Why Bombay HC upheld NTO 1.0, 2.0 and TRAI's pricing prerogative

The Bombay High Court has ruled that the Telecom Regulatory Authority of India’s (TRAI) principal tariff order and regulations (NTO 1.0) and amended tariff order and regulations (NTO 2.0) do not violate the fundamental rights of the broadcasters. 

The bench of Justice AA Sayed and Anuja Prabhudessai also noted that the powers granted to TRAI under Section 11 of TRAI Act 1997 related to the broadcasting sector do not violate the fundamental rights of the broadcasters. 

The Indian Broadcasting Foundation (IBF) along with The Film and Television Producers Guild of India Star India, ZEEL, Viacom18, and Sony Pictures Networks India among others had challenged the constitutional validity of Section 11 of TRAI Act 1997, NTO 1.0 and NTO 2.0. 

The petitioners (broadcasters) had pleaded that all three should be declared constitutionally invalid. In a major setback, all three challenges failed barring the second part of the twin conditions that were incorporated in NTO 2.0. The writ petitions were accordingly disposed of. 

As far as the second condition is concerned, the bench held that the same “is arbitrary being contrary to the mandate of section 11(4) of the TRAI Act of ensuring transparency and violates the Petitioners’ fundamental rights under Articles 14 of the Constitution”. 

Challenge to Clause 11 of TRAI Act 

In its 157-page order, the Bombay HC noted that the price fixation of TV channels is a concomitant of the regulatory powers of TRAI and is conceived in public interest. It also stated that broadcasters have a fundamental right to freedom of speech and expression, but the said right is not absolute. 

“In balancing such rights, the fact that there may be some curtailment of the rights of the Petitioners and/or a drop in the circulation/viewership to some degree, would not be seen as an infringement of the fundamental rights of the Petitioners so long as the stipulations prescribed in such balancing are not unreasonable and are in the interest of public,” the bench observed in its order. 

The bench also noted that the broadcasters have not challenged the amendment to the TRAI Act which allowed the government to notify other services to be telecommunication services including broadcasting services nor the notification which brought ‘broadcasting services’ under the ambit and purview of the TRAI Act. 

It added that the entire purport and object for which the TRAI Act was enacted would be defeated if the contentions of the broadcasters that there can be no price fixation or other stipulations including the formation of bouquets as that would affect circulation (reach) is accepted. 

“In light of the above discussion, we find no merit in the contention of the Petitioners that section 11 (so far as it relates to broadcasting services) of the TRAI Act impinges their fundamental rights guaranteed under Articles 14, 19(1)(a), 19(1)(g), and 21 of the Constitution. The challenge to the validity of section 11 of the TRAI Act, therefore, fails,” the order states.

Challenge to NTO 1.0 

The bench noted that the Supreme Court order in the Star India vs DIPP case forecloses the case of the broadcasters except the ground of violation of the fundamental right of free speech and expression under Article 19(1)(a). 

The bench also stated that broadcasters have not placed on record their Financial Statements to demonstrate in what manner their revenues have been impacted/affected after the impugned 2017 provisions were implemented. The broadcasters, it noted, are still very much in business notwithstanding the implementation of the impugned 2017 provisions. 

On the contention that NTO 1.0 infringes on the fundamental rights of the broadcasters under Article 19(a) of the constitution on account of drop in reach, the bench held that the curtailment of the rights of the broadcasters and/or drop in the circulation/viewership to some degree is not an infringement so long as the stipulations are not unreasonable and are in the interest of the public. 

It also noted that the challenge to stipulations about the bundling of channels/formation of bouquets in Star India vs DIPP was not accepted by the SC. The broadcasters had argued that the restrictions on bundling of HD & SD channels and pay and free-to-air channels were discriminatory and infringed on their rights. 

“In light of the aforesaid discussions, the challenge to the validity of the principal 2017 Regulations and principal 2017 Tariff Order on the ground that they violate the Petitioners' fundamental rights under Article 14, 19(1)(a), 19(1)(g) and 21 of the Constitution, also fails,” the bench held. 

Challenge to NTO 2.0 

While challenging the constitutional validity of NTO 2.0, the broadcasters contended that the stipulation to cap MRP at Rs 12 and not including channels priced above that in a bouquet is arbitrary. The TRAI had brought down the MRP cap to Rs 12 from Rs 19. 

