Mumbai where it is Rs45. There is Tamil Nadu, which charges 30%. And UP, which levies 25%.
Kohli: In continuation with what he was just saying, there is a huge anomaly here. You have political parties promising free TV sets in the elections and then taxing them for that same service.
Nagpal: Hardware is free, software is taxed! This is like the razor machine. The razor is free. The camera is free. We will charge you on the film! 2-3-4 blades!
Karnik: I was comparing myself a newspaper like yours. It is delivered at homes of customers. What a newspaper offers is the same as what we offer -- essentially the same mix. There is news, entertainment, there is everything. So, why tax me so much?
In fact, we should be aligning ourselves with newspapers. I am sure no one in this country will dare tax them, because once somebody tried and there are case laws on that and then it got scrapped.
So we should be willing to pay some reasonable tax, which is 5% of your gross collection. And it will still make good money – even for service tax -- as the numbers are going to be huge. Every morning I need my newspaper and I need my TV. We are complimentary. I do not want one to be taxed exorbitantly.
Khera: You know what they do? What Bhaskar and company does? They give the entertainment in the last page. First page they give the news.
Nagpal: Very soon they will stop cartoons anyway!!!
Karnik: So that is what we are saying. There is no point in taxing us the Rs45 or some such stupid rate. Have some reasonable rate between 5-10% and that is our tax, which goes under GST and it takes care between state and central govt. There is service tax.
DNA: So taxation is one major challenge that you face.
Nagpal: We are ok with tax. Over taxation is the problem. Double or multiple taxation.
Mansukhani: More specifically, when it comes to digitisation, there are other issues as well.
First, is the time frame of June 30. They have just come out with the rules and tariffs a few days ago. And if you are giving the entire India to the big MSOs to do their business, you are fine. But there is a whole lot of medium and small operators, who do not have the time. I mean it is only now that they have learnt of the rules and regulations. But by the time they sit down and put the whole thing together, they will need six months. And I think this applies to everyone, not only us. Among the four states, that are going digital, Chennai is not prepared. It has already come in the papers they require 6 months. They have no boxes, nothing. And in Kolkatta, Mamta Banerjee is saying “I will have a law and order situation”. I am sure the government is alive to this fact.
The other issue is choice. But if you go down to the bottom, the customer really has no choice. In the initial years, if he wanted analog, he had analog and if he wanted to go digital, he could do that. This was possible in the CAS regime. Now you are saying that you can’t see TV without a box. Well, you have choice within the box, but you don’t have a choice whether you want a box or not. That has moved out of his purview.
And there is a logistics issue. If you are sitting at home, or your wife or kids are at home, the cable operator goes home to install a box, your wife will say “wait till my husband comes back from work”. Or there are various issues. And you have only few hours a day and you have to install a huge number of set-top boxes. That has to be taken into consideration.
Kohli: On the logistics, the run rate required now, so that on the sunset date, when we wake up on July 1, where every home has to have at least 1 set top box, the current situation is such that you need 1,80,000 set-top boxes to be deployed every day to ensure you don’t have a blackout on 1 July. And the current deployment rate is not even 10,000.
Mansukhani: It is not even 5,000. It might become 10,000 over the next few weeks. This is per day over the four states. And you don’t have the whole day, you have 3-4 hours in the evening to do this.
Nagpal: I am reminded of the Helmet Law, which got passed many years ago and was deferred 5 times. Because in the month of December when the law was supposed to come into function. on the December 1, they would throw similar figures saying these many lakhs of helmets are required. The production capacity of helmets in this country is so and so. Therefore let us defer it by one year. Again, from January to November nothing is done, and on the 1st of December the arguments for more time are made. And for 5 years it kept getting postponed.
The fact is that everyone of us has been screaming hoarse to the customer, for almost 6 months now, saying 1st of July. And the customer has not acted on it. And the customer also knows the population of Bombay is not 3 people. And the population of Delhi is not 4 people and the population of Kolkatta is not 2. Everybody knows the millions of people that live in these 4 cities and how difficult it is going to be. Some of your customers and ours, have acted and already got boxes. But there are customers who do not act -- it has not been because of non availability of boxes or manpower during the last 5 months. Customers who do not act before the 1st of July should be willing to wait for 5 or 10 days without TV or more days, whatever it takes us to get it to them. Because if you give them an additional 6 months, you will fall back into a limbo.
Kohli: There is a danger in this. In fact we discussed exactly this in yesterday’s meeting, and there also it was said that you need to have some shock treatment given to the people, that “This is for real. This is serious. This is happening. So you better get your act together”. So the feeling was “Let there be blackout for two days and then we will restart and give a new date”. You know the danger in this? Either you accept that there is no problem. And all of us accept that there is a problem on July 1. There will not be enough boxes, this time around at least.
Nagpal: The issue is not boxes. It is installation capacity. At that time, when everyone wakes up on one day.
Karnik: The customer’s attitude is it is happening on June 30th right? When it happens I will see. We will wait till the last moment.
Nagpal: I have seen that happen in Telecom.
Karnik: One is the customer and another is our last mile fellow, the operator. Both say, “Ah ok 30th right? When it comes, we’ll see”. They are waiting for what happened in 2002 with the CAS rollout..
