The recent order from the Telecom Regulatory Authority of India (TRAI) on digitising television networks is a move towards achieving what economists call “market efficiency”.

This step has been taken to increase transparency in the telecasting space and ensure that all parties involved in the telecasting chain are benefitted.

How adeptly an economy uses its scarce resources to produce maximum output determines the efficiency of market.

In general, using fewer inputs to produce high levels of output is considered both efficient and desirable.

Market efficiency encompasses various aspects of demand and supply.

The new policy predominantly affects two of those, namely (eliminating) information asymmetry and (promoting) market competition.

Information Asymmetry

Informational asymmetry occurs when in a transaction, one party has more or better quality of information than the other. Such disparity leads to misallocation of resources; and eventually produces an outcome that is inferior to what otherwise would be achieved by normal demand and supply interaction.

In the context of the current policy, the new order would ensure that all information on revenue generated and viewership is automatically recorded and reported to the subsequent level. In other words, a formal tracking mechanism on viewership and revenue generated is instated by moving towards digitising.

In the absence of such tracking mechanism, the local cable operators have the opportunity to deliberately report lower revenues to the multi-system operators (MSO).

The MSOs, in turn, can do the same to the television channels, and this would be carried all the way to the top of the chain.

Ultimately, the tax payments to the government (at each level), which are largely influenced by revenue generation, would be much lower than otherwise.

Middle-men are typically players who (supposedly) facilitate an easy link between the buyers and sellers. Middle-men inefficiencies arise when the buyers or sellers (or both) do not have a control or complete overview over the intermediary's operations in the trade.

Promoting competition

Even until a few years back (before the advent of DTH), local operators had a monopoly in their locality, with respect to the volume of household connectivity and the bouquet of channels they offer.

In other words, in one's locality, it was typically hard to find more than one cable operator — so the household was more or less at the mercy of that specific operator.

Also, it was difficult to track whether all the channels that the local operator aired were subscribed for by them, although the consumer would not care much if more channels are aired.

But with compulsory digitisation, the local cable operators would have to obtain the set-top boxes directly from the MSOs. This process ensures that the LCOs can only air channels specific to the ones offered by the MSOs. In effect, inefficiencies and monopoly from cable operators will be curtailed with the implementation of the new policy.

DTH and digital set-top boxes use different technologies, and within the two gamuts, there are several players. Thus, it is far fetched to conceive of the possibility of collusion between the two competing technologies, which might lead to monopoly.

Healthy competition typically brings the best and efficient output in the market, by ensuring wider choices and lower prices of products.

These aspects directly and indirectly benefit both the producers and consumers. Such gains would have compounded by now had the government not delayed the policy implementation by a few years.

Regardless, such policy initiatives should induce policy-makers to consider promoting competition in several other spaces too without much delay. After all, promoting competition, which enhances market efficiencies, is proven (theoretically and empirically) to be beneficial to all market players.

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