The bench noted that merely reducing the cap from Rs 19 to Rs 12 for a channel to form part of a bouquet doesn’t make it unreasonable or arbitrary. It also said that the cap of Rs 12 is in the interest of the consumers. 

“We are of the prima facie view that if the Petitioners choose to reduce the MRP of their popular à-la-carte channels to Rs. 12/- from Rs. 19/-, to include such channels in a bouquet, the demand for bouquets may only increase,” the order stated. 

The broadcasters had also argued that the introduction of 1.5x (Aggregate Test) and 3x (Average Test) price stipulation (twin conditions) in respect of pricing of à-la-carte pay channels of bouquet comprising such channels are arbitrary and unreasonable. 

While ruling that the second twin condition was arbitrary, the bench noted that the first condition was discussed in the consultation paper floated by TRAI while there was not a whisper of any discussion in relation to the second twin condition. 

“The challenge to the constitutional validity of the Telecommunication (Broadcasting and Cable) Services Interconnections (Addressable Systems) (Second Amendment) Regulations, 2020, Telecommunication (Broadcasting and Cable) Standard of Quality of Service and Consumer Protection (Addressable Systems) (Third Amendment) Regulations 2020 and the Telecommunication (Broadcasting and Cable) Services (Eighth) (Addressable Systems) Tariff (Second Amendment) Order, 2020, fails, except to the extent stated hereinafter,” the order reads. 

Twin conditions

 On the first proviso of the twin conditions, the bench stated that the authority has only stipulated the maximum discount that can be given by the broadcasters vis-à-vis the sum of the a-la-carte prices of the channels in a bouquet. 

It also stated that the autonomy of the broadcasters has not been taken away, and the authority has only sought to protect the interest of the consumers. “Hence, it cannot be said that the cap on discount of 33.33% on the sum of à-la-carte prices of channels that form a bouquet (1st twin condition - Aggregate Test) is unreasonable or arbitrary.” 

The bench also accepted the contention that the broadcasters are resorting to perverse pricing in order to push bouquets by keeping the à la carte price of driver channels high and offering heavy discounts on bouquets that also have non-driver channels. 

The TRAI, it said, has sought to correct the non-level playing field, having found that some small broadcasters were being forced to either exit the market or convert their pay channels to FTA channels. 

While holding the second twin condition as manifestly arbitrary and infringement of the fundamental rights of broadcasters under Article 14 of the constitution, the bench said that it is contrary to clause 11(4) of the TRAI Act which mandates the authority to ensure transparency, and is liable to be set aside. 

“The fact that the said 2nd twin condition (Average Test) was not proposed by the Authority even in the principal 2017 Tariff Order shows that the 2nd twin condition (Average Test) is severable from the rest of the provisions of the impugned 2020 Tariff Order Amendment,” the order stated. 

Regulation of DPO bouquets 

The bench also rejected the argument posited by the broadcasters that the bouquets offered by distribution platform operators (DPOs) are not regulated. 

According to the tariff order, the DPO bouquet will not consist of a channel whose MRP is more than Rs 12. This, the bench said, is the same condition that is applicable to broadcaster bouquets under the 2020 Tariff Order Amendment. 

Further, the DRP (Distribution Retail Price) of the DPO bouquet cannot be less than 85% of the total of DRPs of its constituents. In other words, the DPO cannot offer a discount of more than 15%.

This, the bench said, is a far more stringent requirement than 33.33% (as in the case of broadcasters). The 15% cap on the discount comes into play only after the trickle-down effect of the conditions imposed on the broadcasters. 

“In the circumstances, the contention that the DPOs are left unregulated and that the broadcasters are being discriminated cannot be accepted,” the order said. 

Cap on total number of bouquets 

The broadcasters had also challenged the condition which capped the number of bouquets of pay channels being offered by a broadcaster to not be more than the number of à-la-carte pay channels offered by a broadcaster. 

The bench took the statement of the authority on record as mentioned in the Explanatory Memorandum to the 2020 Tariff Order that it would keep a close watch on the formation of bouquets and its impact on the market and will take suitable measures, if the situation so warrants.