For a country that often falls victim to poorly designed economic policies, India seems to be learning few lessons. Economic policies may be well-intentioned, but implementation problems persist owing to deficient policy detailing.
While ineffective social policies and programmes can be blamed on political myopia and opportunism, there is little excuse for oversight by regulators endowed with technical expertise.
The Telecom Regulatory Authority of India’s (TRAI) new framework for the broadcasting sector demonstrates how the regulator could have paid greater attention to market realities in order to achieve its objective of providing greater consumer choice.
Ensuring that markets and businesses operate in a manner that is socially desirable requires that regulators provide them with adequate incentives to do so, especially in the absence of efficient enforcement mechanisms. Grievances related to the new regulatory framework for the television industry underscore the importance of incorporating appropriate incentives in regulatory design.
The telecom regulator’s latest regulation seeks to engender transparency and non-discrimination in the television supply chain, while promoting consumer choice and growth of the sector. It includes new rules for retail and wholesale pricing and outlines the terms of agreements signed between broadcasters and distributors (DTH, Cable TV operators, etc.).
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Additionally, the regulation has implications for the pricing and bundling of TV channels, giving consumers greater freedom to customise their subscriptions. Despite prescribing a detailed overhaul of the television supply chain, the new framework fails to provide distributors with the necessary incentive to enhance consumer choice, thereby defeating one of its key objectives.
According to the new regulation, consumers are required to pay a fixed monthly fee to their service provider (distributor). This fee, known as ‘network capacity fee’, is intended to compensate distributors for their investments in network infrastructure, and is capped at Rs 130 for the first 100 channels.
While this is the prescribed upper limit, a report by CRISIL indicates that most service providers are charging consumers at the capped fee.
The 100 channels – known as the ‘Basic Service Tier’ – include channels which are mandatory to broadcast, such as Doordarshan, and other free-to-air channels. While retaining discretion in bundling these 100 channels, distributors are supposed to be mindful of customer preferences. However, there is little incentive for distributors to actually do so.
Irrespective of whether they engender a match between demand and supply of the 100 channels in the basic service tier, distributors receive the network capacity fee (NCF) every month. It is thus most profitable for them to include those channels in the pack for which they can negotiate lucrative deals with broadcasters, instead of including the channels that interest consumers.
For instance, distributors who are part of the same group of companies as a broadcaster might include channels of only those broadcasters in the basic service tier.
Consumers can replace channels in the basic service tier with channels of their choice. However, very few consumers seem to be aware of this, and many find it cumbersome to substitute these channels. According to statistics released by TRAI, only about 50% of the TV households in India have migrated to the new regime. Consumers who are not discerning enough to exercise their choice in the total number of TV channels that they subscribe to are unlikely to do so for the basic service tier as well.
Further, it is unlikely that greater consumer choice will be enforced through competitive forces. It is costly for consumers to switch service providers, since this likely entails having to purchase new equipment, besides having to choose subscription packs again. They may also have to forego payments that they have made in advance to their previous operator. That a considerable number of consumers will switch to a different service provider is thus not a credible threat to induce a distributor to change the composition of the basic service tier that it offers.
It would also be impractical to expect TRAI to monitor consumer preferences and penalise distributors who do not provide channels which match consumer preferences. Thus, incentivising distributors to take cognisance of consumer tastes while selecting channels for the basic service tier is the only way that TRAI can truly enable consumer choice.
The NCF serves as an appropriate remedy for the lack of transparency in the dealings between broadcasters and distributors in the previous regime, but disincentiveses the distributor from appropriately provisioning for greater consumer choice.
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As distributors now get a monthly fee to cover costs, they no longer have to resort to illicit practices such as under-reporting the number of subscribers to broadcasters, or charging consumers for watching free-to-air channels. However, it does not address the problem of distributors including channels that consumers do not wish to watch as part of the basic service tier. The fee has thus introduced an imbalance among the various objectives of this regulatory framework. In its current form, the regulation inadvertently prioritises the objective of ensuring transparency over that of providing greater consumer choice.
Such an imbalance changes the distribution of value among businesses and consumers, without ensuring that benefits accrue proportionately. Implementing the new framework has caused a considerable amount of confusion and controversy in the 183 million television-subscriber households across the country, and most reports indicate that TV bills have gone up for those who have migrated to the new regime. Despite this, the choice which TRAI sought to provide will not be available to consumers. Once again, an otherwise meticulously designed piece of regulation will prove to be insufficient because it fails to accommodate the correct balance of stakeholder incentives.
Shivangi Mittal is an Associate Economist at Koan Advisory Group, New Delhi.
Disclaimer: Koan is public policy firm which works across technology markets including with firms within the broadcasting sector. The views expressed in this article are personal.