Kohli: The point is that, for whatever reason on that day, people will be without set-top boxes. We can debate the reasons for that. The question and the fear I am expressing here is, if we allow a blackout on that day, whether it is 2, or 4, or 6 days, or even one day, the amount of chaos we will face on that day, the amount of problems that the people will create, there will be absolute chaos. My worry is that then the politicians will wake up and say “What the hell? Why should we take this risk?” The government at that stage will push it back for one year. Then there are elections, exactly the same thing happened in 2002 and then we will not have digitisation.
Mansukhani: Somehow, it has been shot down by the broadcasters really. If we stick to the June 30 deadline, what is going to happen? One is you will have a law and order situation, when the boxes are not there and, two, no operator is going to let his customer be without a television signal. So he is going to pirate it wholesale. So you will have the entire Mumbai city having a pirated signal and you know that we do not have the machinery or the mechanism to control that.
Now you need to avoid this. And we have told this to the government, the regulator and the broadcaster.
Our first suggestion was pushed out – that let’s put pay channels in the box and 3-6 months later sunset of final offer. So that people realize that pay channels can be got only through the box and know that we are serious. Broadcasters thought again this is trying to promote the CAS once again, and did not want it. They wanted all the channels to be digital.
Second, we said take an easy simple solution. Already 25% of each of these four metros is under CAS. Let’s on June 30, for that 25% of the city, switch off Analog. 2 things will happen. It is a small universe, easily controllable. Nobody will jump. You can easily install the boxes. No hassles because it is a very small universe and you are looking at all these MSO and DTH players there. There will not be a problem. It will send a message to the rest of the city, this time the government is serious. They will go running out to buy the boxes. You give them 3 months to do it. Just say, that in another three months analog is going to shut. See what happens. They will run and they will go and get it and you will have created that message.
Third, in a small area, if there is piracy, you can jump on it. But, for whatever logic or reason, I can’t understand why nobody is seeing this as a quick fix solution. They are all even objecting to do something like this and saying switch off the entire city.
Kohli: Trust me this will create a law and order situation. This process will get scuttled.
Nagpal: Why are you debating this -- saying it will create a law and order situation? On the other side, the faith of the customer, will go to zero. And I am giving you an example out of my previous industry, which is telecom. For years, the government kept saying KYC [know your customer]; collect the form from the customer. The govt issued ads, we issued them, we spoke to every customer because you have a two-way line to every customer. Nothing happened. We used to get a trickle of 10 forms a day. Finally they said sunset date. This is it. Cut their lines if they don’t give it. After about 5 or 6 deliberations in one year, after we cut their lines, everyone came running. We kept our shops open for 24 hours, for 7 days. There were queues. The last guy who got his form submitted and got it stamped and done was without a phone for 7 days. They were peacefully standing outside in queues. No law and order situation.
Kohli: You gave the example of helmets as well. Several extensions were given. Telecom also the same example. Even in the US, there were six extensions. It got extended over eleven years.
Nagpal: Till you keep extending, people also keep doing the same.
Kohli: This is the first deadline of DAS.
Nagpal: I will again say the same thing. As against taking on the entire country, which is 90 million customers, you limit it to six in the first go. Then 38 in the second, and the balance in the third. Now you’re saying of this 6 also we restrict it to 3 and see. Then tomorrow someone will ask to scrap the whole thing. As it is the 1st stage we have taken is a small one.
Mansukhani: In any case 2 cities [Chennai and Kolkota] are not participating. So how do you give the other two?
Malhotra: The West Bengal government hasn’t said no or anything to that effect to our digitisation at least. They are pro digitisation. They haven’t given any statement to the contrary. Chennai may not be ready, we don’t know.
Mansukhani: There is another issue. You need to give 180 days notice before introducing a new law. And the modalities were announced only some days ago. Eventoday, there are no terms of business. Our operators did not know the terms for selling boxes to consumers. Customers did not know what they were going to get. We didn’t know at what price we could retail a channel. We couldn’t have a business plan. Even now, we have to now go and negotiate with the broadcasters and try and get a price at the same time like our competition DTH is getting. You are going to have a different pricing with each channel. That same product, which does not have an MRP, for which the MRP is now left to the MSO, whose MRP is now going to rely on his wholesale rate because of his profit margin, that same bottle of Coke in one shop will cost Rs10, Rs8 in another, and Rs6 in the third. It is going to create confusion.
Now, we need time to sit down and negotiate and see if we have a business plan. We have got to give a revenue share to the broadcaster and a revenue share to the wholeseller. We have to negotiate and see what we are paying to the LCO, and at the end of it are we making money? So this negotiating and sitting down and doing is not going to happen overnight. We are already into the end of May and June one month. Any negotiation by law is allowed 60 days. So by the time you sit down, let’s be realistic. It’s not going to happen. Then why are we going on about this June 30 thing when all these things are going against it? It doesn’t make sense.
Kohli: No where, not even in the US, even today you have between 15-20% analog, set top boxes and analog homes in the US today. No country in the world has mandated 100% digitisation like we have.
Nagpal: Having said that, the very fact that we started with a very small territory of 6 million out of 90 million on a trial basis with these 4 cities, the design itself has been put up for a very small experimental area to be tested for the first time and then taken to the second stage and then embarking on to the 3rd stage. I would still say that you will lose the faith of the customer or his belief. The feeling will be that these guys keeps talking. They keep giving deadlines. It will not happen.
