TRAI issues consultation paper on stipulating entry level net-worth criteria for MSOs

The Telecom Regulatory Authority of India (TRAI) has issued a consultation paper on entry level net-worth requirement of multi system operators (MSOs) in Cable TV services.

The Rule 11(3) of Cable Television Network Rules, 1994 mentions about financial strength of the applicant for grant of MSO registration without explicitly details thereof.

In this regard, the regulator received a reference from the ministry of information and broadcasting (MIB) vide letter dated 16th May 2018 seeking recommendations of TRAI on the appropriate levels for fixation of entry level net-worth of the MSOs for operationalising cable TV digitisation across the country.

The objective of the consultation paper is to deliberate whether there is a need to fix entry level net worth for MSO? if yes, what should be the value of the net worth required at the time of registration for MSO? Further the paper seeks the comments regarding the documents and method to assess the net-worth of an applicant, if a minimum value is prescribed.

Written comments on the consultation paper are invited from the stakeholders by 8th May. Counter comments, if any, may be submitted by 15th May.

Presently, the MIB specifies minimum entry level net worth requirement for broadcasters and Head-end In The Sky (HITS) operators.

For MSOs, the guidelines do not specify any minimum net worth requirement or an entry fee at the time of award of registration. Only a processing fee of amount of one lakh rupees is the only fee that an MSO is required to pay.

With the introduction of digital addressable system (DAS), the government amended the Cable Television Networks Rules, 1994 by issuing Cable Television Networks (Amendment) Rules, 2012 on 28th April 2012, according to which an MSO operating in DAS areas is also required to take necessary permission from MIB in addition to registration as a cable operator.

The TRAI stated that there are 1471 registered MSOs and more than 60000 local cable operators (LCOs). However, not all registered MSOs are operational at present. Based on MIB data, at present, there are 1143 operational MSOs.

It also noted that the number of operational MSOs out of the total registrations has also increased from 2012 to 2018. However, there has also been an increase in the number of non-operational MSOs over these years.

Further, the percentage of non-operational MSO remained more than 20% for this period and it stood at 22.3% in 2018, indicating the fact that a sizeable number of registered MSOs may not have sustained in the industry owing to stiff competition or other external factors.

According to the TRAI, the government does not allocate any natural resource in the registration of an MSO. MSOs have to make their own business plan to survive in the competitive market. It is the decision of the MSO to maintain necessary capital and working capital for smooth conduct of business.

One argument, it stated, could be that stipulation of minimum level entry net worth will ensure MSO that it has enough strength to run its business.

The counter argument, it added, could be that in free market, there is no need for any stipulation by the Government as the applicant has full freedom as to how it manages the resources such as land, labour and capital.

Moreover, entry level net worth may not ensure that every MSO succeeds in the business, the TRAI noted.

The authority also mentioned that an adequate financial strength while operating in a technology dependent, dynamic and capital-intensive industry is very important.

It also noted that a financially weak entity may either wind-up or may have to compromise on quality of its services. In either case the effects of such scenarios are not good for orderly growth of the sector.

“The policy framework should therefore ensure that only those entities which can sustain competition and provide best quality of service to consumer are eligible to register,” the TRAI said in the consultation paper.

The TRAI also highlighted an important issue that Rule 11B of the cable TV rules does not differentiate between a person and a legal person as an applicant for MSO registration. As such, if an individual applies for an MSO license, there is no prudent way to confirm his/her actual net worth, it added.

“Alternatively, if a minimum net-worth is prescribed, the extant rules may be reviewed to prescribe only business entity like a proprietor-ship firm in case of an individual and a partnership firm in case of group of individuals,” it stated.

The TRAI has sought views whether there should be a minimum net worth for MSO. It has also asked if the net worth requirements for entrant MSO be based on its proposed area of operation.

What should be the entry level net worth for national level, state level, and local level MSOs if any classification is made on the basis of area of operation? In case, license area of MSOs is classified on the basis of area of operation, what should be the mechanism and criteria to classify existing MSOs?, the regulator has asked.