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FM Phase III: Radio players warily eye e-auctions

06-March-2012
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FM Phase III: Radio players warily eye e-auctions

The stage is set for the FM Phase III expansion process to commence. Though the Union Cabinet had approved auction of licenses for the third phase on July 7, 2011, no date had been fixed for the same. Now, the Ministry of Information and Broadcasting (MIB) has confirmed that e-auctions for Phase III will be held in June 2012.

The bidding can turn aggressive, particularly in the metros, where more frequencies will open up. The government expects to earn Rs 17.33 billion from auctioning of these radio licenses.

How will it work?

E-auctions of the radio channels will be conducted in batches and number of batches will be decided by MIB, depending on bidders’ response after the auction of the first batch. MIB will appoint an independent expert agency through a transparent selection process, following established procedure, to conduct the e-auctions.

The Ministry will separately issue a detailed information memorandum in due course, enabling the prospective bidders to participate. It will also indicate the cities, reserve prices city-wise, number of channels to be taken up in each batch and other procedures for the e-auction. A Notice Inviting Application (NIA) for participation in the auction(s) will also be issued in due course of time.

The process may look streamlined, but there are various elements that need clarity and transparency.

Industry speaks

Vineet Singh Hukmani, MD and CEO, Radio One, spoke at length about the pros and cons of these e-auctions. He said, “We have always been more than prepared as an industry. However, the two slowdowns that we experienced were beyond our control.”

“One of the pre-conditions the MIB has put before us is the signing of Grant of Permission Agreement (GOPA). Without signing GOPA, one cannot participate in Phase III. It is important to realise that signing of GOPA will allow all existing players to save cost due to networking and bring in more revenue with news (from AIR), current affairs, sports, etc. and will help the players honour their financial commitments to Prasar Bharati and BECIL. Hence, the players will be more confident to bid in Phase III,” he explained while talking of the advantages that e-auction will bring to the table.

On the flip side, Hukmani noted that the second slowdown has implications on the economic environment. A few large players have attempted raising funds for acquisition/expansion and have not yet tasted success. So the question that arises is whether the government is willing to risk Rs 1700 crore expected license fee from Phase III when the environment is not conducive?

Process and criteria pose challenges

Prashant Panday, CEO, Radio Mirchi of ENIL opined that e-auction is the wrong way to go about giving spectrum in any media business, not only radio. He explained that in an e-auction, the final license fee derived is exactly same for all the frequencies that are being auctioned. Because of this, each winning bidder is compelled to offer only the largest programming format, which in the market is contemporary Hindi music.

“If you look at the broadcasters who have started offering English music stations now, they were the ones who paid less license fees in Phase II. This will not be possible in a scenario of e-auctions. Imagine if TV spectrum had to be auctioned, would we have so many niche channels that we have today? With e-auctions, we might as well wish programming options goodbye,” he said.

Hukmani said that any move towards a more transparent process is welcome. However, he shared that the e-auction is just a process. What is the wrong with Phase III policy is the criteria for bidding.

“If bidding begins at the highest bid of the Phase II license and there are only few metro licenses, then a ‘false demand’ is being created for those metros. The only beneficiary of such a decision is the government,” he explained.

Not only is the policy a problem area, the government’s assumption that new players will buy licenses is a big gamble. “New players will need metro licenses to make their play attractive and are currently talking to existing players as it is less risky to acquire those existing players than to set up new businesses with formidable license fees,” said Hukmani.

Hence, existing players are the government’s only bet for investments in Phase III. But again, existing players will not bid high as they have already done so in the past and are still suffering from its repercussions.

The bright side

Rabe T. Iyer, Business Head, Big FM, is optimistic about e-auctions. “We have been anticipating the Phase III expansion for some time now and are gearing up for the same,” he said.

"We have a robust planning process in place to arrive at our strategy for Phase III that will focus on the revenue potential and profitability. We welcome this move and hope for a fair and unbiased e-auction process that will result in great value for all stakeholders,” concluded Iyer.

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