You can only make it happen, once the customer believes it’s going to happen. And on the last date there will be chaos. This is not water, this is not roti or double roti that people cannot live without. It will take some time.
Mansukhani: Who is the biggest loser, if DAS does not happen. Who is spending all the money in this entire exercise?
We have all ordered 2 million boxes, spent the maximum amount of money. We are sitting on inventory. And if we are the guys who are going to implement it, we are the ones who have put in money and you don’t listen to us on the implementation, there is something wrong.
Nagpal: I think you will have to go through pain once any which way. The customers are not going to come immediately. You will have to go through this pain of what you call law and order and chaos.
Malhotra: I think deployment reports are being taken by TRAI and the ministry regularly. They are the best judge. They will know what to do on that penultimate day when they have to force the deadline or to extend it.
Mansukhani: We want them to implement DAS effectively. And successfully. Now whether the government wants to phase it further or stick to the phase, let them come up with the solution. But that is the bottom line.
Nagpal: To me at least, the tariff order is landmark to me. It has 11 positive things and one thing negative for every stake holder. I think it is time for without compromising on the date and schedule, if the regulator who has brought out the tariff order, sits down with the various stakeholders and quickly irons out that one problem that each one of us has, one on one.
He [the TRAI chairman] doesn’t need to go through a consultation process. We have an issue, we come out with it. It’s across the table. And let’s debate, one on one, and iron that piece out without impacting the rollout phase. I don’t see a problem in the basic structure. The news broadcasters have a carriage fee issue. We have the rate issue of minimum package.
Mansukhani: But it is worse than you think it is.
Nagpal: I’m not taking it lightly. Because you know on a’la carte, I will actually be forced to sell the product cheaper than what I am buying. That is why I want a one-on-one meeting saying “Boss this is what it is. Would you do business under these circumstances?So please can you modify it?
Mansukhani: In fact we want a level playing field.
Nagpal: We support that.
Khera: These four cities digitisation is going to set the tone for the rest of the country. And under no circumstances we should postpone or delay. A month is OK. For adjustment, etc. setlling down. If we postpone for 6 months or a year, then this country is never going to be digitised.
This was one of the rare times that both cable operators and Direct to Home (DTH) players were willing to speak on the same platform. It was at DNA Conversations. And the issue binding them together is: what will the implications of the new laws on digital transmission mean for all of them.
After almost six years of deliberation and doubt, the Telecom Regulatory Authority of India (TRAI) finally appeared willing to bite the bullet. On 31 April, 2012, the TRAI issued an order specifying the modalities which it would allow for the implementation of the Cable Television Network (Regulation) Amendment Act of December 2011.
The 2011 Act makes it mandatory for television networks (both DTH and cable networks) to switch over from analog to digital transmission for the whole country. The TRAI, set down a time-frame: All the four metros (Mumbai, Delhi, Kolkota and Chennai) had to make the switchover by 1 July 2012. The rest of the country would have to effect the changeover by 2014.
Predictably, the announcement led to both panic and confusion. Many houses had analog set-top boxes. Who would pay for the changeover from an old set-top box to a new one? What if they did not effect the switchover? Would the free to air (FTA) channels still be available to households without a set-top box?
If customers were confused, industry was both happy and shocked. Here was some progress in transmission related legislation – finally – that would lead to more transparency. But the joy was queered by the government – both at the centre and at each state – pitching in with their plans to levy taxes which would fill their respective coffers. There were technical absurdities as well.
To discuss this DNA called in a panel of experts from the industry. The panelists included Milind Karnik, President, Finance, & Company Secretary, Hathway Cable & Datacom Ltd; Anil Khera, CEO, Videocon Digital DTH Service; Jagjit Singh Kohli, MD & CEO, Digicable Network (India) Pvt Ltd; Anil Kumar Malhotra, COO, Sales & Operations WWIL [Wire & Wireless India Ltd]; Ravi Mansukhani, MD, Incable [Indusind Media & Communications Ltd]; Harit Nagpal, MD & CEO, Tata Sky Ltd, and President of the DTH Association; and RC Venkateish, CEO, DISH TV (on phone from Delhi).
The discussion, moderated by DNA’s RN Bhaskar, explored the reasons for bringing in this law. It also looked at some of the challenges that would have to be faced, and the opportunities that would soon get unleashed.
Given below are edited excerpts:
DNA: Let’s begin with a simple question. Why was digitisation necessary?
Nagpal: It became necessary because the situation was akin to having a retailer is selling soap but the money he picks up from the consumer for the soap he has sold, does not get passed on to the manufacturer of the soap. So the manufacturer of the soap continues to make the soap and continues passing it on to the retailer, while the retailer sells it to the customer and keeps the money for himself. The government on whose land, the soaps were being sold, was not being paid or not being paid fully either. The system needed transparency – how many soaps had been sold, what should the customer pay, and who should part of the money collected go to.
An analog transmission system does not offer that facility. Digital does. It allows anyone to see who the customer is, what is he consuming, how much is he consuming, and so on. This information was essential. So that is the manufacturer’s side of the story.
The customer’s side is that technology has advanced. The customer needs to be able to choose what he wants to buy, in the packages he wants to buy, to be able to buy the whole or part of the package. Does he want to use interactive services or one way service only? Does he want to record, forward, rewind and many more technologies that will come about in the future, all possible only on the digital platform. They are not possible on the analog platform. So there is a manufacturer’s side and a consumer’s side of the story.
