MUMBAI: With the failure of the 2G auction the government has become cautious, as the radio broadcasters are now highlighting many key issues acting as deterrents in the expansion of highly awaited FM Phase III policy.

By linking the reserve fee for Phase III FM licensing with the highest bid received in the Phase II auctions, many radio players fear that half the FM Phase III channels will remain un-auctioned as very few bidders will then participate in the process. Also with radio being a free-to-air medium, the advertisers will not pay more which in-turn increases costs for broadcasters. Being as one of the major bone of contention, industry insiders claim that the government can choose to correct it to ‘lower reserve price’ as per phase II auctions.

Expressing these concerns, a few broadcasters have already written to The Association of Radio Operators for India (AROI) in want of a review to many measures. As per recent reports, the government is now considering many issues pertaining to the auctions to avoid an unfortunate situation again.

Radioandmusic.com spoke to a few leading broadcasters in the space to understand their predicament on the entire issue and what corrective measures the government can take to ensure smooth phase III auctions.

Radio City CEO Apurva Purohit said, “Clearly the current reserve fee will be a deterrent, given that even in phase II many frequencies in the existing markets are lying vacant. It is crucial for the government to recognize that artificially fixing reserve prices will ultimately harm all constituents – the consumer, the FM players and the govt itself.”

Radio Mirchi CEO Prashant Pandey claimed, ““Reserve fee is just the starting point of bidding. How can the starting begin at the ending (highest) point of the previous round? As a result, very few bidders will bid. For us, we will benefit under this policy. But the radio industry will be killed. Small broadcasters will become extinct.”

Expressing his unhappiness with the system, Radio One MD Vineet Singh Hukmani stated, “The govt should remember that they were not able to auction all frequencies in phase II despite low reserve price. They should therefore not try and ‘reinvent the wheel’ on the back of TRAI’s poor and impractical recommendations.”

Red FM senior VP projects and programming Nisha Narayanan commented, "I think to make the radio industry more enabling the entire phase III policy, the license fee and the royalty; the three main issues hold back the growth of the radio industry. The industry needs to be reviewed otherwise it’s not a sustainable business. Things are not clear from the ministry. But we hope there is some clarity that will come to us with a new team from the ministry."

According to reports, the recently held 2G spectrum auctions were expected to fetch the government a Rs 28,000 crore bonanza helping it to partly bridge the fiscal deficit. But with the actual number being less than a third of that, the Empowered Group of Ministers (EGoM) would have to reconsider some decisions to avoid another similar fate with the radio expansion policy.

Broadcasters point out that making theoretical estimate on the base prices of auction cannot make business sense unless the Telecom Regulatory Authority of India (TRAI) ensures how much a consumer is willing to pay for the product or service and at what cost the provider is able to provide the same to him. Also the revenue maximization approach of TRAI is acting as a sure shot killer for the radio industry.

Relating the 2G auction debacle with FM phase III auctions, Pandey stated, “The 2G auctions failed because of high reserve fees. With FM Phase III, it’s the same problem. In fact, almost half the spectrum in 2G remained un-auctioned. I can safely say that half the FM Phase III channels will remain un-auctioned too. In fact, maybe 75 per cent will remain un-auctioned. Markets not included in the 2006 auctions were small markets. Unfortunately, the reserve fee is so high; it makes no sense to bid for most of them. If anything, the 2G experience should provide a lesson for Ministry of I&B.”

But apart from the high reserve fee, many other issues like ascending auctions and the auctioning methodology, migration fee and inter-channel spacing are affecting the freedom and space of growth in the radio broadcasting sector.

Apart from the minimum price and the time, the group will decide on the total number of channels to be auctioned. The move to change the number of channels comes in the wake of TRAI’s 19 April recommendations to reduce the gap between channels to 400 KHz from the existing 800 KHz. Broadcasters argue that though more channels will increase growth, the high reserve fee will lead to a failure of the process as it is an unfeasible model in the current economic condition.

Inspite of all the drawbacks, the enthusiasm amongst the broadcasters has not reduced. With industry sources claiming that the bidding will happen before March, it has provided a ray of hope to the stagnant radio sector.

Narayanan further pointed out, "Right now we are in the assumption that the current breed of broadcasters will be bidding, there will also be lots of new broadcasters and new players who want to come into the market and have invested in the region." 

“I think all of us realize that acquiring more licenses to operate in these markets will give us huge potential to increase our reach and depth of coverage. Thus we are all looking forward to the announcement of the auctions. I strongly believe that the medium can reach its next critical level only through geographical expansion which will come via phase 3,” expressed Purohit.

With the deadline to sign the Grant of Permission Agreement (GOPA) being stated as 31 December 2012, another query with the government is whether to allow the existing radio players to sign the GOPA without charging any fee.

According to Hukmani, the steps to ensure the smooth processing of FM phase III auctions are, “Get players to sign GOPA to assess interest of existing players. Review reserve price and auction method to arrive at correct levels of pricing. Ministry of I&B to stop listening to TRAI recommendations which are not practical. Ensure there is a level playing field with All India Radio (AIR) on content as AIR does not pay a license fee but gets many benefits.”

He also states that using the same phase II pricing with a slight inflation and auction as per the phase II methodology may ensure success in the procedure, which was also successful in phase II. The migration of existing players to 15 years license (as per phase II policy) should also be done free of charge as existing players are suffering a lot in the current economic downturn.

Agreeing with his viewpoint, Purohit said, “The process that was followed in phase II was structured extremely transparently and we believe it worked well for all of us and thus moving to an e- auction process is not going to add anything further in terms of process transparency.”

With around 92-93 per cent of the players rejecting the recommendations of the TRAI and asking the government to ensure a level playing field, the FM phase III auctions are surely set to grab eyeballs to witness its fate.