MUMBAI: The Indian radio industry is growing at a rapid pace with substantial growth in the metros and a steady one in the tier II and tier III cities as well. As most radio broadcasters are now aiming to expand their networks to other areas in the country, the delay and confusion surrounding the FM Phase III expansion has only furthered the divide between the government and broadcasters.

In constant meetings between the Ministry of Information and Broadcasting (MIB) and the Rajya Sabha, Minister of I&B, Manish Tewari indicated that the FM Phase III auction bidding price would start at the highest bid price of phase II.

While initially the bidding in metros was slated to start on the highest bid of previous auctions' prices, the bidding in new cities will now also start on the highest bid received in phase II auction for that category of cities in that region.

Ministry sources also stated that in case the benchmark from phase II for a particular region is not available, then the lowest of the highest bid received in other regions for that category of cities shall be taken as the reserve price. For new cities in border areas with a population less than 100,000, the reserve price will be Rs 500,000.

With this move, the reserve fee for all C category towns will be a high amount of Rs 15.6 crores since the relevant benchmark will be Chandigarh where it was the highest bid. Likewise, the benchmark in the South for B and C category towns will be set by Kochi at around 9.5 crores and Kozhikode at around 7 crores. As a result, bidding may not be possible in more than 50 per cent of the number of towns as compared to the total number of cities on offer.

While many broadcasters claim that the statements made by the minister were part of the initial policy and the high reserve fee may spoil all plans of investment and expansion, the Association of Radio Operators for India aims to bring some corrective measures in the auctions to clear discrepancies from the Phase II auctions.

Speaking with Radioandmusic.com, AROI president Anurradha Prasad clarified, "The statements made by the minister were just to clear the initial policy.

But we want to boost the industry which will only happen with the expansion, so we have sent some representation to Tewari to make some corrections in the auctions. The way phase II auctions were held, cities like Chandigarh fetched a price of Rs 15 crore but one like Saharanpur couldn't fetch the same kind of amount. As a result, there were a lot of discrepancies which we want corrected now. We hope Manish Tewari will consider it." 

The decision of going ahead with the ascending e-auctions was taken by the ministry, which would be spread over a period of three years. The EGOM will be responsible for the request for proposals to select an e-auctioneer as well as to decide on the fee for migration of Phase II FM licencees to Phase III.

Radio Mirchi CEO Prashant Pandey stated, "We cannot have ascending auctions in media, because all available frequencies in a city will be sold at the exact same price. If that happens, how can there be any content diversity?

Ascending auctions are never done anywhere in the world for media. They were first tried in radio in Phase-1 in the year 2000, and failed miserably."

The broadcasters believe that the single step bidding system 'tendering' is a better methodology, as each player bids according to what it thinks is the most appropriate market value for the spectrum.

"Those who bid less and win get the license cheap. Those who bid high get it expensive. The ones who got it cheap can offer niche content if they want to. That's what we see in all metros where players like Hits FM, Chennai Live and Indigo paid less, and hence are offering English music," he added.

Radio One Ltd MD Vineet Singh Hukmani commented, "It is good the new minister is in the driving seat and not relying on shortsighted and impractical suggestions of the TRAI.  Also the amount of auction money to be raised from radio is minuscule (1500cr) as compared to the 2G auction (28000cr),so perhaps the ministry feels the sale of 'smaller C and D towns' will fetch that money. Thus, they are ok with no bids for metros since they will be priced prohibitively."

While the industry is at loggerheads with the government over the policy, some industry insiders too differ in their views. Many feel the government must accept TRAI's recommendation of halving 'channel separation' so that the number of channels doubles, ensuring bidding doesn't happen under scarcity conditions. At present, there is only one frequency on offer in big cities like Delhi, Bangalore, Chennai, Ahmedabad and Pune, and only two in Mumbai. If the government releases more spectrums, the bidding could increase upto 10 channels in all big cities. Also, unlike Phase II in which licenses were issued for a 10-year-period in 2006, Phase III licenses will expire after 15 years.

Inspite of the lobbying of issues pertaining to the auctions and the EGOM trying to ensure they don't meet a similar fate as the 2G spectrum auction, the broadcasters do not seem to be on the same page as the government and many are unhappy with the recent developments. They are opposed to the government's decision to auction FM radio services, fearing that paying for the spectrum will make the business case for radio channels unviable.

Red FM senior VP projects and programming Nisha Narayanan said, "Phase III should have been implemented in this financial year. While earlier we were told that it would be implemented by July 2012, there is now an indefinite delay. While we remain excited about Phase III, all loose ends need to be tied up to enable us to prepare clear cut business and strategic plans and go forward on the bidding. Having the highest bid price as the reserve price for a particular city will push up the prices in metros definitely as well as in the smaller cities."

With the government now also extending the last day of signing the Grant of Permission Agreement (GOPA) from 31 December 2012 to 30 June 2013, operators wanting to migrate to Phase-III regime can now execute the GOPA within the timeframe. With the extension, the probability of the auctions getting delayed is much higher drawing in more criticism from the broadcasters.

The government and Ministry of Information and Broadcasting now have the daunting task to face the wrath of the players and resolve the issues quickly to ensure a successful and speedy roll-out.

After the debacle of the 2G spectrum auctions, the high reserve price and methodology of ascending e-auctions had received severe criticism from many leading broadcasters across the country. As a result, the Empowered Group of Ministers (EGOM) reviewed the issues which included the Telecom Regulatory Authority of India's (TRAI) recommendation to reduce inter channel spacing to 400 KHZ from the present 800 KHz. Other issues in contention were deviation in the request for proposal for the appointment of an e-auctioneer and the fee chargeable for migration of FM Phase II licenses to Phase III.

Apart from the minimum price and the time, the group is stated to decide the total number of channels to be auctioned. The move to change the number of channels comes in the wake of Telecom Regulatory Authority of India's (TRAI) 19 April recommendations to reduce the gap between channels to 400Khz from the existing 800Khz.

The roll out of FM Phase III expansion, in which 839 FM station across 294 cities will be auctioned, is already delayed by 14 months since the Cabinet approval in July 2011 and now faces another uncertain delay with the extension of GOPA signing.