Plus the customer wants good channels. He complains that he has 100 channels, but not the ones he wants to see. The fact is that the producer of the soap, if he is not getting any money back from the customer, he has no incentive to invest more to make the soap more exciting in terms of colour, perfume, etc. The same thing happens here. If the money goes back into the system, then the infrastructure, the content quality, will get better. So that is again for the customer.
Karnik: I agree that the consumer has a right to choose. With analog cables, you took a line, and paid for whatever was beamed through it. Now with digital, you have packages and obviously you will select what you want to see, you want news, you want entertainment, sports, etc, and you will pay for it. This choice will be transparent to the network. You don’t have to depend on the word of people that their channel is the most desirable and enjoys the highest TRPs. All this now becomes more transparent. This will allow revenues to multiply. And obviously revenue to the government will also multiply.
Nagpal: Our last estimate said that in the next 10 years, we are likely to get around Rs.5,500 crores by way of incremental taxes for the government.
Mansukhani: What Harish and Milind have brought out are basically transparency and choice. But it goes much beyond that.
The major story was India shining. Everybody came to India. All the channels saw this huge middle class potential, knew that digitalization that would happen sooner or later and looked at huge revenues. Today, we have over 800 channels that have permission to downlink to India; we carry around 450 channels.
But, there is no space. There is no spectrum. And that made it unviable for new channels because of the huge costs involved in what we call “carriage and placement” and what is termed as marketing and distribution expenses. And whether it was a capacity constraint on DTH because of lack of transponders or lack of frequencies on analog cable, it became imperative if this business had to expand that you must turn digital.
Of course with everything coming in and vying for customers, your content started getting better and better. So you were spending more on your content and therefore you wanted more out of the ground. And on top of cost of the content you had this distribution cost. That got people screaming. Then the MSOs [multi system operators] went to the government and said we want transparency because of the leakage. But then the news channels and the niche channels went to the government and knocked on their doors. Voila! We have digitisation.
Then there is technology which has been moving really fast. Today is the age of convergence. The government is planning a unified license. It wants one service provider to provide you everything. It can only be done in a digital era and so that is where we are heading.
You have seen this happening on the entertainment front as well. Instead of paying Rs50-60,000 per print of the movie, quick entertainment demanded digital feeds instead. If you want to hit the market all over the country, you cannot afford to pay Rs 60,000 per print. Economics comes in to play. There is no way you can recover such costs plus the transportation. A digital feed costs one-tenth the sum. People in the tier 2 and 3 get to see it at the same time. You get a better viewing experience. The print has not been moved out. But digitisation has gained. I don’t think anyone could really stop it. It became a huge juggernaut.
Khera: I would see it as a natural progression moving from analog to digital. You are opening up bandwidth, and providing better quality transmission. And I think that more and more digitisation will lead to more and more content coming into the country. The consumer will be getting more choice. You have a metering device attached for the first time to your services. Because now there is encryption for all content. So it is good for everyone, as everyone has transparency. There is investment coming into the business. People will get better content, better quality and the right to choose.
Kohli: There are some hard facts which must be noted. We can all talk about progress in terms of technology, in terms of choice to the consumer because they will benefit. But the truth is that this [digitisation] has happened only because of the broadcasting lobby, mainly consisting of the news broadcasters. They wanted it and therefore it is happening.
The cable industry has been wanting it for ages. In fact, the CAS [Conditional Access System] Act was passed in 2002. Digitization was to happen then. It got aborted. Then in 2003 we went to court and got CAS rolled out in January 2007. Again it got aborted after the first phase, despite the fact that there were absolutely no problems with the rollout. A huge hype and hoopla was created: “Oh my God! There is disaster; there is chaos. People will suffer; there will be a blackout; people will be out on the roads.”
So, despite the fact that CAS made sure that only pay channels are encrypted and FTA channels were to be continued to be given in analog mode, there was no blackout. And the experience in Chennai, which is the only city which has gone 100% CAS,most of the pay channels have become FTA.
This is the learning. Broadcasters did not want it. Pay channels did not want CAS. So they managed to scuttle it, and that is the hard truth.
Now they have brought it in a new form, which is DAS [digital access system]. There is only one basic difference between DAS and CAS. Both are digital. In CAS, the fundamental difference, which matters to news broadcasters, is only pay channels were to be encrypted and given through the box. Whereas in DAS, every channel, whether FTA or paid has to be given through a box.
So now the pay channels are in the same boat and they don’t suffer if the number of boxes are not there.Obviously, no one will tolerate a 100% blackout and people, if at all they get one channel, will be getting the pay channels as well. So now they [news broadcasters] will get best of both worlds. They will get to secure their ad pie as well as increase their subscription pie. Consistently, through all these years, they have been shouting, “they have been cheated”, “there is under declaration”, etc. So this is the real truth.
Everything else is a colouring, when we say “ok, this is good”, “this is progress”, “people are getting choices” and “the government will get tax”.
Venkateish: Digitization will bring in its wake numerous benefits for most of the stakeholders, be it consumers, broadcast channels or MSO’s, but most of all it will open a huge and ongoing tax stream for the Government, due to the transparency and addressability brought about by the system.
