Will IBF challenge Bombay HC's NTO 2.0 verdict?

For the Telecom Regulatory Authority of India (TRAI), the Bombay High Court upholding the validity of the New Tariff Order (NTO) 2.0 (barring the second of the twin conditions) is a validation of its powers. While the order copy has not yet been provided, the broadcasters conversely see the striking down of the second proviso of the twin condition comes as a small but significant relief.

If speculations are to be believed, the IBF may challenge the Bombay HC verdict, especially since the commercial impact NTO 2.0 may have on the broadcasters.

The Indian Broadcasting Foundation (IBF) along with Star India, ZEEL, TV18, Viacom18, Sony Pictures Networks India (SPNI), Zoom Entertainment and Film & Television Producers Guild of India had challenged the amendments to NTO, citing infringement of fundamental rights to conduct business freely.

Certain key amendments challenged by the broadcasters include, 1) arbitrary reduction of MRP cap to Rs 12 from Rs 19, 2) Imposition of twin conditions on bouquet pricing, and 3) restricting incentives only to à la carte. The amended tariff order and regulations came into force from 1st March 2020.

The twin conditions are as follows: i) the sum of the a-la-carte rates of the pay channels (MRP) forming part of a bouquet shall in no case exceed one and half times the rate of the bouquet of which such pay channels are a part; and ii) the a-la-carte rates of each pay channel (MRP), forming part of a bouquet, shall in no case exceed three times the average rate of a pay channel of the bouquet of which such pay channel is a part.

The bench of Justices AA Sayed and Anuja Prabhudessai found the second proviso, which deals with à la carte pricing of channels, to be arbitrary.

The bench has also asked the TRAI to not take any coercive steps for six weeks as far implementation of remaining part of the NTO 2.0 is concerned.

According to a senior advocate involved in the matter for one of the parties, the broadcasters had challenged Section 11 of TRAI Act, which enabled TRAI to come up with these regulations besides the provisions of NTO 1.0 and NTO 2.0.

"On first and second counts, the petition fails completely while on the third one the petition has been allowed to the extent that the second of the twin conditions has been set aside," the advocate explained.

Speaking on the condition of anonymity, a TRAI official said that the regulator will study the order and try to do course correction as far as the reasons provided by the HC for setting aside the second proviso is concerned.

The official also said that the Bombay HC has upheld the powers of TRAI to regulate carriage activities of the broadcasting sector.

"We respect the verdict of the Bombay High Court, and we need to see the detailed order. The court has said that the second part of the twin conditions seems to be arbitrary. So we will see what is the exact observation of the bench. The verdict has upheld the powers of TRAI and by and large all the amendments have been upheld.

"As far as the second proviso is concerned, we will analyse if there is any process issue. Accordingly, we will correct it and make sure that such things don't recur in future," the official said.

The official noted that the regulator had respected the court order while implementing the 2017 regulations. The TRAI had filed an appeal before the apex court for upholding the clause that caps discounts that can be offered by broadcasters on bouquets to 15%. However, the Supreme Court had dismissed the TRAI petition as withdrawn. The Madras HC had set aside the 15% discount cap.

"Even when the 2017 regulations were implemented, one of the things (15% discount cap on bouquets) was set aside by the Madras HC. We respected that verdict and implemented the tariff order accordingly. That's the standard response of TRAI. In my short memory, the TRAI has seldom gone to the courts unless there is a challenge to the very powers of the TRAI. We will see the order and then decide if there is a reason to go to the SC," the official noted.

The TRAI expects the broadcasters to migrate to the new regime once the six-week period is over. "The Bombay HC has been very judicious in giving six weeks' time because the stakeholders have to sign new agreements, and then make offers to consumers and then migrate the consumer to the new tariff regime. We hope that the industry will respect the court's verdict and abide by the six weeks timeline to implement these," the official said.

A senior executive with a leading broadcasting firm said that the Bombay HC order is a mixed bag since the second proviso has been struck down. "It is not like a victory for TRAI. The Bombay HC has set aside the second proviso, which will come as a relief for broadcasters," the executive said.

According to a legal expert, the twin conditions were a massive problem for broadcasters because the Rs 12 ceiling was coming down to Rs 4 if one was to take the second of the twin conditions, which has been struck down. "The Rs 12 ceiling was itself becoming illusive. The striking down of the second twin condition will benefit the broadcasters to a large extent. One of the objectives of the second of the twin conditions was to control the à la carte price."

TMT Law Practice Managing Partner Abhishek Malhotra said that the order copy needs to be reviewed before coming to a conclusion if there is a legal basis to challenge it.

"We don't have any details about the reasons for the order yet. Once the judgement is made available, we can review and comment upon whether or not, and if so, what, the basis is, for challenge to the order."

According to a senior lawyer, the Bombay High Court verdict is likely to be challenged, considering the commercial impact it will have on broadcasters. "The twin conditions by the very fact that they have been referred to as twin conditions means that they should go together because they work hand in hand. Either they should have struck down both or let them both be valid."

According to the CEO of a leading cable TV company, the setting aside of the second twin condition will not have any major impact as the first condition which mandates 1.5 times bouquet price has been upheld.

"Broadcasters will be caught in a bind as they will have to keep prices low to push bouquet and if they put channels in à la carte then the reach will be gone. Let's see what they do. For DPOs, we will now get discounts up to 35%," he added.

A senior executive with another distribution platform said that the verdict is good for distribution platform operators (DPOs) because the bouquet discount cap remains. "What has been set aside is the à la carte pricing of the channels of a bouquet. Earlier, broadcasters could give discounts up to 90% and push more channels in a bouquet."

He also stated that the broadcasters will be the big losers if they try to remove their driver channels out of the bouquet, as their reach will go down. "Who is going to buy these driver channels at high à la carte rates when that same content is available on OTT as well. Also, if driver channels are removed from the bouquet, who will take the bouquets? Going forward, à la carte will become a good proposition for consumers."