Pricing power – After doing course correction, TRAI needs to free tariffs

Source: The post is based on the article “Pricing power – After doing course correction, TRAI needs to free tariffs” published in the Business Standard on 25th November 2022.

Syllabus: GS – 3 – Changes in industrial policy and their effects on industrial growth.

Relevance: About the recent amendment to the new tariff order (NTO) 2.0.

News: Recently, the Telecom Regulatory Authority of India (TRAI) decided to amend the new tariff order (NTO) 2.0 to restore the price cap for a television channel to Rs 19 from Rs 12 earlier.

About the Bouquets and recent amendment to the new tariff order (NTO) 2.0

Bouquets are a business model for broadcasters to package some less popular channels with TRP (television rating point) churners. Typically, broadcasters get more than 90% of their subscription revenues from bouquets.

In 2020, the regulator set a price cap of Rs 12 per channel in a bouquet under NTO 2.0. But the broadcasters and direct-to-home (DTH) broadcasters termed the new pricing as prohibitive. This resulted in the regime being put on hold several times. But recently the TRAI restored the price to Rs 19 from Rs 12 earlier.

Further, TRAI also capped the channel bundle discounts at 45% and the NTO 2.0 becomes effective in February 2023.

What are the benefits of the recent amendment to the NTO 2.0?

a) Over-regulation in tariffs forces firms to disproportionately depend on advertising revenues. Hence, the recent decision will help TV broadcasters to balance advertising and subscription revenue, b) Help traditional TV broadcasters in their competition with over-the-top (OTT) platforms such as Netflix and Amazon Prime.

What are the challenges with the recent amendment to the NTO 2.0?

Capping bundle discounts is not consumer friendly: Earlier broadcasters argued that limiting the discounts on bundles would force them to hike the prices of smaller channels. . Since the cap on discounts remains, TRAI has not achieved the task of making the new tariff structure truly consumer friendly.

TRAI should not cap the prices: TRAI must stay away from regulating channel prices or broadcasting platform tariffs in keeping with competitive market dynamics. Platform owners and broadcasters have the right to do mutually negotiated agreements.

To check any unfair practices, TRAI must act and also direct broadcasters to be transparent about their offers and tariffs.