However in all this the Government seems to have neglected entirely the legitimate concerns of DTH operators, who have actually brought the country to the threshold of the digital revolution by digitising 45 million households at a huge investment of over Rs.20,000 crore. Despite this major contribution, the DTH industry remains crippled with high taxes and license fees totaling nearly 32% of revenues.
It is necessary for the Government to recognize this and to provide relief. In the recent Union budget, instead, taxes were further increased.
It is time the Government took a practical view on the subject as, after all, it expects the industry to invest a further Rs30,000 crore to achieve its mandate of digitisation.
DNA: What are the challenges that you see that this switchover will confront? Some actions are being challenged in courts. There are issues on carriage charges, whether there should be a limit on ads.
Nagpal: I must admit one thing though. It was long overdue. I seriously did not expect to see digitisation happen within my life time. I am glad that it is. Do not forget that in the week that this bill got passed by the Parliament, there were at least 3 or 4 bills that got rejected by the Parliament, including FDI, retail and insurance. Of course, the guys had done their homework well and aligned all the stakeholders properly. So that was a huge heroic effort per se.
DNA: Was that the government persuading the industry, or the industry persuading the government?
Nagpal: I don’t know who did it. I think the government did a good job of aligning all the stakeholders. That was one piece. The second is that, the biggest worry we had and why it took such a long time, the tariff order finally came out 10-15 days ago.
The stakeholders were so diverse. There were broadcasters, MSOs, LCOs [Local Cable Operators], the consumers, DTH operators, the government. And everyone’s interests have to be kept in mind. The moment you start -- and it’s like a star. You start pulling this end and the other three get short changed. So, in that event we were actually wondering, these guys were taking 4 months. We were worried and we wondered, will they be able to come out with something.
I even went out and said once, why don’t they just issue something, because whatever they come out with is going to be debated, contested any which way.
So whether you release it in January or in April, it will go through three months of contesting. So why wait? But strangely, and I am pleasantly surprised at it, the tariff order that has come out, provides a frame work in which people can operate. The order is not prescriptive, which is very unlike most orders that we have seen.
Most others define the limits, the rates, the upper, the lower, etc. I am sure every stakeholder, whether the consumer, the DTH operator, the broadcaster, the government has got one point of view, which he or she doesn’t agree with in this tariff order. But for every one such point you see there, you see 11 things which are positive or are acceptable to you. So you say, “OK, fine! There is this little thing. I will go to the regulator, I will put forth my point of view and try to get a resolution.”
I think the regulator in this case definitely deserves a pat, and congratulations.
There are a few issues we have, as DTH operators. For example: There is this tariff specification, which says the rate has to be 1.5 times versus 3 times. We are quite hopeful and have drawn up a letter raising it with TRAI. We know this is a minuscule part of the whole pie and we know if we logically present it with data to them, there will be some middle path that we will be able to find. Similarly, the news broadcasters have raised the issue of carriage fees.
There is an issue in terms of the prescribed 500 minimum channels for the MSOs. Now for a DTH operator who is a national player versus an MSO who is a regional player, if the regional player gets 500 channels, then the DTH has to carry 700. This is because the DTH player has to carry the 500 of Andhra and 500 of Punjab and 500 of Haryana and 500 of Maharashtra. So, I have to carry 700. But, as yet, the transponder capacity and the bandwidths are completely controlled by ISRO [Indian Space Research Organisation, a government of India undertaking], which has failed the country completely on several counts.
First, on producing the satellites.
Then for not filing for space, and filing for spectrum, Filing for parking slots! Even the parking slots, they don’t have adequate satellites for them. While the whole world was doing this, the guys at ISRO did not.
Thirdly, if we get these satellites from outside for those parking slots even on a temporary basis, the whole bureaucratic process takes about one and a half years.
Obviously, for a person who has got a satellite, who has multiple demands in America, Russia, Africa, etc, he is not willing to wait for your bureaucratic processes.
So ISRO has completely failed this industry and must have open skies. Every time we go to ISRO and ask for some leeway, they say ‘No’ in the interest of national security. Come on guys…
DNA: How are other countries doing it?
Nagpal: The whole world is doing it. When we go to satellite guys outside the country, they laugh. They say “Boss! India? I am not touching it.” So the entire communication industry is suffering because first you didn’t file. Then when you file you can’t produce satellites to fill that spectrum you have. And you won’t allow anyone from outside. Anyone coming in has to go through some 17 committees. So you have got to free it up, which is what we are telling our regulators.
On the one side you force them to put 500 channels and on the other side you bind me saying you are not allowed.
But we are sure we will be able to get across this point of view.
So this is not a complaint, it is a suggestion. I think the whole ministry and the regulator have been moving in a very constructive manner if you ask me, over the last few months. I have been very pleasantly surprised by these few movements. With so many stakeholders it is difficult.
Malhotra: The TRAI has given you a framework in which to operate. And probably whatever the issues you have left out and have not yet addressed will be done.
Unfortunately a lot was promised when this entire exercise was undertaken that there will be fiscal incentives, some compensation given in terms of taxations, etc, which has not happened. Though everybody says transparency will bring revenue to the government; and that the government’s concern for consumers will ensure that its tax structure will get rationalized.
For FTA they have mandated Rs100 is the maximum you can charge. In the state of Maharashtra, Rs45 is the entertainment tax on cable connection, which you are saying should not cost more than Rs 100. And add service tax to that and you are approximately paying around 60% by way of taxation, for something, which is of essential value to the consumer.
Khera: That is a valid point. How much do you collect from a customer? Rs100 youcollect from a customer. Rs45 for metro city you pay to the government for a connection. And 12.3% service tax as well. Then you pay 50% to the broadcasters.
Malhotra: No, you don’t pay anything to the broadcasters for FTA. But the question here is, if the government is going to tax you 60% for something which is called a basic service and is free to air, this DD Direct is not taxed for providing a similar service, how can we talk about being open and transparent in giving tax declarations. So there should be rationalization as well. Where is that happening?
Nagpal: I completely agree. In fact this is a category that is so heavily taxed.
In fact, there are 3 stakeholders in this category. The first is the broadcaster who is producing the content and wants to be paid back little more than what the cost of his content is. The second is the government, who is allowing you to do business in the country.
Therefore, logically, it is the claimant for tax. And the third is the entrepreneur, which is either and MSO or the DTH platform, who is investing ahead of its time, hoping to reap some returns on its investment in the long term.
All three will benefit once the industry matures. All 3 need to have a little bit of patience while the kid is growing up.
Now, the broadcaster and the DTH platform/MSO, are commercial guys who can sit across the table and talk logically and come to some sort of conclusion somewhere.
Unfortunately, the government has started taxing this industry, by almost opening up a dictionary looking for words on the basis of which it can start taxing. So I pay entertainment tax in the state, which one day is Rs15, the second day is 15%, then Rs45. It differs from state to state it differs. The same political party does not have the same policy across the country.
Khera: There is competition in all the states. Who charges the highest.
Nagpal: So the state does the entertainment tax. The Centre charges the service tax. The boxes that are imported, there is duty on them. And this is in addition to the license fee that I pay the government.
Malhotra: In fact I was pointing out to the anomaly that the FTA service by the government, which is the taxing authority here, they say they will give 100 or 200 channels free of cost, and for which they say you will be taxed, as you are providing a service as an individual. Why?
Mansukhani: Why are you complaining? I mean you have to help those excesses of the government. That is the only way to do it.
Nagpal: But why just this industry?
Mansukhani: This is taxes over the basic rate. Rs100 is the basic rate. Rs45 is the entertainment tax. Then you have service tax. So you are paying Rs60 excess. You are collecting Rs160 from the consumer and giving Rs60 to the government. You get Rs100, which you share 45% with the operator, whoever is servicing the last mile. But that is on the FTA package.
Malhotra: And on top of that, the government is advertising Rs100. But then the customer who is paying 160, will ask the service provider, when it was said 100 why you charging me more. But, the government is not saying 100 including tax. And to the consumer it appears very high.
Nagpal: I think the core problem is double taxation. It is the right of the government to tax, we completely agree. But don’t tax me twice for the same thing. There is a state charging the tax. Decide between the two of you, is it a state subject or is it a central subject.
Kohli: Also the reasonableness of the tax. In fact since we are talking about Mumbai, Rs45 is the highest incidence of tax.
Nagpal: There are 3 states, which are really atrocious in tax levies. One is Mumbai where it is Rs45. There is Tamil Nadu, which charges 30%. And UP, which levies 25%.
Kohli: In continuation with what he was just saying, there is a huge anomaly here. You have political parties promising free TV sets in the elections and then taxing them for that same service.
Nagpal: Hardware is free, software is taxed! This is like the razor machine. The razor is free. The camera is free. We will charge you on the film! 2-3-4 blades!
Karnik: I was comparing myself a newspaper like yours. It is delivered at homes of customers. What a newspaper offers is the same as what we offer -- essentially the same mix. There is news, entertainment, there is everything. So, why tax me so much?
In fact, we should be aligning ourselves with newspapers. I am sure no one in this country will dare tax them, because once somebody tried and there are case laws on that and then it got scrapped.
So we should be willing to pay some reasonable tax, which is 5% of your gross collection. And it will still make good money – even for service tax -- as the numbers are going to be huge. Every morning I need my newspaper and I need my TV. We are complimentary. I do not want one to be taxed exorbitantly.
Khera: You know what they do? What Bhaskar and company does? They give the entertainment in the last page. First page they give the news.
Nagpal: Very soon they will stop cartoons anyway!!!
Karnik: So that is what we are saying. There is no point in taxing us the Rs45 or some such stupid rate. Have some reasonable rate between 5-10% and that is our tax, which goes under GST and it takes care between state and central govt. There is service tax.
DNA: So taxation is one major challenge that you face.
Nagpal: We are ok with tax. Over taxation is the problem. Double or multiple taxation.
Mansukhani: More specifically, when it comes to digitisation, there are other issues as well.
First, is the time frame of June 30. They have just come out with the rules and tariffs a few days ago. And if you are giving the entire India to the big MSOs to do their business, you are fine. But there is a whole lot of medium and small operators, who do not have the time. I mean it is only now that they have learnt of the rules and regulations. But by the time they sit down and put the whole thing together, they will need six months. And I think this applies to everyone, not only us. Among the four states, that are going digital, Chennai is not prepared. It has already come in the papers they require 6 months. They have no boxes, nothing. And in Kolkatta, Mamta Banerjee is saying “I will have a law and order situation”. I am sure the government is alive to this fact.
The other issue is choice. But if you go down to the bottom, the customer really has no choice. In the initial years, if he wanted analog, he had analog and if he wanted to go digital, he could do that. This was possible in the CAS regime. Now you are saying that you can’t see TV without a box. Well, you have choice within the box, but you don’t have a choice whether you want a box or not. That has moved out of his purview.
And there is a logistics issue. If you are sitting at home, or your wife or kids are at home, the cable operator goes home to install a box, your wife will say “wait till my husband comes back from work”. Or there are various issues. And you have only few hours a day and you have to install a huge number of set-top boxes. That has to be taken into consideration.
Kohli: On the logistics, the run rate required now, so that on the sunset date, when we wake up on July 1, where every home has to have at least 1 set top box, the current situation is such that you need 1,80,000 set-top boxes to be deployed every day to ensure you don’t have a blackout on 1 July. And the current deployment rate is not even 10,000.
Mansukhani: It is not even 5,000. It might become 10,000 over the next few weeks. This is per day over the four states. And you don’t have the whole day, you have 3-4 hours in the evening to do this.
Nagpal: I am reminded of the Helmet Law, which got passed many years ago and was deferred 5 times. Because in the month of December when the law was supposed to come into function. on the December 1, they would throw similar figures saying these many lakhs of helmets are required. The production capacity of helmets in this country is so and so. Therefore let us defer it by one year. Again, from January to November nothing is done, and on the 1st of December the arguments for more time are made. And for 5 years it kept getting postponed.
The fact is that everyone of us has been screaming hoarse to the customer, for almost 6 months now, saying 1st of July. And the customer has not acted on it. And the customer also knows the population of Bombay is not 3 people. And the population of Delhi is not 4 people and the population of Kolkatta is not 2. Everybody knows the millions of people that live in these 4 cities and how difficult it is going to be. Some of your customers and ours, have acted and already got boxes. But there are customers who do not act -- it has not been because of non availability of boxes or manpower during the last 5 months. Customers who do not act before the 1st of July should be willing to wait for 5 or 10 days without TV or more days, whatever it takes us to get it to them. Because if you give them an additional 6 months, you will fall back into a limbo.
Kohli: There is a danger in this. In fact we discussed exactly this in yesterday’s meeting, and there also it was said that you need to have some shock treatment given to the people, that “This is for real. This is serious. This is happening. So you better get your act together”. So the feeling was “Let there be blackout for two days and then we will restart and give a new date”. You know the danger in this? Either you accept that there is no problem. And all of us accept that there is a problem on July 1. There will not be enough boxes, this time around at least.
Nagpal: The issue is not boxes. It is installation capacity. At that time, when everyone wakes up on one day.
Karnik: The customer’s attitude is it is happening on June 30th right? When it happens I will see. We will wait till the last moment.
Nagpal: I have seen that happen in Telecom.
Karnik: One is the customer and another is our last mile fellow, the operator. Both say, “Ah ok 30th right? When it comes, we’ll see”. They are waiting for what happened in 2002 with the CAS rollout..
Kohli: The point is that, for whatever reason on that day, people will be without set-top boxes. We can debate the reasons for that. The question and the fear I am expressing here is, if we allow a blackout on that day, whether it is 2, or 4, or 6 days, or even one day, the amount of chaos we will face on that day, the amount of problems that the people will create, there will be absolute chaos. My worry is that then the politicians will wake up and say “What the hell? Why should we take this risk?” The government at that stage will push it back for one year. Then there are elections, exactly the same thing happened in 2002 and then we will not have digitisation.
Mansukhani: Somehow, it has been shot down by the broadcasters really. If we stick to the June 30 deadline, what is going to happen? One is you will have a law and order situation, when the boxes are not there and, two, no operator is going to let his customer be without a television signal. So he is going to pirate it wholesale. So you will have the entire Mumbai city having a pirated signal and you know that we do not have the machinery or the mechanism to control that.
Now you need to avoid this. And we have told this to the government, the regulator and the broadcaster.
Our first suggestion was pushed out – that let’s put pay channels in the box and 3-6 months later sunset of final offer. So that people realize that pay channels can be got only through the box and know that we are serious. Broadcasters thought again this is trying to promote the CAS once again, and did not want it. They wanted all the channels to be digital.
Second, we said take an easy simple solution. Already 25% of each of these four metros is under CAS. Let’s on June 30, for that 25% of the city, switch off Analog. 2 things will happen. It is a small universe, easily controllable. Nobody will jump. You can easily install the boxes. No hassles because it is a very small universe and you are looking at all these MSO and DTH players there. There will not be a problem. It will send a message to the rest of the city, this time the government is serious. They will go running out to buy the boxes. You give them 3 months to do it. Just say, that in another three months analog is going to shut. See what happens. They will run and they will go and get it and you will have created that message.
Third, in a small area, if there is piracy, you can jump on it. But, for whatever logic or reason, I can’t understand why nobody is seeing this as a quick fix solution. They are all even objecting to do something like this and saying switch off the entire city.
Kohli: Trust me this will create a law and order situation. This process will get scuttled.
Nagpal: Why are you debating this -- saying it will create a law and order situation? On the other side, the faith of the customer, will go to zero. And I am giving you an example out of my previous industry, which is telecom. For years, the government kept saying KYC [know your customer]; collect the form from the customer. The govt issued ads, we issued them, we spoke to every customer because you have a two-way line to every customer. Nothing happened. We used to get a trickle of 10 forms a day. Finally they said sunset date. This is it. Cut their lines if they don’t give it. After about 5 or 6 deliberations in one year, after we cut their lines, everyone came running. We kept our shops open for 24 hours, for 7 days. There were queues. The last guy who got his form submitted and got it stamped and done was without a phone for 7 days. They were peacefully standing outside in queues. No law and order situation.
Kohli: You gave the example of helmets as well. Several extensions were given. Telecom also the same example. Even in the US, there were six extensions. It got extended over eleven years.
Nagpal: Till you keep extending, people also keep doing the same.
Kohli: This is the first deadline of DAS.
Nagpal: I will again say the same thing. As against taking on the entire country, which is 90 million customers, you limit it to six in the first go. Then 38 in the second, and the balance in the third. Now you’re saying of this 6 also we restrict it to 3 and see. Then tomorrow someone will ask to scrap the whole thing. As it is the 1st stage we have taken is a small one.
Mansukhani: In any case 2 cities [Chennai and Kolkota] are not participating. So how do you give the other two?
Malhotra: The West Bengal government hasn’t said no or anything to that effect to our digitisation at least. They are pro digitisation. They haven’t given any statement to the contrary. Chennai may not be ready, we don’t know.
Mansukhani: There is another issue. You need to give 180 days notice before introducing a new law. And the modalities were announced only some days ago. Eventoday, there are no terms of business. Our operators did not know the terms for selling boxes to consumers. Customers did not know what they were going to get. We didn’t know at what price we could retail a channel. We couldn’t have a business plan. Even now, we have to now go and negotiate with the broadcasters and try and get a price at the same time like our competition DTH is getting. You are going to have a different pricing with each channel. That same product, which does not have an MRP, for which the MRP is now left to the MSO, whose MRP is now going to rely on his wholesale rate because of his profit margin, that same bottle of Coke in one shop will cost Rs10, Rs8 in another, and Rs6 in the third. It is going to create confusion.
Now, we need time to sit down and negotiate and see if we have a business plan. We have got to give a revenue share to the broadcaster and a revenue share to the wholeseller. We have to negotiate and see what we are paying to the LCO, and at the end of it are we making money? So this negotiating and sitting down and doing is not going to happen overnight. We are already into the end of May and June one month. Any negotiation by law is allowed 60 days. So by the time you sit down, let’s be realistic. It’s not going to happen. Then why are we going on about this June 30 thing when all these things are going against it? It doesn’t make sense.
Kohli: No where, not even in the US, even today you have between 15-20% analog, set top boxes and analog homes in the US today. No country in the world has mandated 100% digitisation like we have.
Nagpal: Having said that, the very fact that we started with a very small territory of 6 million out of 90 million on a trial basis with these 4 cities, the design itself has been put up for a very small experimental area to be tested for the first time and then taken to the second stage and then embarking on to the 3rd stage. I would still say that you will lose the faith of the customer or his belief. The feeling will be that these guys keeps talking. They keep giving deadlines. It will not happen.
You can only make it happen, once the customer believes it’s going to happen. And on the last date there will be chaos. This is not water, this is not roti or double roti that people cannot live without. It will take some time.
Mansukhani: Who is the biggest loser, if DAS does not happen. Who is spending all the money in this entire exercise?
We have all ordered 2 million boxes, spent the maximum amount of money. We are sitting on inventory. And if we are the guys who are going to implement it, we are the ones who have put in money and you don’t listen to us on the implementation, there is something wrong.
Nagpal: I think you will have to go through pain once any which way. The customers are not going to come immediately. You will have to go through this pain of what you call law and order and chaos.
Malhotra: I think deployment reports are being taken by TRAI and the ministry regularly. They are the best judge. They will know what to do on that penultimate day when they have to force the deadline or to extend it.
Mansukhani: We want them to implement DAS effectively. And successfully. Now whether the government wants to phase it further or stick to the phase, let them come up with the solution. But that is the bottom line.
Nagpal: To me at least, the tariff order is landmark to me. It has 11 positive things and one thing negative for every stake holder. I think it is time for without compromising on the date and schedule, if the regulator who has brought out the tariff order, sits down with the various stakeholders and quickly irons out that one problem that each one of us has, one on one.
He [the TRAI chairman] doesn’t need to go through a consultation process. We have an issue, we come out with it. It’s across the table. And let’s debate, one on one, and iron that piece out without impacting the rollout phase. I don’t see a problem in the basic structure. The news broadcasters have a carriage fee issue. We have the rate issue of minimum package.
Mansukhani: But it is worse than you think it is.
Nagpal: I’m not taking it lightly. Because you know on a’la carte, I will actually be forced to sell the product cheaper than what I am buying. That is why I want a one-on-one meeting saying “Boss this is what it is. Would you do business under these circumstances?So please can you modify it?
Mansukhani: In fact we want a level playing field.
Nagpal: We support that.
Khera: These four cities digitisation is going to set the tone for the rest of the country. And under no circumstances we should postpone or delay. A month is OK. For adjustment, etc. setlling down. If we postpone for 6 months or a year, then this country is never going to be digitised.
